Owning a home isn't the end-all-be-all of American living. Renting can save you money, too.

By Rebecca Chamaa
February 19, 2021
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Many Americans still consider homeownership to be a part of the American dream. And it has its benefits: Homeownership can help you build generational wealth by passing on a home that's already paid in full—or has years of equity—to your family's next generations. Buying a home and keeping it for decades can also help fund your retirement by reducing what you would pay in rent or eliminating housing costs by paying off a mortgage. Owning a home can also give you cash in retirement if you choose to downsize and buy a smaller place. And if you itemize on your taxes, you can add the interest on a mortgage to your deductions. Although these payoffs are great and homeownership can certainly be a beneficial choice for many, owning a home isn't the end-all-be-all of American living.

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Rental Payments vs. Mortgage Payments

When my husband and I first considered buying a townhouse together, we considered our current rent payment. We assumed that if we were paying so much in rent, we could afford a mortgage payment of the same amount. We were so wrong. Mortgage payments equaling rent payments are not comparing similar things. When you rent, the biggest expense is the first and last month’s rent and a security deposit. If you're in the market to buy, then sure, you can use that large investment as a down payment instead. But the similarities end there: Comparing renting to buying is not comparing apples to apples.

For example, while renting an apartment, our stove went out and the landlord replaced it. The refrigerator also stopped working, and we had a water leak in the bathroom. Neither of these repairs came out of our pocket. And since those expenses weren't ours, we didn't have to budget (or dip into our emergency fund) to fix those problems.

When we bought our first home, however, and smelled gas coming from the fireplace, we had to get the pipe capped and pay for it ourselves. On Christmas Eve, when a family member put all the potato peels in the garbage disposal, we had to pay for an emergency service plumber to come and fix the clog. Both of these incidents were unexpected and cost us a significant amount.

Homeowner Association Fees

Because we've only lived in multi-family properties—condominiums and townhouses—we've had to pay homeowner association (HOA) fees that run from about $125 to more than $1,000 per month for luxury condos. HOA fees often cover insurance on the building, the repair of common areas, pest control, and things that all the property owners share in a complex. At our condominium, we needed to replace the existing elevator (a shared space). Our HOA didn't have the money in reserves to cover it, so we received an assessment, and each homeowner in our building had to pay more than $2,000—just to be able to use an elevator. The same thing happened when our building had to be tented for termites.

In a condo or townhouse, you're responsible for everything that happens inside the unit, like a broken refrigerator or dishwasher and electrical and plumbing issues. These expenses can come as a surprise. If you purchased a house expecting to pay the same on a mortgage as you did on rent—without considering all the other fixes that go into homeownership—you could quickly find yourself racking up serious credit card bills or even needing to take out a second loan.

Home Insurance Considerations

In addition to a mortgage, repairs, pest control, and potential HOA fees, homeowners of every kind of property also need home insurance. And depending on where you live, that can be very expensive. If you live in a flood zone or an area with a high risk of fire or earthquakes, for example, home insurance coverage can really add up.

While I personally have never regretted going from renting to buying, I've also never bought a home that left me without some wiggle room in my budget. But if my partner and I had listened to experts about "how much house" we could afford when we first purchased property, we would have set ourselves up to fail in terms of keeping up with our payments plus ancillary home expenses.

Yes, buying a home can be beneficial and even one of the most exciting purchases of your life. But pre-budgeting for emergencies and unexpected expenses is the key to savvy, savings-minded homeownership. This ensures you make the right decision for yourself and your family. Despite what those white-picket-fence images might convey, homeownership isn't the best choice for everyone. For some individuals and families who have done their due diligence in terms of research and budgeting, renting might be the better option.

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