Through most of history, it has cost more upfront to buy than to rent.
Thereâ€™s the initial downpayment, and closing costs can be expensive, too.
But a reversal is underway.
Rents and move-in charges are rising, while downpayments are dropping.
Today, your landlord may charge you more to move in than your lender.Click to see today's rates (Jan 16th, 2017)
If youâ€™ve looked for an apartment lately, you may have noticed something.
The rental market is strong, and the competition fierce.
In a "down" market, you can find landlords that don't require last monthâ€™s rent, and accept a minimal security deposit. Theyâ€™ll do anything to keep units from going empty.
But the economy is getting healthy, and young workers sidelined by the recent recession have found jobs. They want their own place to live.
Unemployment is around 5% and workerâ€™s wages are increasing. Thereâ€™s little incentive for todayâ€™s workers to continue living with their parents or in a friendâ€™s basement.
A recent Census Bureau report backs that up. About 1.1 million new households formed in the third quarter of 2016, up 16% from the quarter prior.
The demand is straining the rental market.
Now, landlords can charge a premium not only in monthly rent, but in move-in charges too.
In fact, in Seattle, new legislation is being proposed that would limit upfront fees landlords can charge, and create payment plans for last month's rent. The upfront cost of renting is getting out of control.
These charges are often based on the apartment or homeâ€™s monthly rent, so rising rents donâ€™t help.
According to ApartmentList.com, a two-bedroom home had a nationwide median price of $1,270 per month in November 2016, two percent higher than the year before.
Based on that price, hereâ€™s what you can expect to pay to move into an apartment:
The total cash needed to move into an apartment could be up to $4,100. Not cheap by any measure.Click to see today's rates (Jan 16th, 2017)
Keep in mind that these number are based on the national median price.
If you plan to rent in an expensive city, such as Seattle, Miami, Boston, or Washington, DC, you could pay a lot more to move in.
Prices are higher, yes, but competition is tougher, too.
Landlords are unlikely to give you any breaks on upfront fees.
Letâ€™s look at an example of estimated cost of moving into an apartment in Seattle, Washington.
Per ApartmentList.com, a two-bedroom will run $2,350 per month. Move in costs would add up as follows, assuming no pets.
Upfront cost would ring in at about $7,000.
Surprisingly, you may be able to buy a home near Seattle -- or your city of choice -- for less out of pocket.Click to see today's rates (Jan 16th, 2017)
Thanks to zero-down loan options, out-of-pocket expenses are low in todayâ€™s market.
The USDA home loan is one such option. It is a 100% financing home loan for which credit and income requirements are lenient.
For eligible U.S. military member, the VA home loan is a good option. Like USDA, it requires no downpayment and comes with some of the lowest rates of any loan product.
You can even use FHA as a zero-down loan, if you receive a financial gift for the required 3.5% downpayment.
To move into a home, assuming a zero-down loan, you would need cash for the following items.
According to a recent Bankrate study, lender and third-party closing costs averaged around 1% of the loan amount each.
So, how much is the loan amount?
A search on Realtor.com shows USDA-eligible properties near Seattle for $425,000. The USDA loan finances 100% of the purchase price, so the loan amount would approximately equal the price.
Beyond closing costs, add on â€śprepaid itemsâ€ť -- property taxes and homeownerâ€™s insurance -- that the lender requires you toÂ deposit at loan closing.
Based on averages, then, a homebuyer purchasing in a USDA-eligible area near Seattle could expect to pay the following costs out-of-pocket.
Thatâ€™s $11,500 -- more than it costs to move into a rental.
But, unlike landlord costs, you can reduce your out-of-pocket fees when buying a home.
You can request a lender credit. In this arrangement, the lender pays all or part of your closing costs for you. The lender raises your rate slightly above market rates, and credits you the extra profit generated from doing so.
Even with a higher-than-market rate, you still end up with a very affordable home loan. Mortgage rates are currently very low.
A lender credit could bring your upfront costs down by about 1% of the loan amount, or $4,000. That brings costs of ownership within the range of upfront rental costs.
But there are ways to reduce costs even further.
Get creative. There is a good chance you could own a home for less money out-of-pocket than it takes to rent.
Here's an example.
That's $1,500 less than it would take to start renting, taking the example of the Seattle renter.
If the downpayment and closing costs are all that are keeping you from buying a home, compare real upfront costs.
Owning a home may not be as expensive as you think.
Mortgage rates are near historic lows. Itâ€™s a fantastic time to look for a home.
Check your home buying eligibility. You could be surprised at what you can afford in todayâ€™s market.Click to see today's rates (Jan 16th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)