Should you rent or buy?

The question of when to pursue homeownership—or whether do this at all—is on the minds of many people today. In many ways, it’s a subjective question―is renting or buying best for you?

Although some consumers view owning a home as an important step in achieving the American dream, others prefer renting their living spaces for greater flexibility and a reduced financial burden. In addition, some renters feel that there are too many barriers to owning a home. In 2023, approximately 45 million housing units were occupied by renters, part of an upward trend since 1975.

Still, 72 percent of respondents to a survey said that they’d like to one day own their home. The biggest reasons they aren’t in the market to buy a home are financial―unable to afford a down payment or feeling weighed down by current debt.

Can you afford to buy a home?

So, how do you know if you can afford a home? Consider these factors:

Evaluate your income and financial obligations.

The general rule of thumb is to keep housing costs below 30 percent of income. This includes housing-related expenses like insurance, maintenance, and utilities, in addition to your monthly mortgage or rent payment.

Of course, this isn’t a hard-and-fast rule. The 30 percent standard dates back to 1981 when the federal government defined families that spend more than this percentage of their income in housing to be “cost-burdened” and those that spend more than half of their gross income as “severely cost-burdened.”

For some families, spending more might be necessary, especially if they live in a high-cost area like the Portland metro. Others might be able to comfortably afford more than 30 percent on their housing if they have no debt, few other financial obligations, or more discretionary income.

Compare additional costs.

Both renting and buying come with additional expenses outside of the monthly payment. Some of these expenses, such as utility payments, will be there whether you rent or buy―unless your utilities are included in your monthly rent. But there are some expenses that depend on your homeownership status. Consider the impact of these costs when making your decision:

Additional costs of renting.

Overall, additional renting costs are minimal. They generally come down to two things:

• Renters insurance. This will help you out financially if something bad happens to your personal items.
• Security deposit. Although you may get this back at the end of your lease, it’s still a large sum of money you have to pay upfront.

Additional costs of buying.

Extra costs for buying a home are a little bit more expensive than those associated with renting.

• Down payment. Usually buyers will provide a down payment ranging from 3 percent to 20 percent. The size of the down payment may influence the rate you qualify for, and the more you pay upfront, the less you’ll pay in interest in the long run. However, OnPoint has a zero percent down payment option that may work for you.
• Property taxes. These depend on where you live and are calculated as a percentage of the value of your property.
• Closing costs. Aside from the down payment, these include fees for attorneys, title search, and more.
• Maintenance. Homeowners should anticipate maintenance costs ranging between 1 and 1.5 percent of the home’s value annually. You may also need to plan ahead for larger expenses such as roof replacement.
• Homeowners insurance. Like renters insurance, this offers financial protection in case of property damage and is generally required to secure a mortgage loan.

Understand how tax benefits for homeowners might benefit you.

One of the major benefits of buying a home has long been the favorable tax breaks that come with the purchase. Homeowners who itemize their deductions rather than taking the standard deduction can deduct their mortgage interest payments, which can soften the cost of homeownership. However, many people benefit more from taking the standard deduction, in which case your mortgage interest payments may not make a difference in your tax bill. In general, buyers may be able deduct the interest on the first $750,000 of mortgage debt on their primary residence and may be able to deduct state and local taxes as well.

OnPoint is not qualified to provide tax advice, so be sure to consult a tax professional as to the best options available for your circumstances.

Find the breakeven point.

The upfront costs of buying a home will always exceed the costs of renting, at least in the short term. One factor to consider is how long you might plan to stay in your home. The longer you plan to stay, the more beneficial it can be to buy, as there will be a breakeven point where the long-term cost of renting equals and then surpasses the costs of buying.

For a quick reference on comparing your rental prices with home prices in your area, use our rent vs. buy calculator.

By comparison, here are some apartment rental averages for different areas in Oregon:

• Portland: $1,729
• Aloha: $1,684
• Beaverton: $1,781
• Bend: $1,781
• Eugene: $1,807
• Gresham: $1,687
• Lake Oswego: $2,086
• Salem: $1,462
• Tigard: $1,747

There are a wide range of factors that will affect your decision on whether to purchase a home or continue to rent. For a more complete picture of how to determine if buying a home makes sense for you, reach out to our mortgage team. They can help answer your detailed questions.

Weigh other ways to build wealth.

Another commonly cited reason to buy a home is the opportunity to build wealth. When you pay rent, you’re only paying for one month of living space. When you pay your mortgage, though, you’re making an investment. With every mortgage payment, you own a little bit more of that house. As your equity accumulates, you have the option to take out a home equity loan or potentially sell the house to access your equity.

However, homeownership isn’t the only wealth-building path a person can take. If renting makes more sense for your situation, you can still build wealth through other strategies. Instead of making a down payment and contributing closing costs, your cash could be earning interest in a high-yield savings account or through strategic investments.

When deciding whether you want to buy or rent your home, it ultimately comes down to your personal financial situation and preferences. If you have questions in regards to your options, our loan officers are here to help.