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Summary: Do you currently pay rent? Are you worried about jumping into homeownership because you think that paying a mortgage will be much more expensive than paying rent? Depending on where you live, the down payment amount you pay, and the interest rate you lock in, you could actually be paying a lot less in mortgage payments compared to monthly rent payments. This article will show you how rent might be more expensive than what landlords are paying in mortgage payments.
In the overwhelming majority of the 50 largest cities across the U.S., monthly rent is more than the mortgage payment for single-family homes. In several cases, much more.
Global answering service and chat support company Moneypenny compiled data from Zillow on median rent and mortgage payments from July 2014-July 2019.
In order to calculate the monthly mortgage payments, Moneypenny took the median home sale prices during the same time period and in the same major cities and then used nationally-average mortgage terms: 30-year fixed rate at 4% with approximately 6% down.
Once the two figures — median monthly rent and median monthly mortgage — were calculated for each city, they were compared side-by-side. The data may surprise you.
In just seven of the 50 cities analyzed, tenants pay less rent than the owner’s mortgage payment each month. In 28 of the cities — well over half, tenants are paying more than 150% of their home’s mortgage.
Let’s take a look at what you would be paying in monthly mortgage payments compared to rent in different states across the Pacific Northwest. This will give you an idea of how much you might actually be paying extra in rent compared to what you would be paying in mortgage payments.
Rent Vs Mortgage Payments in Washington State
In Washington state, the average home price is currently $422,452. The market in Washington State is very hot right now. Prices have already increased by 5.7% over the past year and are expected to rise another 4.9% over the next 12 months. The average rent in the state is $1,995. So, how does that compare to mortgage payments?
Using the parameters mentioned above, the monthly mortgage payment for an averaged-price home statewide would be $1,701. As you can see, that’s almost $300 less than what you would pay in an average rental.
Let’s take a look at payments in various cities across the state. Keep in mind that the mortgage payment amounts are based on a 10% down payment applied and a mortgage interest rate of 3.5%:
- Average home price: $445,844
- Mortgage payment: $1,402
- Average rent: $1,850
Rent is about $250 less than mortgage payments.
- Average home price: $257,524
- Mortgage payment: $1,037
- Average rent: $1,295
Rent is almost $300 more than mortgage payments.
- Average home price: $445,844
- Mortgage payment: $1,796
- Average rent: $1,850
Rent is just over $50 higher than mortgage payments.
Rent Vs Mortgage Payments in Oregon
In Oregon, the average home price sits at $369,227. The market in Oregon is considered warm right now. Home prices have risen 3.0% over the past year and are anticipated to increase at a slightly faster pace of 3.9% over the next 12 months into April 2021. The average rent in the state is $1,850. Let’s see how that compares to mortgage payments.
Using the same parameters as above, the monthly mortgage payment for an averaged-price home across the state would be $1,487. As such, you would be saving around $363 compared to if you were renting.
Let’s look at the numbers across various centers across the state of Oregon:
- Average home price: $462,387
- Mortgage payment: $1,862
- Average rent: $1,975
Renting would cost you about $100 more than paying a mortgage.
- Average home price: $342,445
- Mortgage payment: $1,379
- Average rent: $1,662
Rent is about $300 more than mortgage payments in Eugene.
- Average home price: $294,703
- Mortgage payment: $1,187
- Average rent: $1,595
You could save about $400 a month if you were paying a mortgage rather than paying rent in Salem.
Rent Vs Mortgage Payments in Idaho
In Idaho, the average home price sits at $295,143. The market in Idaho is characterized as very hot these days, according to Zillow. Home prices have spiked 9.7% over the past year and are expected to continue increasing rapidly at a rate of 5.8% over the next 12 months. The average rent in the state is $1,400.
When calculating monthly mortgage payments for an averaged-price home across Idaho, you’d be looking at paying $1,189 per month, which is over $200 less than what you would pay in rent.
Let’s look at the numbers in different cities across Idaho:
- Average home price: $336,276
- Mortgage payment: $1,354
- Average rent: $1,475
Renting in Boise would cost you about $100 more than paying a mortgage.
- Average home price: $238,587
- Mortgage payment: $961
- Average rent: $1,300
Rent is more than $300 compared to mortgage payments in Idaho Falls.
- Average home price: $184,583
- Mortgage payment: $755
- Average rent: $875
You could save about $100 a month if you were paying a mortgage compared to paying rent in Pocatello.
Rent Vs Mortgage Payments in Colorado
The average home price is currently $405,146 in Colorado. The market in the state is cool right now, according to Zillow. However, prices are on the rise. Home prices have increased 2.9% over the past year and are expected to increase 3.8% over the next 12 months. The average rent in the state is $2,000.
If you were to pay a mortgage, however, you would be $1,632 per month, which is just under $400 less than what you would pay in rent.
Let’s look at the differences in various cities across Colorado:
- Average home price: $457,580
- Mortgage payment: $1,843
- Average rent: $2,150
Renting in Denver would cost you about $300 more than in mortgage payments.
- Average home price: $320,011
- Mortgage payment: $1,289
- Average rent: $1,640
Rent is just under $400 compared to paying a mortgage in Colorado Springs.
A Word About Expenses
While it makes perfect sense that rent prices in hot real estate markets are higher, some may still be surprised by the disparity between rental amounts and monthly mortgage payments. However, it’s important to note that even in the cities with the biggest gap, landlords are not necessarily pocketing the excess and enjoying a nice profit. While it’s certainly possible that they may be, homeowners are more likely putting some of that money back into the house in the form of improvements and maintenance, as well as setting some of it aside for large emergency repairs.
There are certain expenses related to owning a property. Maintenance, repairs, property taxes, and other miscellaneous expenses apply to owning a home. But if you think about any money put back into a home for improvements, you can actually increase the value of your home if you spend the money wisely. Certain improvements and upgrades came in a high ROI, such as kitchen makeovers, bathroom remodels, new flooring, and updated landscaping, for instance. Choosing the right type of improvement to make can prove to be very beneficial when it comes to a quick appreciation in value and an increase in home equity.
If you are in the market for a new home or interested in refinancing your current property, be sure to contact your trusted home mortgage professional to discuss financing options.
Have Questions About Mortgages?
Are you ready to leap into homeownership? If so, you’ll need a mortgage to finance it, and Sammamish Mortgage can help. We are a family-owned mortgage company based in Bellevue, Washington and serve the entire state, as well as Idaho, Colorado, and Oregon. We offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have mortgage-related questions.