There are many advantages to buying a home instead of being a renter. It's key to achieving the American Dream. An overwhelming majority of Americans still believe that buying a home is a key part of living the American Dream.
More than ever, though, Americans also see that dream as increasingly unattainable. Rising house prices in big metropolitan areas make owning a home even more financially difficult than it was 20 years ago. This has led many Americans to choose to rent a house over buying.
Despite this, many Americans still want to own a home. According to the 2018 Bank of the West Annual Study, 57% of Americans still believe the American Dream of owning a home can be achieved. Millennials, in particular, are skeptical of achieving the dream, but the majority of millennials still aspire to own their own home.
Should you buy a home instead of renting? It depends on your finances and your lifestyle, but here are the top five reasons Americans want to buy a house instead of renting.
Written by Matt Lavinder, President of New Again Houses®
Studies consistently link the stability of an individual’s happiness and children’s financial future with the stability of their home. This certainly isn’t the only indicator of success for children, but few would deny its significance. Plenty of families provide stability in rental housing but renting ultimately leaves another party in ultimate control of your home.
Many renters grow weary of “throwing money away every month”. They equate paying rent with a transfer of wealth from the renter to the landlord. In many ways, this is true. But, it’s also more complicated than that.
Owning a home involves “throwing some money away”, as well. Property taxes, homeowner’s insurance, mortgage interest/insurance, and maintenance are all expenses involved in owning a home. These are the reasons landlords aren’t putting as much of your rent in their pockets as you would imagine. In reality, most of the rent you pay goes toward the cost of their ownership.
A common rule of thumb for landlords is that 50% of the rent goes toward non-mortgage costs of ownership and most of the remaining 50% goes toward mortgage payments and interest.
So, how is your landlord winning? The answer is wealth. While most landlords aren’t pocketing income from your rent payment, they are accumulating wealth as you pay off your landlord’s mortgage. After 20 years, the renter has zero equity and the landlord often has 100% equity in the house. The tenants have paid off the landlord’s property. As long as you remain a renter, you will be transferring your wealth to your landlord.
Our home is a key part of our identity as humans. It’s understandable that we have an innate desire to make it our own. Renters often feel frustrated that they cannot paint or make improvements to their home. The endless loop of home improvement shows on television are a constant reminder of our human desire to buy a house and transform it into a home.
Of course, there are costs involved in the transformation. Many new homeowners underestimate the costs involved in making their house their own. Paint, design elements, new furniture, and landscaping can be more costly than renters expect.
While a studio apartment might be the American Dream at 22 years old, life happens and we end up needing more space. It’s important to understand there is a direct correlation between space (i.e. square footage) and cost. Every additional foot of space, whether it’s a rental or your own home, will cost additional money in cost, utilities, taxes, and maintenance.
If you choose to acquire that additional space by buying your next house, understand that you will still have an additional cost in the form of utilities, property taxes, and maintenance costs.
The monthly costs of renting and owning aren’t that different. Mortgage payments might be a bit lower, but experts project you will spend 1% of the home’s value per year on maintenance. Add property taxes and insurance and your monthly costs of owning likely won’t be that different than monthly rent would have been. It’s the accumulation of wealth that makes homeownership a cornerstone of the American Dream and upward mobility.
If you give up some freedom of mobility when you buy a home, you give up wealth when you rent one. The standard mortgage is set up for 30 years. If you make payments for those 30 years, you will owe nothing at the end. The majority of wealth in America is made up of home equity.
For generations, Americans have been able to retire because they’ve made 30 years of payments and own their homes. People in their 60’s have been able to survive on a fixed retirement income because they bought a home in their late 20’s and no longer have to pay rent or mortgages. The Baby Boomers began taking out “second mortgages” or home equity lines to fund a higher standard of living. This extends the 30 years of mortgage payments indefinitely, making retirement an elusive dream.
How can you retire on a fixed income if you spend your life renting? Rents keep increasing and retirement incomes decrease. Social security helped bridge the gap for past generations, but no Generation Xer or Millennial really expect much to be left over.
So, how will millennial renters ever retire? That’s the question with few good answers and the strongest case for buying a house rather than renting. Want to retire at 60? Buy your first home before 30 and don’t dip into the equity.
There are many advantages to buying a house instead of renting. You will likely feel a stronger sense of stability and have more space when you purchase a home. In addition, buying a home is a sensible financial investment for your family and your future.
However, buying a home isn’t right for everyone, and you should consider your needs and financial situation before you make a decision.