Have you been renting as a way to save money? It may be time to make a move. Rent has been steadily increasing in recent years and in many cases it’s less affordable than owning a home.
Many people continue to rent because they think it is more affordable. However, rents have increased across the country while the average mortgage payment has actually dropped.
The typical mortgage payment (based on the U.S. median home sale price that incorporates both principal and interest) has decreased four percent since 2005, while the monthly cost to rent a single-family home has increased by 36 percent (according to a report from CoreLogic).
Whether you buy or rent, the key is to always try and keep your housing costs below 30 percent of your monthly income. In other words, live within your means.
The 30 percent rule — that a household should spend no more than 30 percent of its income on housing costs — has long been accepted in academic circles and is often included in blogs and websites on family budgeting. The 30 percent rule traces back to The Brooke Amendment passed in 1969 as a response to rent increases and complaints about services in public housing, capped public housing rent at 25 percent of a resident’s income and in 1981 was changed to 30 percent.
The Department of Housing and Urban Development defines cost-burdened families as those “who pay more than 30 percent of their income for housing” and “may have difficulty affording necessities such as food, clothing, transportation, and medical care.” Severe rent burden is defined as paying more than 50 percent of one’s income on rent. Examples of housing costs can include mortgage, property taxes, utility bills and other expenses associated with housing. Cost-burdened households feel a significant financial strain as a result of their housing costs.
Renters are more cost-burdened than homeowners. 47 percent of renters spend more than 30 percent of their income on housing according to Harvard University Joint Center for Housing Study 2019. A report from CoreLogic found similar results, with 46 percent spending more than 30 percent of their total income on rent compared to just 27 percent of homeowners.
Renting? You are less likely to be cost-burdened as a homeowner than a renter which is good news if you’re a renter who has been thinking about buying a home. You may be able to pay less per month and own a home rather than rent and pay someone else’s mortgage.
Are you cost-burdened and own your home? Contact us today to look for a home with a more manageable monthly payment.