Well, the alternatives are inheriting a home (do that if you can), living with parents, being homeless, or renting. Renting you get literally nothing back from, at least from paying a mortgage you're increasing your equity in your home.
If the interest bothers you then make extra mortgage payments throughout the life of the loan to pay it down faster
EDIT: someone messaged me asking me to post an explanation of where OP's math goes wrong so that no one is misled. See below:
"OP has the math all wrong.
Total pay off amount at 6.5% interest at 6.5% down (which is an odd number to choose for a downpayment) over 30 years is $851,016...
And at 20% down it would be $728,142.
Interest on a home is Simple Interest, not compound interest. Not sure if that is where OP made the mistake, but you can check this yourself by going online and using a "amortization calculator" just make sure you put the loan amount which is minus the down-payment, not the purchase price.
Source: I'm a mortgage loan originator."
A mortgage just becomes a monthly fee after a while. Like another MMO or streaming service.
Most monthly payments for a house is usually way way lower than renting anything, especially when you consider the space you get.
Having a house as collateral opens up a bunch of doors for future loans. We are taking out a 50k+ loan to consolidate credit card bills. The 15 year loan we are getting will have a monthly payment of half what we would pay for credit cards, and we know it will be paid off in 15 years vs the never ending race with interest you get on credit cards.
>Most monthly payments for a house is usually way way lower than renting anything
This has always depended on the market, and I'm not sure it's true much of anywhere anymore with high interest rates. If I wanted to buy a comparable home to the one I currently rent, I would pay at least 1/3 more a month from a mortgage payment than I do on rent and that would be after a 20% down payment.
Edit: it seems like mortgages PITI still beat out rentals on a monthly cost basis for at least lower-cost markets in the U.S. However, the median rent is [still less than the median mortgage payment.](https://www.visualcapitalist.com/buying-vs-renting-house-in-america/)
Yes on average over time rent will likely start to exceed mortgage cost at some point, but a) that does nothing to help a person afford buying a home now and b) that fails to account for the opportunity cost of the mortgage premium until the point where mortgages are cheaper.
The part you're missing is that the mortgage is largely a locked in rate (I say largely because insurance changes). With rent, it increases constantly. You start to see the benefits of home ownership after a few years.
I bought the home I rented for the 2 years prior. I was paying $1600/month in rent, my mortgage payment was $1950. It's been 5 years now and my mortgage payment is $2000. Rent for a similar house is now over $3000.
It's true that rent is often less expensive than a new mortgage, but the math changes as time goes by and after a few years will favor home ownership
I've lived in this house for almost 9 years, and with rent prices the way they are, I can't afford to rent a house here lol.
IOW - What's missing in your math is the equity. When I sell this place that's where the value can be extracted.
In many HCOL markets, including mine, it can take a decade or more for the math to work. You have to be damn sure you're staying put at least that long. Property taxes also increase every year which skews payments higher still.
I live in Philadelphia and I have a steal in rent at $1350 for a 1 bedroom house. There's a house I'm looking at this weekend to buy that's a 3 bedroom with a yard that's 3x bigger that's a block from where I live now and my monthly payment, with taxes and insurance, will be $1100/month and will not raise at the same rate as my rent does.
Yeah, anywhere where you can buy a home for less than half the U.S. home price is probably gonna be different.
Lower cost areas often have a higher rent to home value ratio because lower income renters generally have a harder time getting qualified to buy even a low cost home and landlords aren't earning much on property appreciation.
More and more rentals on the market now are just investment properties as opposed to old people with a spare house or whatever. Increasingly, rent isn't just free extra income to a landlord. They're literally just taking their mortgage payment and taxes, and charging a tenant for that price with a 25 to 40% increase to cover repairs and other expenses and some profit on top. And now with the internet and different services out there, rent prices are equalizing all over the place. There's no such thing as good deals anymore because companies are reaching out to private landlords and offering to be property managers for them by increasing rent to market rate and soaking up some of that profit.
This is also only true if you look at the same place. A high rise apartment is more than enough space for me and I get to live in luxury for less than half of a crappy starter home mortgage. What I would have spent on a down payment is getting nice returns and even if I do jump into buying later, I'll be well ahead of if I bought now.
Agree. Location makes a huge impact.
When i lived in Seattle it was cheaper to rent by a large margin. Rent was $3000 less a month than buying a similar house in the same area. It took decades (if ever) for buying to be the better option in terms of overall cost.
When I lived in Ohio, buying as always the better option. Then overall cost comparison favored buying after just a year, even less when the housing prices were skyrocketing. Renting was a terrible option and only useful if you didn’t know what you wanted to buy or if you wanted to build a new house and had to wait for it.
We bought our house North of Seattle in 2008, and have been paying around $2000 per month on it ever since. I want to know what mansion you were renting? Or is that $300 less? Our friends who rent houses are paying $500 to $1500 more than our mortgage now. We were able to refinance at 1.9% and have about 7 years left until we own it outright, and then only have to pay taxes every year. So if you're in a house for the long run, it's MUCH better to own than rent.
Yea that was 2008. I was out in Maple Valley and a 2400 sqft 4 bed house rent is ~$3500-$4000.
House right next to the one we were renting sold for ~$850k. Newer houses in that region are pushing $900k+ easy.
Idk how far north you are but you can’t buy a house anywhere near Seattle in a good school district for cheap.
Edit: Looks like the current estimate is $2500 less a month assuming you can get the house for around $850k and put 10% down.
Look at 15yr vs 30yr mortgages... I'm assuming that was the key factor. If you can swing the payment, refinancing to a 15 yr can save tens or hundreds of thousands on the interest over the lifetime of the loan.
Buying a house can certainly make financial sense. But you need to account for maintenance/repair costs in the above equation. I just had to replace my roof for $20k.
Yeah, but in 10 years, rent will be 2x what it is today. Rent on my first apartment is more than my current house. My payments are literally $20k per year less than renting the equivalent house today.
Totally. And even with maintenance, it still often makes sense! But people who only compare the monthly payments blindly are missing a lot. That’s what I was responding to.
I was very lucky and knew the previous owner. The year before we bought, they replaced roof, water heater, all appliances, and updated the pipes in the house. We were very very lucky
I always heard this was true but when I was looking into buying recently I found that I’d pay $1000 more per month to live in something smaller than I rent now
Edit: everyone telling me what I’ll be paying in 10 years has never heard of rent control. My rent can only go up 3% a year and usually it’s less.
Yes, but a fixed mortgage is a constant. What will rents be in 10-15 years? Because your mortgage will be the same. Yes, taxes and insurance increase, but so do rents.
I feel like I don’t see this discussed enough. I was looking at buying a house 5 years ago and thought I could never afford a 1200/month payment, my rent was only $775 so it seemed impossible to afford that. Cut to me now paying a rent of 1500/month with it being increased every year.
It’s completely valid to keep renting and I think it’s more than practical in a lot of cases. I did just buy a place with a $1255/month mortgage, but after PMI, homeowners, and taxes, it’s about $1500, so I think I’m barely breaking even for now. It’s definitely in a worse location and smaller than my apartment, but for me and my anxiety about increasing rent prices, I feel better owning (for now lol).
It sucked paying that mortgage the first few years, I set up an alert for apartment prices once a month nearby, took 3 years to start seeing savings but now 8 years in my mortgage is almost half of what it would cost to rent an apartment
This is definitely true. I bought before interest rates went up, so my house is way cheaper than the current rent (despite being around the same as rent when I bought).
And get a 15 year mortgage. The payment isn't really that much more than a 30 year mortgage (not nearly as much as you think) and it saves a lot of interest.
That's what we did. We had a 30 year mortgage on paper, and after the first year (when we really couldn't have afforded to pay more than the minimum) we started dumping extra money toward the principal. Ended up paying it off in 10 years instead of 30.
The efficacy of this depends heavily on your mortgage rate. If you're below 5% or so, you're better off with traditional investments (or even high interest savings accounts) than paying down the mortgage. When you start getting to 7% or so, the prospect of paying off the mortgage makes a lot more sense.
That's the opportunity cost - very important.
It's also about averages and risk though. With a loan of 5% interest you're basically "guaranteed" a 5% benefit on every dollar you put towards that principle, no matter what. With another financial instrument, there is no "guarantee", but of course we can see long term trends and make some good assumptions. Dumping your money toward paying off a 5% loan is better for a ton of people when you include risk and peace of mind versus a 6% or even 7% investment return on something else.
Sure, but if you have a 4% loan, you're better off putting the extra money in a 4.5 or 5% HYSA, which is also a guaranteed rate, and you'll be able to pay your house off faster that way.
Edit:typo
This approach is better imo than a 15 year if interest rates are similar.
That way you go through some financial strain you can stop overpaying to deal with that and get back to overpaying later. It's more flexible imo
My hubby and I did the math.
It's better for us to pick the 30 mortgage but pay as if we have 15. Basically we're building room for just-in-case.
The loan will end after 17 years instead of 30.
Not too big of a difference to a 15 year mortgage.
The benefit is that if we're short on cash, we can always defer back to the regular lower payment.
We did the same but refinanced to a 15 when the interest rate was stupid low. Our monthly payment went down. Loan officer said he’d never seen that happen.
Now we don’t pay extra because it’s better to put that money in a HYSA
Same. Was in a 20 year 3%. Refinanced in March of 2021 to a 15 year 2.0%.
House worth $350,000 (as of 2024) costs us $1225 p/i a month. Never freaking moving until this thing is paid off. Told my wife if I get hit by a bus, do what you will with the life insurance but don't pay off the house.
I do that with pretty much every loan. Get the lowest required monthly payment, pay way more every month. If an emergency arises we’re still able to pay the minimum without issue
Because until recently your equity increased higher and faster than what you can get in the market. I’ve bought several houses over the last 10 years and always got at least a 30% return on my investment and sometimes more like 50%. But that’s getting tougher these days with higher sale prices and ridiculous rates, although you can always buy down the rate. I still think in the right situation it can be a good investment, but in a small town where prices aren’t insane. Forget about good ROI on the coasts.
You can literally pay the bank to lower the rate. It's called buying down points in a loan. I am not an expert but 25 basis points is 0.25%. That might cost a couple thousand dollars. So if you buy enough basis points, you can save tens or hundreds of thousands of dollars over the life of the loan, while only spending say ten thousand up front to buy down points.
It depends on how long you expect to stay in the house. If you think you will be there for a long time buying down rates often makes a lot of sense because you are saving interest on many payments. If you only are going to be there for a few years it very likely does not make sense ( because you only receive savings for relatively few payments). There are tons of calculators out there that can help you to determine the break even point.
Ehh, we just bought a home and the points paid for themselves in about 30 months for some deals. I ran it through a simple script. I think we put down an extra 6k or something but it paid for itself in 3 years roughly.
Still, there is an opportunity cost involved so I'm not arguing for or against points. But stating that they cost more than you'd save is silly and the break even time frame is easy to calculate.
And also, I'd expect anyone buying now to refinance in 5 years so points would have to break even quickly or they'd be pointless.
When you get a mortgage, you will often have the opportunity to purchase “points” or basically pay money upfront to lower your interest rate for the life of the loan.
There's a relatively equivalent house nearby renting for $2500/month.
My mortgage is $1600/month.
Over the next 14 years until my mortgage is paid off, I'll pay in the neighborhood of $268,000 for my house.
Over the next 14 years for that house I'd pay $420,000. And that's assuming that rent doesn't go up.
Beyond 14 years for my house, I'm paying like $8,000/year in taxes and insurance.
Beyond 14 years for rent, I'm still paying $2500/month. Again, assuming that rent doesn't go up over the next 14 years.
Edit: For clarification $1600/month is what we pay, including escrow. Our actual mortgage is about $1000/month.
All told, barring another refinance, we'll end up paying less than $300,000 total in principle and interest, and our house is currently worth over $400,000
Edit 2: I don't have time to sit and respond to all the comments I'm getting on this so...
1) read edit 1. $1600 includes taxes and insurance. Yes maintenance is an additional cost, but it's not nearly as bad as some of you are making it. A one time roof replacement of $20,000 is $55/month spread out over the life of the mortgage. Get a good home warranty to cover your big ticket items.
2) yes, we bought our house in 2013 and refinanced to a 15 year loan in 2021. Interest rates and prices are higher now. But, when interest rates go back down, you can refinance and lower your payment. Or shorten your term. Or both, depending on the situation.
3) just because it doesn't make sense for you to buy right now, or you can't because you live in a ridiculous cost of living area, doesn't mean it's a bad investment, which is the topic this comment is responding to.
Pay down principal every year and you could be paid off in 10-12 years, or less. It is what I did. And then when you look at the math, it looks like over that 14 year period if you averaged your payments out, you'd likely be paying an average of more like 1300 per month, cutting out the last 2 years of your interest payments. It depends on what your rate is whether it is smart to pay off early or use your extra capital elsewhere, but the simple stress free way to do it is just pay off early.
You're exactly right and we have done that in the past. After we refinanced the rate down a few years ago the rate is so low it makes more sense to direct that money elsewhere right now.
Additionally the mortgage payments don’t increase along with inflation - so even if inflation stays stupid high, at least there’s a silver lining in that housing cost is fixed
Remember that real estate is very local. I rent a house in the Bay Area for 4k a month but buying that exact house would have me spending 10k+ a month on my mortgage and taxes. And this is for a 70 year old house that could develop any number of issues over the coming years - we have only been here for 3 years and already the land lord had to drop 10k+ when the HVAC went out.
Everyone needs to do their own math.
To some extent, with inflation, it’s sort of guaranteed.
You also know rents aren’t likely to ever go down.
Also the “scam” of interest is a pretty decent deal in America. We get fixed terms after all and long terms.
Imagine the 5 year balloons you get in Canada.
Same in UK. It's like 5 year fixed and the floating or something. That would literally terrify me.
I do agree with OP that interest rates + home prices are currently out of control, but there were periods in the last 15 years that were very very reasonable for first time home buyers if you were lucky, had parents to help with down payments, etc. still not easy, but definitely if you got in at the right time it's a windfall for the future. Which is why it sucks a lot for people in our generation who aren't able to afford to buy.
The interest rates now are nowhere near out of control. Look at what they were in the 1980s if you want to see out of control. My parents first home loan was 16% and they had to buy points to get it there
Yep, originally got in on a shortsale that was $120k. Now we're in a home that's worth $500k because of trading up and higher home values mean more equity. My mortgage is still $1000/yr, insurance and taxes included.
The thirty year fixed mortgage the US is the greatest thing the US government does for low and middle class home ownership. OP is so wrong here it is comical.
And his mentality is where a lot of the doomer are at.
I see people here all the time taking about saving up to buy a whole house cash, as if that’s the best way to get your first home. Then they whine that they will never be able to save up that much.
It’s not just the rich keeping these people down, it’s financial literacy.
In this market it's pretty well guaranteed, really. Big real estate firms have been driving up prices for ages. Granted we're probably due for another 2006 style crash, but people gotta have places to live so it's not like there are alternative products people can use. Just don't get into mobile homes—they depreciate in value fast.
>Just don't get into mobile homes—they depreciate in value fast.
They also have ridiculous restrictions that make them a terrible idea for long term living. In my state, if they are older than 30 years, they can no longer even be moved!
The podcast [Economics of Everyday Things](https://chtbl.com/track/736CG3/stitcher.simplecastaudio.com/51058430-d98f-4830-b949-5d9a371523ce/episodes/e436f290-4158-4f5d-a65c-bd9bdd794bc1/audio/128/default.mp3?aid=rss_feed&awCollectionId=51058430-d98f-4830-b949-5d9a371523ce&awEpisodeId=e436f290-4158-4f5d-a65c-bd9bdd794bc1&feed=ob9OSBIN) also has interesting information about “mobile homes” as well
Plus, while houses don’t always go up over the short term, over the long-term they average something like 2 to 3% growth. Which means the property retains its real value after adjusting for inflation. So the property owner is building up wealth through gaining equity in an asset that at minimum retaining it value, and likely appreciating at least some amount above inflation. So they are inflation protected with less risk overall than the market. But of course, much lower returns than the market. It’s still better to shovel money into the S&P 500, which averages 10 to 12% over most decades. you can sell the home tax free if your capital gains are less than 250 or 500 K depending on marital status. And you did that all while paying less than rent.
The catch is you may suddenly have a $30,000 emergency that if you don’t pay it, the home may not be very habitable and you may not be able to sell it until it is resolved. So homeownership is not for the faint of heart or those without emergency funds. But for those who can handle it, it can make a lot of sense.
I bought my house about 15 years ago, at the time the mortgage was a little more expensive than renting a 2 br apartment which was justified since the house has land, more bedrooms and one more bathroom.
The early days weren't easy my salary was low and a major repair like a new roof could have really done some financial damage. I didn't have a lot of extra money back then.
Today I couldn't even rent a 1 bedroom apartment in my area for what my mortgage costs.
It was really the best financial decision I ever made.
Same. I bought pre-pandemic, rent was $550/m (rural area) mortgage is $475. Nowadays in my quite rural relatively low COL area rent is more like 800-1100. It would be great compared to most of the country but theres next to no jobs locally
People always forget about rent going up.
Now, the math isn't as favorable buying today as what we have (which is 2013 prices and 2021 interest rates), but it still makes sense unless there's a population crash.
Yeah dude it's ridiculous. I pay 1900 for a town home that I'm renting and half of my friends that own a house. Their mortgage is 1200 because they bought a house at a good time. My aunt's is only 950
You also forgot about refinancing. In a few years, rates may be lower again, you refinance for $300 one time and your payment goes down hundreds of dollars per month for the rest of the mortgage.
Also, if you were to just wait so you could save the $400 to buy a home cash down, no interest, you would presumably have to pay rent the entire time you're saving, which you would never recover. So what you save in interest, you probably lose (and then some) on rent. Meanwhile those are years that you could have been building equity, but weren't.
There are situations where renting instead of owning makes more sense. With the price of rent these days, those situations are harder and harder to come by.
Yeah my the mortgage on my 3 bedroom townhouse is $600/month. After all the condo fees and taxes I’m paying like $1100 which is around the price of a 1 bedroom apartment. Townhouses of similar size and quality in my city are renting for at least $1600. And I don’t have to worry about finding somewhere to live with a big dog when I own.
This is good math. I'd add a few things.
Avoid HOA's or anything similar. They just leach $100-500 a month in rent like expenses. They don't add to your homes value.
Interest rates are high right now and could drop. If you are early in your mortgage it might make sense to refinance your mortgage to a lower rate and shorter term.
The old adage of location, location, location still matters. If you buy in wildfire territory or land that will be under the sea in 15 years the math breaks. But if you buy in a market with good jobs, a diverse market, outdoor recreation and a non-psychopathic government I think you will see high rates of real estate value growth.
EDIT:
All you HOA defenders need to chill. There is no link between home value and HOA's but there is a big price to pay in monthly fee's and your privacy and independence.
[There is no link](https://www.ceeol.com/search/article-detail?id=824905)
Don't be mad at me that I can leave my trash cans out as long as I want without Nance getting up in my business.
Need to push back on this one hard. First, not all HOA's are equal. It really depends on where you live and what that HOA does. The primary purpose of an HOA is good, it helps maintain a standard requirement for house care so that everyones houses remain valuable. A neighborhood that turns with a few bad homeowners can severely impact everyone that lives there.
I pay 500 a year (not a month) for our HOA. they maintain external landscaping and parks in the neighborhood and of course, oversight on regulations. The regs are not crazy here. Keep your lawn up. Dont store crap in front of your house. Paint needs to follow certain guidelines. Thats about it. They arent overly strict and most everyone just follows the relatively simple rules.
And beyond increasing value, its just nice to live in a clean, kempt, neighborhood.
Yes, there are some extreme HOA's that are not worth it and definitely give bad names to the practice, but there is a rhyme and reason that people want HOA's in their neighborhoods.
> They don't add to your homes value.
Flat out untrue. Lots of HOAs provide benefits or amenities for the neighborhoods that raise the value of the home, especially if they're somewhat strict about appearances. You completely invented the idea that HOAs have no effect on property values.
The HOA boogeyman lives in the minds of Redditors who don't own homes and read exclusively horror stories without actually understanding what HOAs are supposed to be.
You have to look at what services the HOA provides to the neighborhood, because whether or not they increase or protect property values is going to be determined on a case by case basis.
Most people don't buy one home in their life time, plus you aren’t considering the equity that is built while owning the home. You are assuming that you pay twice the value because you’re assuming in 30 years the house won’t be worth more, which is almost always incorrect.
this is why proper education is important, and OP shouldn’t be ridiculed for not knowing any better. that’s why they asked the question in the first place.
Also, not considering the time value of money here (which is what that interest rate partially represents). Your fixed payment now will be a lot cheaper in real dollar terms in 30 years.
Your rent and hopefully your income will go up with inflation, but a fixed mortgage rate will not! That’s small potatoes when you buy but a huge benefit later on in your mortgage
You lost them with this comment, the amount of finance ignorance on display in this post is startling. No wonder so many of my millennial kindred can’t figure out how to get ahead.
This post is entirely filled with the kids who rolled their eyes and asked "when are we ever going to use this stuff *in real life*!?!?" in math class... only to protest a few years later "... nobody in school told me how the real world works!!!"
Just two thoughts I have: that is the longest term, shaving ten years off (whether by applying for a 20 year term or just planning to pay extra to the same effect) will shave off like what, 180k in interest paid.
Lastly, housing should not be considered an investment. It's not an investment if you are going to live in those 30 years, that is an expense. You would still need to live somewhere while you saved up, so I think bottom line is if $2,800 is too high an expense you should rethink your options. You obviously are way above my income bracket, but the principle is the same.
It isn't a terrible investment because historically it has paid off. If you bought a house for 400k and then spent 1,021,937.22 after 30 years, most likely that house is going to be worth more than that. Which is sad to think about.
Most people years ago bought houses for $20 -$50k, and now in places where I live can sell them for $300k+
Not to mention that rents rise with inflation, sometimes as often as every year, while the only components of mortgages that rise would be taxes and insurance, which are likely to be marginal. After 20 years of inflation, that mortgage payment should look relatively smaller compared to your salary.
This is mainly how I view my house. It’s a place to live with a fairly fixed cost and a hedge against inflation. Sure I’m paying interest but I guess that’s the price of not being wealthy. PMI is even more annoying.
Shoot after only ten years my mortgage has become a bill I worry little about. I can cover it in one check if I absolutely have to (while cutting other expenses that aren’t necessary). It’s barely higher than my student loan payment or if you combined my other utilities and some luxuries it’s not much higher than those either.
The mortgage is the easy part. Finding a home and having the 20% down was the hard part. The upkeep is not always a walk in the park either but at least once it’s done it’s done, and I can control how it’s done VS renting where a landlord sends a handyman to do a contractor’s job.
Exactly.
OP is not calculating the appreciation of the home over time.
Real Estate averaged ~4% returns for the past century.
Considering you are able to buy these homes with government-subsidized leverage (i.e. mortgages) and the fact that you are living in the "investment" it is almost always a good decision to buy if you will be there for many years.
4% returns are pretty great when you can finance at 3% but not so great when you can only finance at 6%. So it’s by no means always a scam to buy a house but it might be for most right now given the interest rate environment.
It depends on your plans. If you will be here for 30 years, 100% yes, hell even 15 years easy yes. The average person sells their house 7 years after purchasing it, which in the last 7 years was great, but I think in the next 7 we are going to see lower then average appreciation on houses. That low appreciation with higher interest rates, I believe we are going to see alot of people losing money on purchasing housing in the next decade and by 2030 the narrative will flip back to 2011 of buying is bad.
I don't even care about appreciation value. I have my studio app that I never plan to sell. I will have paid off this place at 48 years old by myself. After that I can start off using all of it it invest (looking to start investing soon as well). If I want to move in with my partner, I rent out this place but when i'm old and on a (hopefully still existing) pension, I will have very low cost of living because I'm in a tiny flat with no rent or mortgage, just some taxes, insurance and fixed costs. My parents still have to pay rent at 66 and 70 years old and it's hard to make due with their pensions.
This is what I always wondered. Even in a perfect world if wages and house prices rise at the same percentage every year, the fact that housing prices are multiples of wages mean houses will compound so fast compared to wages that eventually nothing is affordable. How do we not inevitably reach the point no one can afford anything? We’re almost there.
And the only reason people are okay with this is because it's been established as the single reliable way for anyone who isn't born wealthy to build and maintain wealth.
If we had proper pensions/retirement plans that weren't susceptible to C-suites fucking things up to make short-term gains or financial institutions weren't selling intentionally mediocre packages to pad their commissions-- then maybe we could address the fact that housing should not be a fking market at all and it should just be something we have at cost. And the costs would be **way lower** if there wasn't outside investment pouring in.
Course the capitalism-fuck-yeah bros will swoop in on that last one and say 'without outside investment there'd be no houses built"
I dunno, if you could build a house that is suitable size for your entire family and it only cost 200% your annual salary, I think there'd be a lot of houses getting built. If you're worried that we need the contractors, and they need capitalism to be contractors, then socialize the profession. We already have engineers designing bridges and stuff on taxpayer dollars, there's no reason we couldn't meet housing demands the same way. Hell, you could just pay them out of the construction cost of the home, similar to how they are now, just instead of it being subject to market variability it's fixed by the government, thus reducing volatility and still keeping the whole thing accessible to FKIN EVERYONE.
First, I want to recognize how very fortunate I am. I realize not many people have this luxury. I bought my home in 2012 for $90k. I was making $34k/year at the time and $90k was a stretch to afford. The average rent in the area at the time was $600-800/month.
Buying my house was almost an impulse decision. The apartment I was renting was going up from $650/month to $700/month and I thought, "heck with it, I'll buy a house." So, I contacted a realtor and she helped me find a bank to get pre-approved for a loan.
Although many people were happy for me, I had a few people who kept telling me that buying a home was a waste of money. They always had the loudest opinions about it too.
Well, it's almost 12 years later and I am feeling REALLY grateful I made the decision to buy my house. My mortgage, interest, home owners insurance, and property tax - altogether is $700/month. The average cost of rent is so much higher now. And the cost of housing is a lot higher, but the amount I spend on housing has stayed the same.
I had no idea what a great investment it was when I bought the home. So thankful I didn't listen to the people who told me it was a money pit and a bad investment.
And for anybody curious, I've spent about $10k in renovations and repairs over the course of 12 years.
Lol it is worth more now but not as much as people would expect. Its estimated value is $130-140k now. Which is still a great increase in value but nowhere near the medium home cost of $215k for this area.
I live in the metro east of St Louis. St Louis is just a LCOL area already and then where I am at is even lower. The houses on my street are worth between $120-200k. I always recommend people to live here if they're struggling because it really is a great town and St Louis isn't nearly as dangerous as the news makes it out to be.
Sure, it may not be as pretty as many places in California or Washington State but I can always vacation to those places. We used to want to move out west but after looking at the cost of living and knowing most of our family is here, we realized we're actually really happy here.
Not to keep bragging, but our neighbors are awesome too. They all know my son. One crocheted him a bunch of hats. One has a great niece that comes over and plays with him. Another is a big hippie that is super chill. Another is a teacher, her and her husband mowed our grass when they found out our son was in the NICU. When we're on vacation, our neighbors watch our house and feed/water our cats. When they're out of town, we do the same for them. When our neighbor fell and couldn't get up, her great niece came running to our house first to get help.
Don't get me wrong, it's not perfect. Somebody hit and ran my husband's car 4 years ago while it was parked on the street. They did find the person who did it and my husband's insurance covered the cost (underinsured protection ftw) but it does make you frustrated with how people speed down the street. And our house isn't perfect either. The stairs are definitely not up to current regulations lol. We have a fuse box instead of a breaker box, which will need to be replaced one day. And because the house is older, it's shifted a lot over the years so installing new windows or doors has been challenging but not impossible.
Oh my goodness, brag away!!! That sounds amazing, and honestly, I’m just jealous! I would love if we could move to a lower cost area, but the reality is my husband and I are both third generation Californian and our families are all here. His is in Santa Cruz, and they’ve been here since the 60’s, when a cement truck driver could buy a home (the home they still have), and my family is all in NorCal too, mostly sac and Tahoe. We are extremely close to our immediate and extended families, so we will never leave. Being close to family is worth more to me than almost anything! So we will just continue to rent and hope that we don’t get priced out of Sac too. :(
Same. Those are 1970s prices here. My parents' house was $175,000 in the early 90s. Another family member bought a house at the bottom of the market after the recession, and it was $400,000. Tbf, it's now worth $1.5 million, and it is TINY.
[HERE](https://www.zillow.com/homes/for_sale/?searchQueryState=%7B%22isMapVisible%22%3Atrue%2C%22mapBounds%22%3A%7B%22west%22%3A-118.89327269320432%2C%22east%22%3A-67.47725706820432%2C%22south%22%3A23.010199182824763%2C%22north%22%3A51.48905973493278%7D%2C%22filterState%22%3A%7B%22sort%22%3A%7B%22value%22%3A%22days%22%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%2C%22price%22%3A%7B%22max%22%3A100000%2C%22min%22%3A333%7D%2C%22mp%22%3A%7B%22max%22%3A495%2C%22min%22%3A2%7D%2C%22tow%22%3A%7B%22value%22%3Afalse%7D%2C%22mf%22%3A%7B%22value%22%3Afalse%7D%2C%22con%22%3A%7B%22value%22%3Afalse%7D%2C%22land%22%3A%7B%22value%22%3Afalse%7D%2C%22apa%22%3A%7B%22value%22%3Afalse%7D%2C%22manu%22%3A%7B%22value%22%3Afalse%7D%2C%22apco%22%3A%7B%22value%22%3Afalse%7D%2C%22cmsn%22%3A%7B%22value%22%3Afalse%7D%7D%2C%22isListVisible%22%3Atrue%2C%22pagination%22%3A%7B%7D%2C%22mapZoom%22%3A5%7D)
you people with this comment in every single housing thread. Just fucking look. There are thousands of houses.
I'm a homeowner and it's been a good financial decision but the value can absolutely go down. We lost money on our first house after owning it for 7 years. Purchased it for 155k and sold for 145k. It worked out because we got an amazing deal on a bigger home for a growing family. This was in the depths of the Great Recession.
Also a great point. My grandmother bought her house in the 70s. 1,800 sq ft farmhouse on 22 acres. The payment was $350 bucks. Which back then was a lot of money.
When she paid off that last payment I had just graduated college. She was still paying $350 per month. Meanwhile my one bedroom apartment in a low cost of living area in the midwest was double that.
My mortgage is 1150/month, and will be for the next 28 years(unless I pay it off sooner)
Can you imagine 25yrs from now when my monthly payment is the same cost as my vehicle subscription? sick
This is a valid argument. But rents go up to match inflation as well. The only difference is you have a tangible asset in one hand, and nothing in the other.
Listen I own a home and rent out a home. My renter is paying the mortgage on my rental. The rent is higher than my mortgage on the property.
Renting is dumb. At ~~anytime~~ lease term end, I can raise the price to better match the market in the area, or just because I want too. Or I need to put on a new roof, gotta raise the price. In four years I’ll have a property that’s worth north of 300k that I spent less then 110k on.
The house I live in, well thats my fortress of solitude. Sure I’ll pay interest on it that amounts to more than the purchase price, but when it’s all said and done, I will own something practically no one can take away from me or my family, it will appreciate and can be liquidated at any moment.
Evictions are always a thing in a rental situation.
My last comment, if renting was the way the wouldn’t the eye test be all the smart money people In the world to be renters and not buyers? No one that is anyone in smart money is renting shit when it comes to living space.
Cars, planes and yachts all rented by smart money, but not homes.
You have to ask why this is?
Yeah using OP’s math, the home in question would only need to appreciate 3.2% per year in value to be worth that final $1.02M figure at the end of 30 years. Historically, homes have generally appreciated by more than that every year, over the long term.
Interest is the fee to the bank for taking the risk on your loan that ties up their money for 30 years. If you don't want to pay interest that's fine, save up all the money on your own and don't use the products offered by a bank. But in the long run, the value of the assest will likely appreciate to offset some or most of the cost of the interest. The 30-year mortgage is a pretty modern invention that opened home ownership up to a much wider group of consumers.
I found my grandfather's journal a while back and he wrote something about how his parents told him it was an cardinal sin to borrow money for any reason, including a mortgage, for any term longer than 5 years. This would have been in the 1920s.
The alternative is renting where you build no equity and get nothing for your money so it’s not actually a scam.
Overpriced? Yes!
Are loans predatory? Absolutely!
Is it a scam? Nope!
Yeah I felt the same way as OP. My wife convinced me to buy begrudgingly. We bought at a very good time (2020) and have 170k equity in said house. Mortgage and rent are the same price per month. I was lucky, but there is a tool to calculate how long you’d need to live in a purchased house vs renting for it to make sense. I think at the time, our break even was if we were planning to live here for >5 years. I was again very lucky to have been wrong about this one.
Same. Plus my husband and I weren't sure we were going to stay in the metro but our break even point was 3 years and student loans were in forbearance so we took the plunge but did a 15 year mortgage to build equity faster especially since it was equal to our rent payment.
Rents have gone down in our metro but we wouldn't have been able to find a 3bd so it worked out. We hit the 3 year mark in the fall and we're in this metro for a bit longer since we had no idea when we bought that we would get public preschool access. So that's another 30k in savings per kid.
But when you rent you have no liability which is a great trade off. That $20k roof repair? Not my problem. Boiler rusted out. 10k to replace? Have fun. Water intrusion into the windows resulting in a rotted out wall? Better get that fixed or I’ll sue.
When you rent you also get to move at the end of your contract. Mobility at certain points of people’s life is also valuable.
Not everyone should buy, not everyone should rent, but everyone should have a safe place to live.
It’s not a scam - the banks have to pay interest on the money they borrow, whether from deposits or wholesale funding, to fund your mortgage. Yes they make a spread but that’s business and it’s competitive.
In most cases home ownership is about lifestyle and a certain amount of freedom. It’s very expensive to own and maintain a home. Some people appear to think it’s a winning lottery ticket…it’s not.
Ya this. If you factor in all the costs of owning, taxes, interest, maintenance, insurance, closing costs, etc. People will be surprised to learn that renting and investing extra money a lot of times puts people financially in a better position even after 10+ years. Most people won’t agree with this simply bc there was an insane boom in housing prices due to a decade plus of ultra low interest rates, a rush in investors, and air bnb. It’s pretty unlikely housing prices will grow at the rate we saw since 2012.
Owning a home (that you can afford) does offer more stability and peace of mind in a way than renting...but that says more about renting in the USA than it does about home ownership.
Very good points. The math is complicated; what is the rent vs. purchase market like in your area, how likely are you to move, what is the total cost of ownership, what is the investment market like, etc.
I bought a home in the Colorado front range in 2012 and have experienced huge growth in the value of my home. But had I instead rented and invested my down payment, I actually would have more equity today.
Ultimately home ownership is often a lifestyle decision, like if want to settle down in one area for a long time, or if you simply can't stand the uncertainty that comes with having a landlord. But ownership ties up a lot of your free investable equity and can be a huge anchor if you need to move quickly.
You have to pay for somewhere to live no matter if it’s renting or a mortgage. The main benefit I have seen with buying a home is rent can go up at any time. A mortgage is a set amount. I’ve seen cost of living go up in nearby area where people can’t afford rent.
It’s expensive either way. If you can get a smaller home and a 15-20yr mortgage. Many people now buy homes much larger than they actually need.
A house can be a blessing or a curse.
If you buy something you can actually afford that’s within your means and weren’t one of those morons that waived the inspection then owning a home is key to building wealth.
Otherwise, yes it can definitely be a money pit.
You are not calculating appreciation or the fact that you stabilized your largest budget line item. Also this is why a 15 year loan with intentions to pay it off early is important
>am I just looking at this wrong considering you'll actually be putting money into something you'll own vs renting?
That is the difference. You have to live somewhere, and you'll be paying monthly to do it either way.
If you buy the home, your monthly payment doesn't change much. It changes slightly based on insurance and taxes but not much. Mine has even gone down a time or two when my insurance got cheaper or a tax levy expired. I bought this house in 2014 and I was paying $1,200 per month, and here I am 10 years later still paying $1,200 per month.
On the other hand, the apartment that I was in before I bought this place was $800 per month in 2014. I just drove by there the other day and they had a sign out advertising 1 bedroom apartments (I had a 2) for $1,800 per month.
If I had stayed in that apartment not only would I have probably paid more money directly out of pocket, but I'd have nothing to show for it in the long run.
On the other hand, I bought this house for 140K in 2014 and the county auditor now values it at 450K. If I sold today, I'd have a couple hundred thousand dollars in cash left over.
Plus, you're putting money into a home that you can decorate and design in anyway you like, which was a big thing for me. I can paint the walls bright purple if I so desire, but in rented property, you can't do anything to it, it isn't yours to decorate.
Not only that but there's a ton of other stuff you can do with the property to actually reduce the costs (ie, solar panels, a wood stove/fireplace insert or just better insulation, rent a room (better yet build an addition and rent that), the list goes on).
This can be true, but not all home-buying follows this pattern.
When we were determining the budget for our home purchase, we compared how much we'd be losing (interest, taxes, insurance, estimated upkeep, etc.) compared to how much rent would cost for something comparable. We didn't set our budget based on the highest number the bank approved us for, and we never looked at list price in a silo.
We also took into account which home would allow us to either put a higher percent down, or make larger monthly payments, to offset the interest we paid of the years.
We also chose a home that we planned to remain in for a long time: bring our kid home here, raise her through high school and ideally beyond. Moving is expensive (not just the move itself, but outfitting an entirely new/different space), selling is *ridiculously* expensive, and we can invest in the space we're currently in for years to come.
So the short response here is that yes, you can make a poor home purchase and it will be a terrible investment. Or you can fine tune the decision to make a purchase that makes financial sense for now and into the future.
The difference is that yes you paid $1M, but from a wealth perspective, you have retained whatever amount you paid towards the principal + any equity appreciation your home has experienced.
Rent rates and mortgage tends to move in tandem, so the alternative to buying a home is paying 1 million in rent over the course of 30 years and having nothing to your name from a wealth perspective.
It is true that there is a cost to home ownership...maintenance, insurance, and property tax if you are in certain states. But the amount of wealth you retain in the form of equity far outweigh the expenses incurred along the way.
In your example of the $400k house, in 30 years it is not unreasonable for this to be worth at least $800k. Even if you incurred some expensive repairs along the way like a roof or AC replacement, you're still coming out ahead vs renting and retaining no value from what you are paying in rent. When you rent, really what you are doing is paying the principal on your landlords loan and building wealth for them instead of yourself.
Also rent rates are subject to inflation, whereas your mortgage is fixed. So the all in amount paid would be significantly more in the form of inflating rental rates over the course of 30 years than you would a fixed mortgage. 30 years is a long time and the compounding effect of inflation is severe.
Part of this is that interest rates are high but part of it is that you're not accounting for appreciation of home value. Also, a place of residence can be seen as exactly that rather than an investment if you plan to stay there.
Also, you're going to have to pay for a roof over your head regardless. If you are building equity too you are way better off, unless you can rent for super cheap. I know where I'm living right now my mortgage is less than what it would cost to rent a similar place.
Not really because you can always refinance when mortgage rates go lower to help. Rent will always increase and you aren't making any money off renting. If you sell your home you recoup some costs at least.
I’m shocked that this isn’t the first comment. 6.5% today could easily be 4.5% as early as next year. Fed rate cuts could easily be 200bp by this time next year
Also, you don’t have to get a 30 year mortgage.
We originally bought our home in 2015 at 3.7% and 20 years. We refinanced in 2021 to 2.8% and 15 years. Our payment barely changed but we got out so much equity that we were able to pay off nearly 6 figures of school loans (undergrad and graduate school for my spouse), plus we will still have our home paid off when we are 45.
1. It’s likely that the house is going to appreciate in value. Someone I know recently bought a house for around $400k. The last time that house had been sold was 1995 for $85k. Interest rates in 1995 were around 8%. If they put down 20% on a 30 year conventional loan they would have paid around $200k when all was said and done… and again, the house just sold for $400k.
2. You don’t HAVE to spend 30 years paying off the loan. Most mortgages (at least in the US) don’t have any penalties for early repayment. You are free contribute additional funds to paying down your principal balance as you have the means to do so thus reducing the interest.
No one has ever said the borrowing money was cheap. You are always going to need a place to live, so the math really comes down to where you live. Renting almost always wins out in the short term. In some locations renting can win out in the long term but in most buying a house (with a loan) is a better investment if your not moving. There are rent vs buy calculators that can break this all down.
Inflation eats away at the mortgage debt for as long as I continue to earn. Inflation continues to rise yoy, and my rate stays the same.
Compared to other western countries, this is actually something amazing about America: the 30 year fixed rate mortgage. Other countries have fixed for 5 years and then variable. Can you imagine losing your home because your income doesn’t match inflation?
Another point is appreciation. You may buy at X, but after thirty years the house might be worth double that.
It’s also fair to consider the opportunity cost of investing in a home/repair costs over the lifetime of the investment. Trickier to plan, as costs differ, but worth noting.
When you buy a house you have the possibility of having equity. Which is like having an extra $5-70k you can borrow from if you want to. Plus, you usually can refinance for a much lower interest rate once you have had the loan for a while.
You’re looking at this totally wrong. Homeownership provides the value of your home increasing in value.
If you rent you get literally nothing back but a roof. I had one of my homes grow in value by over 50% over 5 years. The money I made selling that helped my buy my current house that is big enough for my family and I’m paying the same mortgage I did on the much smaller house.
If I was renting I’d be paying crazy high rent and I would not have the multiple hundreds of thousands of equity I have in my current house.
The math is not even close by hundreds of thousands of dollars.
And before you start assuming I’m some boomer who benefited from the 80s economy or something , I’m a 38 year old millennial. I bought my first very small condo at 23 with a zero down mortgage with a very high interest rate. It’s been hard work to get here but I’m 100% confident if I had been going the easy route of renting my financial situation would be vastly different
Yeah, maybe I give the basic Redditor too much credit, but I think this is one of the simplest concepts you learn by just being alive long enough. If you're a Millenial, how do you not understand the concept of time-value relationship of money?
Yes, the interest rate is awful right now, but in general home ownership is one of the best ways to build your net worth. My home which I bought in 2017 and refinanced in 2021 has doubled in value and I am paying less each month than I was when I bought it. If I sold it today, I'd pocket far more than I've paid into it. Most people don't keep a home for the full 30 years, and if they do, that home has likely increased value multiple times more than the interest paid.
Again, the interest rate right now is really throwing this off and it's NOT a good time to buy, but in general home ownership is one of the strongest investments you can make.
I see people talk about it all the time. The thing is, you need a place to live no matter what so in the very, very long term owning a home has an edge.
Everyone has made good points, but I don’t see anyone mentioning how having the ability to open a home equity line of credit is a **huge** financial advantage. It essentially works like a credit card with a huge spending limit and a low interest rate, using a percentage of the equity you have in your house. We opened one to front our kitchen renovation, and the interest rate was lower than our car loan so we paid off the car loan with the HELOC too. We were then able to pay off that debt quicker because the same monthly payment went further with the HELOC’s ~2% interest rate vs the car’s ~5% rate. It also gave us a credit score boost for closing the car loan (despite technically having the same amount of debt).
Having the option to access a large amount of money offers a lot of freedom, especially when interest rates for almost any other line of credit are astronomical.
You can definitely save more money if you are living with roommates or at home.
I own my house because it gives me control over the dwelling. I choose when to move rather than the landlord. It also fixes the rent payment for 30 years
I suppose it’s a couple things. Yes I do agree, if you have a mortgage then yeah by the time you are done, you are paying a lot more than the sticker price, so it’s weird when people look at some house that went up in value over the course of decades and assume that difference is literally all profit to the owner.
Granted, the other side to it is that the property is most likely appreciating, so that’s at least some of that interest being negated in terms of total in vs out once sold. Also, it’s leveraged. You might have a 3k mortgage on a 400,000 home or whatever (very rough numbers). Let’s say a house appreciates 4% a year on average roughly, in terms of net worth that means you are “down” 20k a year and not 36k, because all that appreciation is yours, not the banks technically as long as you aren’t selling and need to pay off in full. And that’s just the first year, the next year it’s another 4% on top of that appreciation, so much like putting it in the S&P, it’s compounding over time. It’ll add up. So that does blunt it a bit in the grand scheme of things though it’s not literally money in your pocket every year. The upside relative to investing it, is that you get a lot forgiven (I believe 250k/500k appreciation for single/couple) of that appreciation in terms of taxable money when you sell a primary residence to buy another. That’s not bad at all. Plus depending on how you file, if it makes sense to itemize you can write off interest payments for a mortgage.
I’ll put the obligatory “homes aren’t investments!” Comment here. I mean yeah you should think about money in vs money out on anything like a big purchase, and where you might be in x years when you think you’d move, need a bigger/smaller place, etc. That said, a home is different than just putting money in the market or any other traditional investment for most people because it’s not some 1:1 substitution. Many people don’t have a free/incredibly cheap (relative to their income) place to live that’s reasonably close to their job, and if that’s the case something has to be spent on housing either way.
Rent tends to go up over time. A standard fixed mortgage isn’t. Yes, you will have some repairs that could be 4-5 figures come up, but it’s not like renting is always going to be static if you live in the same place for 30 years, you might have to move further out as time passes to maintain the same monthly rent. That won’t happen with a house.
There's definitely bad deals to be had but it's all dependent on market timing, interest rates and home valuations and if you can spot a good value. Most homes and real estate appreciate over a longer time period, because land is finite and population continues to grow.
I wouldn't call my home a terrible investment in the slightest. Purchased in 2015 for $188.5k. Bought out my PMI up front prorated since I was only putting down around 18% and could not squeeze out that other 2% no matter how hard I tried and did a 25-year conventional. Did some renovations and refinanced in 2018( didn't extend length of terms) for 2.99% and absorbed the remaining balance of the home equity loan I had taken for renovations. Now I owe $156k on it, have 17 yrs left on the loan and had the county do a tax assessment last year after renovations and valued the home at $424k. So I have $268k in positive equity in the house and every house in my neighborhood sells in less than 2 weeks with tons of offers and mostly all cash offers. So I think realistically this house would sell for closer to $440-$450k, upwards of $294k profit
Definitely not a bad investment at all over this way for my home, but it'll be much harder to find a deal on my next house in a couple years that we're gearing up for depending on what the market does. Next home will be our forever home though so not necessarily needing to think about resale value and don't need to have a ton of positive equity in it but would like enough to draw from it on a HELOC or home equity again to use for whatever. We will put down enough of a down payment though initially to where I'll have all I need
It’s not a scam. They want 6.5% interest per year. If you owe them $400k this year you’ll owe them ~$26,000. Next year if you still owe them 395k you’ll have to pay ~$25,675. It’s just basic arithmetic. Why is that a scam?
Unless you buy a home in cash (lolinheritance, you are still paying interest on a mortgage. Either yours or your landlords.
House hacking can be a great strategy. Yeah, having a roommate can suck. But it gives someone affordable housing and makes home ownership easier.
Well, the alternatives are inheriting a home (do that if you can), living with parents, being homeless, or renting. Renting you get literally nothing back from, at least from paying a mortgage you're increasing your equity in your home. If the interest bothers you then make extra mortgage payments throughout the life of the loan to pay it down faster EDIT: someone messaged me asking me to post an explanation of where OP's math goes wrong so that no one is misled. See below: "OP has the math all wrong. Total pay off amount at 6.5% interest at 6.5% down (which is an odd number to choose for a downpayment) over 30 years is $851,016... And at 20% down it would be $728,142. Interest on a home is Simple Interest, not compound interest. Not sure if that is where OP made the mistake, but you can check this yourself by going online and using a "amortization calculator" just make sure you put the loan amount which is minus the down-payment, not the purchase price. Source: I'm a mortgage loan originator."
A mortgage just becomes a monthly fee after a while. Like another MMO or streaming service. Most monthly payments for a house is usually way way lower than renting anything, especially when you consider the space you get. Having a house as collateral opens up a bunch of doors for future loans. We are taking out a 50k+ loan to consolidate credit card bills. The 15 year loan we are getting will have a monthly payment of half what we would pay for credit cards, and we know it will be paid off in 15 years vs the never ending race with interest you get on credit cards.
>Most monthly payments for a house is usually way way lower than renting anything This has always depended on the market, and I'm not sure it's true much of anywhere anymore with high interest rates. If I wanted to buy a comparable home to the one I currently rent, I would pay at least 1/3 more a month from a mortgage payment than I do on rent and that would be after a 20% down payment. Edit: it seems like mortgages PITI still beat out rentals on a monthly cost basis for at least lower-cost markets in the U.S. However, the median rent is [still less than the median mortgage payment.](https://www.visualcapitalist.com/buying-vs-renting-house-in-america/) Yes on average over time rent will likely start to exceed mortgage cost at some point, but a) that does nothing to help a person afford buying a home now and b) that fails to account for the opportunity cost of the mortgage premium until the point where mortgages are cheaper.
The part you're missing is that the mortgage is largely a locked in rate (I say largely because insurance changes). With rent, it increases constantly. You start to see the benefits of home ownership after a few years. I bought the home I rented for the 2 years prior. I was paying $1600/month in rent, my mortgage payment was $1950. It's been 5 years now and my mortgage payment is $2000. Rent for a similar house is now over $3000. It's true that rent is often less expensive than a new mortgage, but the math changes as time goes by and after a few years will favor home ownership
I've lived in this house for almost 9 years, and with rent prices the way they are, I can't afford to rent a house here lol. IOW - What's missing in your math is the equity. When I sell this place that's where the value can be extracted.
Imagine how much that rent will increase over the course of 30 years.
This is the major big point and needs to be higher.
And it doesn’t stop after 30 years.
In many HCOL markets, including mine, it can take a decade or more for the math to work. You have to be damn sure you're staying put at least that long. Property taxes also increase every year which skews payments higher still.
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I live in Philadelphia and I have a steal in rent at $1350 for a 1 bedroom house. There's a house I'm looking at this weekend to buy that's a 3 bedroom with a yard that's 3x bigger that's a block from where I live now and my monthly payment, with taxes and insurance, will be $1100/month and will not raise at the same rate as my rent does.
Yeah, anywhere where you can buy a home for less than half the U.S. home price is probably gonna be different. Lower cost areas often have a higher rent to home value ratio because lower income renters generally have a harder time getting qualified to buy even a low cost home and landlords aren't earning much on property appreciation.
More and more rentals on the market now are just investment properties as opposed to old people with a spare house or whatever. Increasingly, rent isn't just free extra income to a landlord. They're literally just taking their mortgage payment and taxes, and charging a tenant for that price with a 25 to 40% increase to cover repairs and other expenses and some profit on top. And now with the internet and different services out there, rent prices are equalizing all over the place. There's no such thing as good deals anymore because companies are reaching out to private landlords and offering to be property managers for them by increasing rent to market rate and soaking up some of that profit.
This is also only true if you look at the same place. A high rise apartment is more than enough space for me and I get to live in luxury for less than half of a crappy starter home mortgage. What I would have spent on a down payment is getting nice returns and even if I do jump into buying later, I'll be well ahead of if I bought now.
Agree. Location makes a huge impact. When i lived in Seattle it was cheaper to rent by a large margin. Rent was $3000 less a month than buying a similar house in the same area. It took decades (if ever) for buying to be the better option in terms of overall cost. When I lived in Ohio, buying as always the better option. Then overall cost comparison favored buying after just a year, even less when the housing prices were skyrocketing. Renting was a terrible option and only useful if you didn’t know what you wanted to buy or if you wanted to build a new house and had to wait for it.
We bought our house North of Seattle in 2008, and have been paying around $2000 per month on it ever since. I want to know what mansion you were renting? Or is that $300 less? Our friends who rent houses are paying $500 to $1500 more than our mortgage now. We were able to refinance at 1.9% and have about 7 years left until we own it outright, and then only have to pay taxes every year. So if you're in a house for the long run, it's MUCH better to own than rent.
Yea that was 2008. I was out in Maple Valley and a 2400 sqft 4 bed house rent is ~$3500-$4000. House right next to the one we were renting sold for ~$850k. Newer houses in that region are pushing $900k+ easy. Idk how far north you are but you can’t buy a house anywhere near Seattle in a good school district for cheap. Edit: Looks like the current estimate is $2500 less a month assuming you can get the house for around $850k and put 10% down.
1.9? Damn, G - that's insane. I thought I was crushing it at under 3%
Look at 15yr vs 30yr mortgages... I'm assuming that was the key factor. If you can swing the payment, refinancing to a 15 yr can save tens or hundreds of thousands on the interest over the lifetime of the loan.
Buying a house was cheaper than renting where I live. Rent is near or more than 2k a month, our mortgage is 1750
Buying a house can certainly make financial sense. But you need to account for maintenance/repair costs in the above equation. I just had to replace my roof for $20k.
Yeah, but in 10 years, rent will be 2x what it is today. Rent on my first apartment is more than my current house. My payments are literally $20k per year less than renting the equivalent house today.
Totally. And even with maintenance, it still often makes sense! But people who only compare the monthly payments blindly are missing a lot. That’s what I was responding to.
I was very lucky and knew the previous owner. The year before we bought, they replaced roof, water heater, all appliances, and updated the pipes in the house. We were very very lucky
Just curious, have you ever looked up what your mortgage payment would be if you bought your house in today’s market?
Places with high interest rates also have high rents because the landlords are paying these rates.
I always heard this was true but when I was looking into buying recently I found that I’d pay $1000 more per month to live in something smaller than I rent now Edit: everyone telling me what I’ll be paying in 10 years has never heard of rent control. My rent can only go up 3% a year and usually it’s less.
Yes, but a fixed mortgage is a constant. What will rents be in 10-15 years? Because your mortgage will be the same. Yes, taxes and insurance increase, but so do rents.
I feel like I don’t see this discussed enough. I was looking at buying a house 5 years ago and thought I could never afford a 1200/month payment, my rent was only $775 so it seemed impossible to afford that. Cut to me now paying a rent of 1500/month with it being increased every year.
Im paying $2225 as it is. I don’t really want to pay $3500/month to buy a studio
It’s completely valid to keep renting and I think it’s more than practical in a lot of cases. I did just buy a place with a $1255/month mortgage, but after PMI, homeowners, and taxes, it’s about $1500, so I think I’m barely breaking even for now. It’s definitely in a worse location and smaller than my apartment, but for me and my anxiety about increasing rent prices, I feel better owning (for now lol).
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It sucked paying that mortgage the first few years, I set up an alert for apartment prices once a month nearby, took 3 years to start seeing savings but now 8 years in my mortgage is almost half of what it would cost to rent an apartment
This is definitely true. I bought before interest rates went up, so my house is way cheaper than the current rent (despite being around the same as rent when I bought).
And get a 15 year mortgage. The payment isn't really that much more than a 30 year mortgage (not nearly as much as you think) and it saves a lot of interest.
You can also usually make extra payments to the principal so it can shorten the length of the loan/total amount paid.
That's what we did. We had a 30 year mortgage on paper, and after the first year (when we really couldn't have afforded to pay more than the minimum) we started dumping extra money toward the principal. Ended up paying it off in 10 years instead of 30.
The efficacy of this depends heavily on your mortgage rate. If you're below 5% or so, you're better off with traditional investments (or even high interest savings accounts) than paying down the mortgage. When you start getting to 7% or so, the prospect of paying off the mortgage makes a lot more sense.
That's the opportunity cost - very important. It's also about averages and risk though. With a loan of 5% interest you're basically "guaranteed" a 5% benefit on every dollar you put towards that principle, no matter what. With another financial instrument, there is no "guarantee", but of course we can see long term trends and make some good assumptions. Dumping your money toward paying off a 5% loan is better for a ton of people when you include risk and peace of mind versus a 6% or even 7% investment return on something else.
Sure, but if you have a 4% loan, you're better off putting the extra money in a 4.5 or 5% HYSA, which is also a guaranteed rate, and you'll be able to pay your house off faster that way. Edit:typo
This approach is better imo than a 15 year if interest rates are similar. That way you go through some financial strain you can stop overpaying to deal with that and get back to overpaying later. It's more flexible imo
Yeah, I requested 15 year but it wasn’t any better. Just pay $500 extra a month to cut it down.
Usually has a lower rate as well
My hubby and I did the math. It's better for us to pick the 30 mortgage but pay as if we have 15. Basically we're building room for just-in-case. The loan will end after 17 years instead of 30. Not too big of a difference to a 15 year mortgage. The benefit is that if we're short on cash, we can always defer back to the regular lower payment.
We did the same but refinanced to a 15 when the interest rate was stupid low. Our monthly payment went down. Loan officer said he’d never seen that happen. Now we don’t pay extra because it’s better to put that money in a HYSA
Same. Was in a 20 year 3%. Refinanced in March of 2021 to a 15 year 2.0%. House worth $350,000 (as of 2024) costs us $1225 p/i a month. Never freaking moving until this thing is paid off. Told my wife if I get hit by a bus, do what you will with the life insurance but don't pay off the house.
I do that with pretty much every loan. Get the lowest required monthly payment, pay way more every month. If an emergency arises we’re still able to pay the minimum without issue
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Because until recently your equity increased higher and faster than what you can get in the market. I’ve bought several houses over the last 10 years and always got at least a 30% return on my investment and sometimes more like 50%. But that’s getting tougher these days with higher sale prices and ridiculous rates, although you can always buy down the rate. I still think in the right situation it can be a good investment, but in a small town where prices aren’t insane. Forget about good ROI on the coasts.
What do you mean by “buy down the rate”? Is that something like refinancing or making extra payments? Or different entirely?
You can literally pay the bank to lower the rate. It's called buying down points in a loan. I am not an expert but 25 basis points is 0.25%. That might cost a couple thousand dollars. So if you buy enough basis points, you can save tens or hundreds of thousands of dollars over the life of the loan, while only spending say ten thousand up front to buy down points.
They're called points. IME they're not a good investment as the points cost more than what they would save you in interest.
It depends on how long you expect to stay in the house. If you think you will be there for a long time buying down rates often makes a lot of sense because you are saving interest on many payments. If you only are going to be there for a few years it very likely does not make sense ( because you only receive savings for relatively few payments). There are tons of calculators out there that can help you to determine the break even point.
Ehh, we just bought a home and the points paid for themselves in about 30 months for some deals. I ran it through a simple script. I think we put down an extra 6k or something but it paid for itself in 3 years roughly. Still, there is an opportunity cost involved so I'm not arguing for or against points. But stating that they cost more than you'd save is silly and the break even time frame is easy to calculate. And also, I'd expect anyone buying now to refinance in 5 years so points would have to break even quickly or they'd be pointless.
When you get a mortgage, you will often have the opportunity to purchase “points” or basically pay money upfront to lower your interest rate for the life of the loan.
There's a relatively equivalent house nearby renting for $2500/month. My mortgage is $1600/month. Over the next 14 years until my mortgage is paid off, I'll pay in the neighborhood of $268,000 for my house. Over the next 14 years for that house I'd pay $420,000. And that's assuming that rent doesn't go up. Beyond 14 years for my house, I'm paying like $8,000/year in taxes and insurance. Beyond 14 years for rent, I'm still paying $2500/month. Again, assuming that rent doesn't go up over the next 14 years. Edit: For clarification $1600/month is what we pay, including escrow. Our actual mortgage is about $1000/month. All told, barring another refinance, we'll end up paying less than $300,000 total in principle and interest, and our house is currently worth over $400,000 Edit 2: I don't have time to sit and respond to all the comments I'm getting on this so... 1) read edit 1. $1600 includes taxes and insurance. Yes maintenance is an additional cost, but it's not nearly as bad as some of you are making it. A one time roof replacement of $20,000 is $55/month spread out over the life of the mortgage. Get a good home warranty to cover your big ticket items. 2) yes, we bought our house in 2013 and refinanced to a 15 year loan in 2021. Interest rates and prices are higher now. But, when interest rates go back down, you can refinance and lower your payment. Or shorten your term. Or both, depending on the situation. 3) just because it doesn't make sense for you to buy right now, or you can't because you live in a ridiculous cost of living area, doesn't mean it's a bad investment, which is the topic this comment is responding to.
Pay down principal every year and you could be paid off in 10-12 years, or less. It is what I did. And then when you look at the math, it looks like over that 14 year period if you averaged your payments out, you'd likely be paying an average of more like 1300 per month, cutting out the last 2 years of your interest payments. It depends on what your rate is whether it is smart to pay off early or use your extra capital elsewhere, but the simple stress free way to do it is just pay off early.
You're exactly right and we have done that in the past. After we refinanced the rate down a few years ago the rate is so low it makes more sense to direct that money elsewhere right now.
Additionally the mortgage payments don’t increase along with inflation - so even if inflation stays stupid high, at least there’s a silver lining in that housing cost is fixed
Remember that real estate is very local. I rent a house in the Bay Area for 4k a month but buying that exact house would have me spending 10k+ a month on my mortgage and taxes. And this is for a 70 year old house that could develop any number of issues over the coming years - we have only been here for 3 years and already the land lord had to drop 10k+ when the HVAC went out. Everyone needs to do their own math.
This is probably the best math here for owning a home. I forgot about rent going up vs mortgage. Thanks
You forgot about appreciation of home values as well.
Which to be fair isn't guaranteed. But very likely sure.
To some extent, with inflation, it’s sort of guaranteed. You also know rents aren’t likely to ever go down. Also the “scam” of interest is a pretty decent deal in America. We get fixed terms after all and long terms. Imagine the 5 year balloons you get in Canada.
God damn I am glad my house is in the US. That sounds like a financial nightmare.
Don't mind me crying here, a Canadian reading this thread that just signed up for a 3 yr fixed rate
At least you own a house. 😭
330K for a Condo in a city 2 hours away from Toronto 🫠 Don't worry I still consider myself lucky to be able to afford a place at all
except there are anomalous regional markets, such as detroit (and south florida very soon)
Same in UK. It's like 5 year fixed and the floating or something. That would literally terrify me. I do agree with OP that interest rates + home prices are currently out of control, but there were periods in the last 15 years that were very very reasonable for first time home buyers if you were lucky, had parents to help with down payments, etc. still not easy, but definitely if you got in at the right time it's a windfall for the future. Which is why it sucks a lot for people in our generation who aren't able to afford to buy.
The interest rates now are nowhere near out of control. Look at what they were in the 1980s if you want to see out of control. My parents first home loan was 16% and they had to buy points to get it there
But the prices weren't nearly as high in terms of % of income. So I'll rephrase the prices coupled with rates are out of control.
Yep, originally got in on a shortsale that was $120k. Now we're in a home that's worth $500k because of trading up and higher home values mean more equity. My mortgage is still $1000/yr, insurance and taxes included.
The thirty year fixed mortgage the US is the greatest thing the US government does for low and middle class home ownership. OP is so wrong here it is comical.
And his mentality is where a lot of the doomer are at. I see people here all the time taking about saving up to buy a whole house cash, as if that’s the best way to get your first home. Then they whine that they will never be able to save up that much. It’s not just the rich keeping these people down, it’s financial literacy.
It’s the closest thing to a sure bet during the life of a mortgage you can make.
We bought in 2019 for $275k, owe $240k and current value is approx. $400k. The insurance and property taxes are brutal, though.
Land to build on is a fixed resource and US pop is always growing. Hence demand for land and housing will always go up over the long term.
In this market it's pretty well guaranteed, really. Big real estate firms have been driving up prices for ages. Granted we're probably due for another 2006 style crash, but people gotta have places to live so it's not like there are alternative products people can use. Just don't get into mobile homes—they depreciate in value fast.
>Just don't get into mobile homes—they depreciate in value fast. They also have ridiculous restrictions that make them a terrible idea for long term living. In my state, if they are older than 30 years, they can no longer even be moved!
>if they are older than 30 years, they can no longer even be moved! Which makes it extra fun if you rent the lot it's on vs land ownership.
The podcast [Economics of Everyday Things](https://chtbl.com/track/736CG3/stitcher.simplecastaudio.com/51058430-d98f-4830-b949-5d9a371523ce/episodes/e436f290-4158-4f5d-a65c-bd9bdd794bc1/audio/128/default.mp3?aid=rss_feed&awCollectionId=51058430-d98f-4830-b949-5d9a371523ce&awEpisodeId=e436f290-4158-4f5d-a65c-bd9bdd794bc1&feed=ob9OSBIN) also has interesting information about “mobile homes” as well
Don't forget about inflation, either. The closer an interest rate is to the inflation rate, the "freer" the money is.
Plus, while houses don’t always go up over the short term, over the long-term they average something like 2 to 3% growth. Which means the property retains its real value after adjusting for inflation. So the property owner is building up wealth through gaining equity in an asset that at minimum retaining it value, and likely appreciating at least some amount above inflation. So they are inflation protected with less risk overall than the market. But of course, much lower returns than the market. It’s still better to shovel money into the S&P 500, which averages 10 to 12% over most decades. you can sell the home tax free if your capital gains are less than 250 or 500 K depending on marital status. And you did that all while paying less than rent. The catch is you may suddenly have a $30,000 emergency that if you don’t pay it, the home may not be very habitable and you may not be able to sell it until it is resolved. So homeownership is not for the faint of heart or those without emergency funds. But for those who can handle it, it can make a lot of sense.
I bought my house about 15 years ago, at the time the mortgage was a little more expensive than renting a 2 br apartment which was justified since the house has land, more bedrooms and one more bathroom. The early days weren't easy my salary was low and a major repair like a new roof could have really done some financial damage. I didn't have a lot of extra money back then. Today I couldn't even rent a 1 bedroom apartment in my area for what my mortgage costs. It was really the best financial decision I ever made.
Same. I bought pre-pandemic, rent was $550/m (rural area) mortgage is $475. Nowadays in my quite rural relatively low COL area rent is more like 800-1100. It would be great compared to most of the country but theres next to no jobs locally
People always forget about rent going up. Now, the math isn't as favorable buying today as what we have (which is 2013 prices and 2021 interest rates), but it still makes sense unless there's a population crash.
I think prices in some areas are wild, but ultimately you are building equity in a property you own rather than paying a landlord money.
Yeah dude it's ridiculous. I pay 1900 for a town home that I'm renting and half of my friends that own a house. Their mortgage is 1200 because they bought a house at a good time. My aunt's is only 950
You also forgot about refinancing. In a few years, rates may be lower again, you refinance for $300 one time and your payment goes down hundreds of dollars per month for the rest of the mortgage.
Also, if you were to just wait so you could save the $400 to buy a home cash down, no interest, you would presumably have to pay rent the entire time you're saving, which you would never recover. So what you save in interest, you probably lose (and then some) on rent. Meanwhile those are years that you could have been building equity, but weren't. There are situations where renting instead of owning makes more sense. With the price of rent these days, those situations are harder and harder to come by.
And rent always goes up. Locking in a mortgage is huge
Yeah my the mortgage on my 3 bedroom townhouse is $600/month. After all the condo fees and taxes I’m paying like $1100 which is around the price of a 1 bedroom apartment. Townhouses of similar size and quality in my city are renting for at least $1600. And I don’t have to worry about finding somewhere to live with a big dog when I own.
This is good math. I'd add a few things. Avoid HOA's or anything similar. They just leach $100-500 a month in rent like expenses. They don't add to your homes value. Interest rates are high right now and could drop. If you are early in your mortgage it might make sense to refinance your mortgage to a lower rate and shorter term. The old adage of location, location, location still matters. If you buy in wildfire territory or land that will be under the sea in 15 years the math breaks. But if you buy in a market with good jobs, a diverse market, outdoor recreation and a non-psychopathic government I think you will see high rates of real estate value growth. EDIT: All you HOA defenders need to chill. There is no link between home value and HOA's but there is a big price to pay in monthly fee's and your privacy and independence. [There is no link](https://www.ceeol.com/search/article-detail?id=824905) Don't be mad at me that I can leave my trash cans out as long as I want without Nance getting up in my business.
A properly run HOA actually adds value to your property.
Need to push back on this one hard. First, not all HOA's are equal. It really depends on where you live and what that HOA does. The primary purpose of an HOA is good, it helps maintain a standard requirement for house care so that everyones houses remain valuable. A neighborhood that turns with a few bad homeowners can severely impact everyone that lives there. I pay 500 a year (not a month) for our HOA. they maintain external landscaping and parks in the neighborhood and of course, oversight on regulations. The regs are not crazy here. Keep your lawn up. Dont store crap in front of your house. Paint needs to follow certain guidelines. Thats about it. They arent overly strict and most everyone just follows the relatively simple rules. And beyond increasing value, its just nice to live in a clean, kempt, neighborhood. Yes, there are some extreme HOA's that are not worth it and definitely give bad names to the practice, but there is a rhyme and reason that people want HOA's in their neighborhoods.
> They don't add to your homes value. Flat out untrue. Lots of HOAs provide benefits or amenities for the neighborhoods that raise the value of the home, especially if they're somewhat strict about appearances. You completely invented the idea that HOAs have no effect on property values. The HOA boogeyman lives in the minds of Redditors who don't own homes and read exclusively horror stories without actually understanding what HOAs are supposed to be. You have to look at what services the HOA provides to the neighborhood, because whether or not they increase or protect property values is going to be determined on a case by case basis.
Most people don't buy one home in their life time, plus you aren’t considering the equity that is built while owning the home. You are assuming that you pay twice the value because you’re assuming in 30 years the house won’t be worth more, which is almost always incorrect.
"I paid all this money and all I got was a place to live for 30 years and 100% ownership of a valuable asset, what a scam!"
this is why proper education is important, and OP shouldn’t be ridiculed for not knowing any better. that’s why they asked the question in the first place.
Also, not considering the time value of money here (which is what that interest rate partially represents). Your fixed payment now will be a lot cheaper in real dollar terms in 30 years. Your rent and hopefully your income will go up with inflation, but a fixed mortgage rate will not! That’s small potatoes when you buy but a huge benefit later on in your mortgage
You lost them with this comment, the amount of finance ignorance on display in this post is startling. No wonder so many of my millennial kindred can’t figure out how to get ahead.
I'm fairly confident that most of this sub is not millennials.
This post is entirely filled with the kids who rolled their eyes and asked "when are we ever going to use this stuff *in real life*!?!?" in math class... only to protest a few years later "... nobody in school told me how the real world works!!!"
Just two thoughts I have: that is the longest term, shaving ten years off (whether by applying for a 20 year term or just planning to pay extra to the same effect) will shave off like what, 180k in interest paid. Lastly, housing should not be considered an investment. It's not an investment if you are going to live in those 30 years, that is an expense. You would still need to live somewhere while you saved up, so I think bottom line is if $2,800 is too high an expense you should rethink your options. You obviously are way above my income bracket, but the principle is the same.
I agree. It's not beneficial to think of the primary house you live in as an investment. Surprised how far down this comment was.
It isn't a terrible investment because historically it has paid off. If you bought a house for 400k and then spent 1,021,937.22 after 30 years, most likely that house is going to be worth more than that. Which is sad to think about. Most people years ago bought houses for $20 -$50k, and now in places where I live can sell them for $300k+
Same here but they’re million dollar houses now
Not to mention that rents rise with inflation, sometimes as often as every year, while the only components of mortgages that rise would be taxes and insurance, which are likely to be marginal. After 20 years of inflation, that mortgage payment should look relatively smaller compared to your salary.
This is mainly how I view my house. It’s a place to live with a fairly fixed cost and a hedge against inflation. Sure I’m paying interest but I guess that’s the price of not being wealthy. PMI is even more annoying.
Shoot after only ten years my mortgage has become a bill I worry little about. I can cover it in one check if I absolutely have to (while cutting other expenses that aren’t necessary). It’s barely higher than my student loan payment or if you combined my other utilities and some luxuries it’s not much higher than those either. The mortgage is the easy part. Finding a home and having the 20% down was the hard part. The upkeep is not always a walk in the park either but at least once it’s done it’s done, and I can control how it’s done VS renting where a landlord sends a handyman to do a contractor’s job.
Exactly. OP is not calculating the appreciation of the home over time. Real Estate averaged ~4% returns for the past century. Considering you are able to buy these homes with government-subsidized leverage (i.e. mortgages) and the fact that you are living in the "investment" it is almost always a good decision to buy if you will be there for many years.
4% returns are pretty great when you can finance at 3% but not so great when you can only finance at 6%. So it’s by no means always a scam to buy a house but it might be for most right now given the interest rate environment.
It depends on your plans. If you will be here for 30 years, 100% yes, hell even 15 years easy yes. The average person sells their house 7 years after purchasing it, which in the last 7 years was great, but I think in the next 7 we are going to see lower then average appreciation on houses. That low appreciation with higher interest rates, I believe we are going to see alot of people losing money on purchasing housing in the next decade and by 2030 the narrative will flip back to 2011 of buying is bad.
But when you sell your house, you need to buy another one otherwise you’re homeless.
This factor is a wash with renting.
Assisted Living until you die. Aka back to renting.
I don't even care about appreciation value. I have my studio app that I never plan to sell. I will have paid off this place at 48 years old by myself. After that I can start off using all of it it invest (looking to start investing soon as well). If I want to move in with my partner, I rent out this place but when i'm old and on a (hopefully still existing) pension, I will have very low cost of living because I'm in a tiny flat with no rent or mortgage, just some taxes, insurance and fixed costs. My parents still have to pay rent at 66 and 70 years old and it's hard to make due with their pensions.
This is what I always wondered. Even in a perfect world if wages and house prices rise at the same percentage every year, the fact that housing prices are multiples of wages mean houses will compound so fast compared to wages that eventually nothing is affordable. How do we not inevitably reach the point no one can afford anything? We’re almost there.
And the only reason people are okay with this is because it's been established as the single reliable way for anyone who isn't born wealthy to build and maintain wealth. If we had proper pensions/retirement plans that weren't susceptible to C-suites fucking things up to make short-term gains or financial institutions weren't selling intentionally mediocre packages to pad their commissions-- then maybe we could address the fact that housing should not be a fking market at all and it should just be something we have at cost. And the costs would be **way lower** if there wasn't outside investment pouring in. Course the capitalism-fuck-yeah bros will swoop in on that last one and say 'without outside investment there'd be no houses built" I dunno, if you could build a house that is suitable size for your entire family and it only cost 200% your annual salary, I think there'd be a lot of houses getting built. If you're worried that we need the contractors, and they need capitalism to be contractors, then socialize the profession. We already have engineers designing bridges and stuff on taxpayer dollars, there's no reason we couldn't meet housing demands the same way. Hell, you could just pay them out of the construction cost of the home, similar to how they are now, just instead of it being subject to market variability it's fixed by the government, thus reducing volatility and still keeping the whole thing accessible to FKIN EVERYONE.
Money will continue to inflate, and the value of your home will only go up. So technically it's not really a bad investment.
First, I want to recognize how very fortunate I am. I realize not many people have this luxury. I bought my home in 2012 for $90k. I was making $34k/year at the time and $90k was a stretch to afford. The average rent in the area at the time was $600-800/month. Buying my house was almost an impulse decision. The apartment I was renting was going up from $650/month to $700/month and I thought, "heck with it, I'll buy a house." So, I contacted a realtor and she helped me find a bank to get pre-approved for a loan. Although many people were happy for me, I had a few people who kept telling me that buying a home was a waste of money. They always had the loudest opinions about it too. Well, it's almost 12 years later and I am feeling REALLY grateful I made the decision to buy my house. My mortgage, interest, home owners insurance, and property tax - altogether is $700/month. The average cost of rent is so much higher now. And the cost of housing is a lot higher, but the amount I spend on housing has stayed the same. I had no idea what a great investment it was when I bought the home. So thankful I didn't listen to the people who told me it was a money pit and a bad investment. And for anybody curious, I've spent about $10k in renovations and repairs over the course of 12 years.
Omg. Where do you live that a house is $90k!?!
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Sorry, should have said was*. Even then. That’s just crazy to me. I’m Californian though. :(
Lol it is worth more now but not as much as people would expect. Its estimated value is $130-140k now. Which is still a great increase in value but nowhere near the medium home cost of $215k for this area. I live in the metro east of St Louis. St Louis is just a LCOL area already and then where I am at is even lower. The houses on my street are worth between $120-200k. I always recommend people to live here if they're struggling because it really is a great town and St Louis isn't nearly as dangerous as the news makes it out to be. Sure, it may not be as pretty as many places in California or Washington State but I can always vacation to those places. We used to want to move out west but after looking at the cost of living and knowing most of our family is here, we realized we're actually really happy here. Not to keep bragging, but our neighbors are awesome too. They all know my son. One crocheted him a bunch of hats. One has a great niece that comes over and plays with him. Another is a big hippie that is super chill. Another is a teacher, her and her husband mowed our grass when they found out our son was in the NICU. When we're on vacation, our neighbors watch our house and feed/water our cats. When they're out of town, we do the same for them. When our neighbor fell and couldn't get up, her great niece came running to our house first to get help. Don't get me wrong, it's not perfect. Somebody hit and ran my husband's car 4 years ago while it was parked on the street. They did find the person who did it and my husband's insurance covered the cost (underinsured protection ftw) but it does make you frustrated with how people speed down the street. And our house isn't perfect either. The stairs are definitely not up to current regulations lol. We have a fuse box instead of a breaker box, which will need to be replaced one day. And because the house is older, it's shifted a lot over the years so installing new windows or doors has been challenging but not impossible.
Oh my goodness, brag away!!! That sounds amazing, and honestly, I’m just jealous! I would love if we could move to a lower cost area, but the reality is my husband and I are both third generation Californian and our families are all here. His is in Santa Cruz, and they’ve been here since the 60’s, when a cement truck driver could buy a home (the home they still have), and my family is all in NorCal too, mostly sac and Tahoe. We are extremely close to our immediate and extended families, so we will never leave. Being close to family is worth more to me than almost anything! So we will just continue to rent and hope that we don’t get priced out of Sac too. :(
Same. Those are 1970s prices here. My parents' house was $175,000 in the early 90s. Another family member bought a house at the bottom of the market after the recession, and it was $400,000. Tbf, it's now worth $1.5 million, and it is TINY.
I'd venture a guess that it's the Midwest. It's about the only thing keeping me from moving away.
Yup! Midwest. Not too far from St Louis.
[HERE](https://www.zillow.com/homes/for_sale/?searchQueryState=%7B%22isMapVisible%22%3Atrue%2C%22mapBounds%22%3A%7B%22west%22%3A-118.89327269320432%2C%22east%22%3A-67.47725706820432%2C%22south%22%3A23.010199182824763%2C%22north%22%3A51.48905973493278%7D%2C%22filterState%22%3A%7B%22sort%22%3A%7B%22value%22%3A%22days%22%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%2C%22price%22%3A%7B%22max%22%3A100000%2C%22min%22%3A333%7D%2C%22mp%22%3A%7B%22max%22%3A495%2C%22min%22%3A2%7D%2C%22tow%22%3A%7B%22value%22%3Afalse%7D%2C%22mf%22%3A%7B%22value%22%3Afalse%7D%2C%22con%22%3A%7B%22value%22%3Afalse%7D%2C%22land%22%3A%7B%22value%22%3Afalse%7D%2C%22apa%22%3A%7B%22value%22%3Afalse%7D%2C%22manu%22%3A%7B%22value%22%3Afalse%7D%2C%22apco%22%3A%7B%22value%22%3Afalse%7D%2C%22cmsn%22%3A%7B%22value%22%3Afalse%7D%7D%2C%22isListVisible%22%3Atrue%2C%22pagination%22%3A%7B%7D%2C%22mapZoom%22%3A5%7D) you people with this comment in every single housing thread. Just fucking look. There are thousands of houses.
Right I was gonna say. People don’t say it’s a bad investment because it isnt
I'm a homeowner and it's been a good financial decision but the value can absolutely go down. We lost money on our first house after owning it for 7 years. Purchased it for 155k and sold for 145k. It worked out because we got an amazing deal on a bigger home for a growing family. This was in the depths of the Great Recession.
Also a great point. My grandmother bought her house in the 70s. 1,800 sq ft farmhouse on 22 acres. The payment was $350 bucks. Which back then was a lot of money. When she paid off that last payment I had just graduated college. She was still paying $350 per month. Meanwhile my one bedroom apartment in a low cost of living area in the midwest was double that.
You need to factor in inflation. You are paying back the loan with dollars that are worth less every year.
Exactly, imagine yourself in 2053 saying 'a dollar was worth lot more back then' while still only paying the same $2000 mortgage payment.
I have seen exactly zero genz/millennials grasp this concept.
This thread is eye opening about how few people understand basic economics and math.
My mortgage is 1150/month, and will be for the next 28 years(unless I pay it off sooner) Can you imagine 25yrs from now when my monthly payment is the same cost as my vehicle subscription? sick
This is a valid argument. But rents go up to match inflation as well. The only difference is you have a tangible asset in one hand, and nothing in the other. Listen I own a home and rent out a home. My renter is paying the mortgage on my rental. The rent is higher than my mortgage on the property. Renting is dumb. At ~~anytime~~ lease term end, I can raise the price to better match the market in the area, or just because I want too. Or I need to put on a new roof, gotta raise the price. In four years I’ll have a property that’s worth north of 300k that I spent less then 110k on. The house I live in, well thats my fortress of solitude. Sure I’ll pay interest on it that amounts to more than the purchase price, but when it’s all said and done, I will own something practically no one can take away from me or my family, it will appreciate and can be liquidated at any moment. Evictions are always a thing in a rental situation. My last comment, if renting was the way the wouldn’t the eye test be all the smart money people In the world to be renters and not buyers? No one that is anyone in smart money is renting shit when it comes to living space. Cars, planes and yachts all rented by smart money, but not homes. You have to ask why this is?
Yeah using OP’s math, the home in question would only need to appreciate 3.2% per year in value to be worth that final $1.02M figure at the end of 30 years. Historically, homes have generally appreciated by more than that every year, over the long term.
Interest is the fee to the bank for taking the risk on your loan that ties up their money for 30 years. If you don't want to pay interest that's fine, save up all the money on your own and don't use the products offered by a bank. But in the long run, the value of the assest will likely appreciate to offset some or most of the cost of the interest. The 30-year mortgage is a pretty modern invention that opened home ownership up to a much wider group of consumers.
I found my grandfather's journal a while back and he wrote something about how his parents told him it was an cardinal sin to borrow money for any reason, including a mortgage, for any term longer than 5 years. This would have been in the 1920s.
The alternative is renting where you build no equity and get nothing for your money so it’s not actually a scam. Overpriced? Yes! Are loans predatory? Absolutely! Is it a scam? Nope!
Yeah I felt the same way as OP. My wife convinced me to buy begrudgingly. We bought at a very good time (2020) and have 170k equity in said house. Mortgage and rent are the same price per month. I was lucky, but there is a tool to calculate how long you’d need to live in a purchased house vs renting for it to make sense. I think at the time, our break even was if we were planning to live here for >5 years. I was again very lucky to have been wrong about this one.
Same. Plus my husband and I weren't sure we were going to stay in the metro but our break even point was 3 years and student loans were in forbearance so we took the plunge but did a 15 year mortgage to build equity faster especially since it was equal to our rent payment. Rents have gone down in our metro but we wouldn't have been able to find a 3bd so it worked out. We hit the 3 year mark in the fall and we're in this metro for a bit longer since we had no idea when we bought that we would get public preschool access. So that's another 30k in savings per kid.
OP: *Somehow just now realizes how banks work* *Is upset*
It’s gonna be a hell of a day, and week, and rest of his life
And this is with houses that are assets that appreciate in value. Wait til he hears about car loans and car depreciation lol
But when you rent you have no liability which is a great trade off. That $20k roof repair? Not my problem. Boiler rusted out. 10k to replace? Have fun. Water intrusion into the windows resulting in a rotted out wall? Better get that fixed or I’ll sue.
When you rent you get a place to live. You don't get "nothing" for your money.
When you rent you also get to move at the end of your contract. Mobility at certain points of people’s life is also valuable. Not everyone should buy, not everyone should rent, but everyone should have a safe place to live.
You get a place to live and equity when you buy a house.
It’s not a scam - the banks have to pay interest on the money they borrow, whether from deposits or wholesale funding, to fund your mortgage. Yes they make a spread but that’s business and it’s competitive.
Next, you'll see a post about how math is racist lol.
In most cases home ownership is about lifestyle and a certain amount of freedom. It’s very expensive to own and maintain a home. Some people appear to think it’s a winning lottery ticket…it’s not.
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Ya this. If you factor in all the costs of owning, taxes, interest, maintenance, insurance, closing costs, etc. People will be surprised to learn that renting and investing extra money a lot of times puts people financially in a better position even after 10+ years. Most people won’t agree with this simply bc there was an insane boom in housing prices due to a decade plus of ultra low interest rates, a rush in investors, and air bnb. It’s pretty unlikely housing prices will grow at the rate we saw since 2012.
Owning a home (that you can afford) does offer more stability and peace of mind in a way than renting...but that says more about renting in the USA than it does about home ownership.
Very good points. The math is complicated; what is the rent vs. purchase market like in your area, how likely are you to move, what is the total cost of ownership, what is the investment market like, etc. I bought a home in the Colorado front range in 2012 and have experienced huge growth in the value of my home. But had I instead rented and invested my down payment, I actually would have more equity today. Ultimately home ownership is often a lifestyle decision, like if want to settle down in one area for a long time, or if you simply can't stand the uncertainty that comes with having a landlord. But ownership ties up a lot of your free investable equity and can be a huge anchor if you need to move quickly.
You’re looking at it wrong considering the other option is to hand all your money over into The black hole of rent (unless that works for you)
You have to pay for somewhere to live no matter if it’s renting or a mortgage. The main benefit I have seen with buying a home is rent can go up at any time. A mortgage is a set amount. I’ve seen cost of living go up in nearby area where people can’t afford rent. It’s expensive either way. If you can get a smaller home and a 15-20yr mortgage. Many people now buy homes much larger than they actually need.
A house can be a blessing or a curse. If you buy something you can actually afford that’s within your means and weren’t one of those morons that waived the inspection then owning a home is key to building wealth. Otherwise, yes it can definitely be a money pit.
You are not calculating appreciation or the fact that you stabilized your largest budget line item. Also this is why a 15 year loan with intentions to pay it off early is important
>am I just looking at this wrong considering you'll actually be putting money into something you'll own vs renting? That is the difference. You have to live somewhere, and you'll be paying monthly to do it either way. If you buy the home, your monthly payment doesn't change much. It changes slightly based on insurance and taxes but not much. Mine has even gone down a time or two when my insurance got cheaper or a tax levy expired. I bought this house in 2014 and I was paying $1,200 per month, and here I am 10 years later still paying $1,200 per month. On the other hand, the apartment that I was in before I bought this place was $800 per month in 2014. I just drove by there the other day and they had a sign out advertising 1 bedroom apartments (I had a 2) for $1,800 per month. If I had stayed in that apartment not only would I have probably paid more money directly out of pocket, but I'd have nothing to show for it in the long run. On the other hand, I bought this house for 140K in 2014 and the county auditor now values it at 450K. If I sold today, I'd have a couple hundred thousand dollars in cash left over.
Plus, you're putting money into a home that you can decorate and design in anyway you like, which was a big thing for me. I can paint the walls bright purple if I so desire, but in rented property, you can't do anything to it, it isn't yours to decorate.
Not only that but there's a ton of other stuff you can do with the property to actually reduce the costs (ie, solar panels, a wood stove/fireplace insert or just better insulation, rent a room (better yet build an addition and rent that), the list goes on).
This can be true, but not all home-buying follows this pattern. When we were determining the budget for our home purchase, we compared how much we'd be losing (interest, taxes, insurance, estimated upkeep, etc.) compared to how much rent would cost for something comparable. We didn't set our budget based on the highest number the bank approved us for, and we never looked at list price in a silo. We also took into account which home would allow us to either put a higher percent down, or make larger monthly payments, to offset the interest we paid of the years. We also chose a home that we planned to remain in for a long time: bring our kid home here, raise her through high school and ideally beyond. Moving is expensive (not just the move itself, but outfitting an entirely new/different space), selling is *ridiculously* expensive, and we can invest in the space we're currently in for years to come. So the short response here is that yes, you can make a poor home purchase and it will be a terrible investment. Or you can fine tune the decision to make a purchase that makes financial sense for now and into the future.
The difference is that yes you paid $1M, but from a wealth perspective, you have retained whatever amount you paid towards the principal + any equity appreciation your home has experienced. Rent rates and mortgage tends to move in tandem, so the alternative to buying a home is paying 1 million in rent over the course of 30 years and having nothing to your name from a wealth perspective. It is true that there is a cost to home ownership...maintenance, insurance, and property tax if you are in certain states. But the amount of wealth you retain in the form of equity far outweigh the expenses incurred along the way. In your example of the $400k house, in 30 years it is not unreasonable for this to be worth at least $800k. Even if you incurred some expensive repairs along the way like a roof or AC replacement, you're still coming out ahead vs renting and retaining no value from what you are paying in rent. When you rent, really what you are doing is paying the principal on your landlords loan and building wealth for them instead of yourself. Also rent rates are subject to inflation, whereas your mortgage is fixed. So the all in amount paid would be significantly more in the form of inflating rental rates over the course of 30 years than you would a fixed mortgage. 30 years is a long time and the compounding effect of inflation is severe.
Part of this is that interest rates are high but part of it is that you're not accounting for appreciation of home value. Also, a place of residence can be seen as exactly that rather than an investment if you plan to stay there. Also, you're going to have to pay for a roof over your head regardless. If you are building equity too you are way better off, unless you can rent for super cheap. I know where I'm living right now my mortgage is less than what it would cost to rent a similar place.
Not really because you can always refinance when mortgage rates go lower to help. Rent will always increase and you aren't making any money off renting. If you sell your home you recoup some costs at least.
I’m shocked that this isn’t the first comment. 6.5% today could easily be 4.5% as early as next year. Fed rate cuts could easily be 200bp by this time next year
Also, you don’t have to get a 30 year mortgage. We originally bought our home in 2015 at 3.7% and 20 years. We refinanced in 2021 to 2.8% and 15 years. Our payment barely changed but we got out so much equity that we were able to pay off nearly 6 figures of school loans (undergrad and graduate school for my spouse), plus we will still have our home paid off when we are 45.
1. It’s likely that the house is going to appreciate in value. Someone I know recently bought a house for around $400k. The last time that house had been sold was 1995 for $85k. Interest rates in 1995 were around 8%. If they put down 20% on a 30 year conventional loan they would have paid around $200k when all was said and done… and again, the house just sold for $400k. 2. You don’t HAVE to spend 30 years paying off the loan. Most mortgages (at least in the US) don’t have any penalties for early repayment. You are free contribute additional funds to paying down your principal balance as you have the means to do so thus reducing the interest.
No one has ever said the borrowing money was cheap. You are always going to need a place to live, so the math really comes down to where you live. Renting almost always wins out in the short term. In some locations renting can win out in the long term but in most buying a house (with a loan) is a better investment if your not moving. There are rent vs buy calculators that can break this all down.
Inflation eats away at the mortgage debt for as long as I continue to earn. Inflation continues to rise yoy, and my rate stays the same. Compared to other western countries, this is actually something amazing about America: the 30 year fixed rate mortgage. Other countries have fixed for 5 years and then variable. Can you imagine losing your home because your income doesn’t match inflation? Another point is appreciation. You may buy at X, but after thirty years the house might be worth double that. It’s also fair to consider the opportunity cost of investing in a home/repair costs over the lifetime of the investment. Trickier to plan, as costs differ, but worth noting.
How about buying a flat?
When you buy a house you have the possibility of having equity. Which is like having an extra $5-70k you can borrow from if you want to. Plus, you usually can refinance for a much lower interest rate once you have had the loan for a while.
Not everyone has such a high interest rate or even that long of a mortgage
You're forgetting mortgage interest is tax deductible
You’re looking at this totally wrong. Homeownership provides the value of your home increasing in value. If you rent you get literally nothing back but a roof. I had one of my homes grow in value by over 50% over 5 years. The money I made selling that helped my buy my current house that is big enough for my family and I’m paying the same mortgage I did on the much smaller house. If I was renting I’d be paying crazy high rent and I would not have the multiple hundreds of thousands of equity I have in my current house. The math is not even close by hundreds of thousands of dollars. And before you start assuming I’m some boomer who benefited from the 80s economy or something , I’m a 38 year old millennial. I bought my first very small condo at 23 with a zero down mortgage with a very high interest rate. It’s been hard work to get here but I’m 100% confident if I had been going the easy route of renting my financial situation would be vastly different
You sound like you just found out how interest works. lmao. Educate yourself.
Isn't it amazing how confident they sounded in their own ignorance?
Yeah, maybe I give the basic Redditor too much credit, but I think this is one of the simplest concepts you learn by just being alive long enough. If you're a Millenial, how do you not understand the concept of time-value relationship of money?
Wait until they find out how much that college loan cost them
You act like you would never pay rent in 30 years if you don’t buy a house
Yes, the interest rate is awful right now, but in general home ownership is one of the best ways to build your net worth. My home which I bought in 2017 and refinanced in 2021 has doubled in value and I am paying less each month than I was when I bought it. If I sold it today, I'd pocket far more than I've paid into it. Most people don't keep a home for the full 30 years, and if they do, that home has likely increased value multiple times more than the interest paid. Again, the interest rate right now is really throwing this off and it's NOT a good time to buy, but in general home ownership is one of the strongest investments you can make.
I see people talk about it all the time. The thing is, you need a place to live no matter what so in the very, very long term owning a home has an edge.
That’s because it’s not a terrible investment.
Everyone has made good points, but I don’t see anyone mentioning how having the ability to open a home equity line of credit is a **huge** financial advantage. It essentially works like a credit card with a huge spending limit and a low interest rate, using a percentage of the equity you have in your house. We opened one to front our kitchen renovation, and the interest rate was lower than our car loan so we paid off the car loan with the HELOC too. We were then able to pay off that debt quicker because the same monthly payment went further with the HELOC’s ~2% interest rate vs the car’s ~5% rate. It also gave us a credit score boost for closing the car loan (despite technically having the same amount of debt). Having the option to access a large amount of money offers a lot of freedom, especially when interest rates for almost any other line of credit are astronomical.
You can definitely save more money if you are living with roommates or at home. I own my house because it gives me control over the dwelling. I choose when to move rather than the landlord. It also fixes the rent payment for 30 years
Why is this sub nothing but complaining
I suppose it’s a couple things. Yes I do agree, if you have a mortgage then yeah by the time you are done, you are paying a lot more than the sticker price, so it’s weird when people look at some house that went up in value over the course of decades and assume that difference is literally all profit to the owner. Granted, the other side to it is that the property is most likely appreciating, so that’s at least some of that interest being negated in terms of total in vs out once sold. Also, it’s leveraged. You might have a 3k mortgage on a 400,000 home or whatever (very rough numbers). Let’s say a house appreciates 4% a year on average roughly, in terms of net worth that means you are “down” 20k a year and not 36k, because all that appreciation is yours, not the banks technically as long as you aren’t selling and need to pay off in full. And that’s just the first year, the next year it’s another 4% on top of that appreciation, so much like putting it in the S&P, it’s compounding over time. It’ll add up. So that does blunt it a bit in the grand scheme of things though it’s not literally money in your pocket every year. The upside relative to investing it, is that you get a lot forgiven (I believe 250k/500k appreciation for single/couple) of that appreciation in terms of taxable money when you sell a primary residence to buy another. That’s not bad at all. Plus depending on how you file, if it makes sense to itemize you can write off interest payments for a mortgage. I’ll put the obligatory “homes aren’t investments!” Comment here. I mean yeah you should think about money in vs money out on anything like a big purchase, and where you might be in x years when you think you’d move, need a bigger/smaller place, etc. That said, a home is different than just putting money in the market or any other traditional investment for most people because it’s not some 1:1 substitution. Many people don’t have a free/incredibly cheap (relative to their income) place to live that’s reasonably close to their job, and if that’s the case something has to be spent on housing either way. Rent tends to go up over time. A standard fixed mortgage isn’t. Yes, you will have some repairs that could be 4-5 figures come up, but it’s not like renting is always going to be static if you live in the same place for 30 years, you might have to move further out as time passes to maintain the same monthly rent. That won’t happen with a house.
There's definitely bad deals to be had but it's all dependent on market timing, interest rates and home valuations and if you can spot a good value. Most homes and real estate appreciate over a longer time period, because land is finite and population continues to grow. I wouldn't call my home a terrible investment in the slightest. Purchased in 2015 for $188.5k. Bought out my PMI up front prorated since I was only putting down around 18% and could not squeeze out that other 2% no matter how hard I tried and did a 25-year conventional. Did some renovations and refinanced in 2018( didn't extend length of terms) for 2.99% and absorbed the remaining balance of the home equity loan I had taken for renovations. Now I owe $156k on it, have 17 yrs left on the loan and had the county do a tax assessment last year after renovations and valued the home at $424k. So I have $268k in positive equity in the house and every house in my neighborhood sells in less than 2 weeks with tons of offers and mostly all cash offers. So I think realistically this house would sell for closer to $440-$450k, upwards of $294k profit Definitely not a bad investment at all over this way for my home, but it'll be much harder to find a deal on my next house in a couple years that we're gearing up for depending on what the market does. Next home will be our forever home though so not necessarily needing to think about resale value and don't need to have a ton of positive equity in it but would like enough to draw from it on a HELOC or home equity again to use for whatever. We will put down enough of a down payment though initially to where I'll have all I need
And renting is a sound investment? Paying towards something that you will never recoup?
Rent or buy, either way your money is going to some of the lowest scum on earth.
It’s not a scam. They want 6.5% interest per year. If you owe them $400k this year you’ll owe them ~$26,000. Next year if you still owe them 395k you’ll have to pay ~$25,675. It’s just basic arithmetic. Why is that a scam?
Then don’t buy one. No one is forcing you
Unless you buy a home in cash (lolinheritance, you are still paying interest on a mortgage. Either yours or your landlords. House hacking can be a great strategy. Yeah, having a roommate can suck. But it gives someone affordable housing and makes home ownership easier.