Nov. 15, 2018.
Deciding whether it’s a better deal to rent or to buy leaves most renters feeling stuck. But right now, the market is changing, and the average monthly mortgage payment has become a lot cheaper than the median monthly rent. Understanding how much house you can afford versus how much you’ll spend on rent can make the decision easier.
To rent or to buy: How much will the average monthly rent get you?
Recently, “how much can I get for my monthly rent” posts have been making rounds, leaving prospective buyers with questions. If you can get a walkable one-bedroom in your neighborhood for the average price of rent, how much house could you get for the median mortgage?
- The average price of rent sits at $1,412 in the U.S, noticeably higher than the median monthly mortgage payment of $1,030.
- Median mortgage payments have increased slightly in the past few years — by $15 — while rents are experiencing a 3 percent — or $41 — year-over-year increase.
- Buying a median-priced home is more affordable than renting a three-bedroom apartment in 54 percent of U.S. counties.
- Average rents are also rising faster than income in 60 percent of U.S. counties.
- While it used to cost about 25.8 percent of your income to afford median rent, that number has jumped to 28.9 percent. Homeownership, on the other hand, used to cost 21 percent of your income to afford a median home, and that number has dropped to 15.7 percent.
- Minimum wage also no longer covers rent anywhere in the U.S.
Benefits of renting versus buying can depend on location, but a series of Hoodline posts gives a little more insight into the question:
How much can you get for the cost of rent in your state?
- Houston: Paying $1,300 a month could get you a 701 square-foot studio or a one-bedroom/one-bathroom condo or loft apartment with amenities.
- Fort Lauderdale: Paying $1,500 a month could get you a furnished one-bedroom/one-bathroom apartment or one-bedroom/one-bathroom condo with amenities.
- Denver: Paying $2,000 a month could get you a one-bedroom/one-bathroom apartment with amenities, ranging from 900 to 1,365 square feet.
These rents can seem like a steal when you factor in the cost of living in your city. But to get the full picture, you’ll need to compare the price of rent to the price of a monthly mortgage. Luckily, Smart Asset took care of this when they created their Price-to-Rent Ratio for 76 U.S. cities in 2018. The Price-to-Rent ratio for each city projects the average home price for a $1,000 monthly rent.
Some cities where housing prices are extra-steep are friendlier to renters, like San Francisco. San Fran has the highest Price-to-Rent Ratio of the cities calculated at 45.88, reflecting an average $550,560 projected home price. (Note that over 25 percent of renters can still afford to buy in a priced-out city like San Francisco.)
But a city like Chicago is more buyer-friendly than expected, with a moderate Price-to-Rent Ratio of 21.6. This suggests that instead of paying $1,000 a month for rent in the Windy City, you could put a similar amount toward a monthly mortgage while building your equity in a $259,200 house.
We’re here to make buying a house easy. Start with a quick mortgage prequalification online.
How much house can you afford to buy for the average monthly rent?
The exact amount you can expect to pay for your monthly mortgage hinges on a few factors, like your location, credit score, down payment amount, loan term, and loan type. You can get a better idea of how much house you can afford, along with your estimated monthly mortgage payment, when you get prequalified. And you can do this online.
But we also know that the median listing price for a house in the U.S. is $295,000. This can give you a better idea of how much house you can afford, based on the median monthly mortgage payment of $1,030 and factoring in fluctuations in location and price range.*
- Houston: Buying a $263,000 house could get you four bedrooms, two-and-a-half baths, and 2,508 square feet.
- Fort Lauderdale: Buying a $320,000 house could get you two bedrooms, two baths, and 1,776 square feet.
- Denver: Buying a $315,000 house could get you three bedrooms, three baths, and 2,261 square feet.
Renting can be a good choice if you plan to move soon or expect your living situation to be temporary. But for the one in five renters who find themselves struggling to pay their rent, buying a house can offer stability. Buying may also help ease the cost burden on the 49.5 million renters who might be overpaying their monthly rent. With low- and no-down-payment and Down Payment Assistance programs available, saving up money to buy a house can become a non-issue. Many buyers find homeownership more affordable than they expected, with a lower or equal monthly payment.
The easiest way to find out if it’s a better deal to rent or buy is by getting prequalified. Then contact your loan officer for help. There are plenty of ways to save money on your mortgage, make the cost of homeownership manageable, and help you build your investment at the same time.
*Escrows not included.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.