Why Renting Isn’t Always Cheaper

Renting May Feel More Affordable Upfront, but Homeownership Can Offer Long-Term Financial Advantages Worth Considering

There are many mortgage myths about down payment requirements, interest rates, credit score expectations, and more. A common belief among many potential homebuyers is that renting is more affordable than purchasing a home. Let’s dig into the facts based on today’s market value and discuss the pros and cons of renting as you consider your first home purchase.

Consider Average Rental Prices

For Midwest residents, renting can be more expensive than buying a house, depending on the size and location. Whether you are looking for a studio apartment or something with one to three bedrooms in the urban or metro area, here is what you can expect to pay. As a current renter in the Twin Cities, paying more than $1,500 monthly for rent is very easy, according to market trends on Apartments.com. Investing that same amount in a mortgage payment would allow me to at least build equity in an investment.

Building equity is relatively simple for those who need clarification on what that means. Equity is the difference between what your home is worth and what you still owe your lender. So, as you pay down a mortgage, you hope the value of your home increases, allowing you the chance to build and sustain equity.

North Dakota

Minnesota

Wisconsin

Assess the Potential Pitfalls of Renting

Renters have minimal freedom in terms of controlling their environment. If you simply want to paint your residence, you must ask permission. If there are maintenance issues, you may have to jump through hoops with your landlord to address them adequately.

• You do not build equity when you rent. Instead of investing your money in your home, the landlord receives all the financial benefits of property ownership.

• Landlords control monthly payments. If the landlord decides to increase the rent after your lease ends, there's little room for negotiation.

• Contracts only guarantee housing months at a time. If you know you’re going to be in an area for a long time, you may not be able to stay in the same home. If the landlord sells the property, there’s no guarantee you will be able to renew your lease.

• Not all rental properties allow pets: When signing a lease agreement, the landlord may prohibit pets. This can limit your rental options if you have pets.

• Maintenance requests may get the "landlord special." Some landlords are slow to respond to maintenance requests, or provide cheap, non-lasitng fixes – causing frustration and dissatisfaction.

Gain More Freedom with Homeownership

When you become a homeowner, you gain more freedom to do whatever you want with your property. You are no longer constrained by a landlord's rules. If you want to paint, knock a wall down, or replace fixtures, you can. Most importantly, you are building equity.

The Reality of Renting in Today's Market

If you can afford to rent in this market, you can likely afford a mortgage payment. With available resources for first-time homebuyers, such as loan programs and down payment assistance, there is no excuse for not transitioning to homeownership. Why would you want to continue building equity on your landlord's behalf? Frandsen Bank & Trust makes it extremely easy to determine your buying power. Visit your local Frandsen Bank & Trust location and ask a lender to start a prequalification process. This will help you determine affordability based on your financial information.