Rent vs. Buy

by Anthony SanFilippo

Rent vs. Buy

Christopher Proctor has been renting a home for his family for the past eight years.

It’s a nice home, albeit on the smaller side, but it’s practical. Three bedrooms, which is sufficient for him, his wife and two teenage sons.

But after all this time, the rent is starting to become a headache.

Proctor, originally from Lincoln, Nebraska, moved to Chicago where he met his wife Dawn and his sons were born.

But, when Proctor’s company moved his job to Philadelphia, he had to find a place for his family to live.

“Coming to the East Coast was a real challenge on many levels, but especially financially,” he said. “I was making a decent salary, one that would have been able to buy a nice house back home in Nebraska, but the cost of living in Philly is crazy.”

Wanting to set up in a suburban community with a reputable school district for his sons, Proctor decided to rent a home at the time, since it seemed to make more sense.

The thought process was to rent until he can save enough to buy a home in a couple years.

Well, a couple years has become eight. The rent has increased at a faster pace than his salary. His wife has had to take on a second part-time job to help cover expenses. It’s gotten to the point where the Proctors are spending more than half of their income on rent.

So, why not stop renting and buy?

“I don’t think we can afford it,” Proctor said.

Then again, maybe he can.

Confusion About Down Payment Requirements

“Many renters can, in fact, qualify to purchase a home,” Danielle Hale, managing director of housing research for the National Association of REALTORS® (NAR), said. “They may not realize it, but given the low down payment options that are out there, they can take a more serious look at home ownership than they probably expect.”


“Many renters can, in fact, qualify to purchase a home. They may not realize it, but given the low down payment options that are out there, they can take a more serious look at home ownership than they probably expect.”


In fact, even with housing costs on the rise and steep closing costs and other taxes on buying a home, in most areas of the country it is more affordable to own a home than it is to rent one.

For the past two years, NAR has been measuring home-owner and non-owner sentiment in housing as part of the Housing Opportunities and Market Experience (HOME) survey.

Updated quarterly, NAR tracks data regarding things like home ownership intent or desire. To see if people think now is a good time to buy a home or if it makes sense to stop renting and buy or to continue renting.

The people polled in this survey are the same average Americans who drive the housing trends and markets today. Therefore, the HOME survey can be very beneficial when deciding what to expect next and help shape important decisions.

The survey shows that half of all renters in America, much like Proctor, feel like they can’t afford to buy a home.

“Some of that we found is attributable to student loan debt and they don’t feel comfortable taking on additional debt,” said Jessica Lautz, managing director of Survey Research and Communication for NAR’s research division. “The other aspect of it is the misperception of down payment options.

Thirty-nine percent think they need more than 20 percent down to purchase a home. Eighty-seven percent think they need more than 10 percent. There’s a gap in knowledge between low down payment options and what they believe they need.”

Hale added that the biggest problem is a lack of education on how the process works.

“We know that in the long run homeowners accumulate wealth as they pay down their mortgage, and home ownership remains part of the American Dream. Our data shows that right now it’s probably more affordable for renters to buy a home than they realize.”


“You can put as little as 3.5 percent down using a Federal Housing Administration loan. A lot of these people could afford a monthly mortgage given the prevailing home prices…”


“You can put as little as 3.5 percent down using a Federal Housing Administration loan. A lot of these people could afford a monthly mortgage given the prevailing home prices, especially in markets in the Midwest and South. These are the areas where the greatest share of renters could stop renting and potentially become a homeowner.”

When he was told he could buy a home with as little as 3.5 percent down, Proctor was apoplectic.

“That’s crazy,” he said. “Seriously? And here I’ve thought forever that you need 20 percent down or 15 percent at least with maybe some help from the seller. Three-and-a-half percent? That’s like only three months rent, that’s definitely doable.”

Is it more affordable to own than rent?

And it’s something that many REALTORS® want to see more people understand and be a resource to help them learn the ins and outs of the home buying process.

“Homeowners are more rooted,” said Lawrence Yun, Chief economist for NAR. “They stay in the community for a much longer period – on average about 10 years. Whereas renters move every two or three years, so homeowners have a more vested interest in community development.”

NAR has looked at this data in the top 100 metropolitan markets in the country and in more than half of them, it is still more affordable to own than rent.

Hale said that nationally, rent is increasing about 4% annually, but that if you isolate that to specific metropolitan areas, the rise in rent can be 25% or even higher – which really can put renters in a financial bind.

“Non-owners typically are younger (59% are under 35) and they typically have a household income under $50,000 annually,” said Hale.

“Imagine that in a big city?” said Lautz. “The rent can be overbearing. It’s likely better to try and buy a home in that case.”

And while more than half of non-owners think now is a good time to buy a home, that sentiment has dropped from 63% to 55% in the past 12 months, meaning the rising cost of living is adversely affecting the dream of owning a home on millennials.

Which is why they should seek out help in the form of real estate experts who can help them to understand their options, show them listings available within their budget and put them in touch with mortgage experts who can help them understand what their budget is.

It’s a step Christopher Proctor is going to take now that he knows, as he more vigorously looks to become a homeowner in a major metro market.

“I hope my story helps others to recognize the same thing, and to be proactive and go buy a home for themselves,” he said.

Watch the video on the “rent vs. buy” question