According to 2017-2021 data from the U.S. Census Bureau, nearly 44 million housing units (34% of total U.S. households) are rented. The agency also suggests the average household size is 2.6 people, so, in actuality, there are 114.4 million renters.
Renters pay an average of $2,052 per month, 3.3% more than they paid this time last year, according to Zillow’s rental report for August released on Sept. 8. But this year's 3.3% year-over-year growth rate seems modest when compared to the record-high 16% surge in rent observed in February 2022, as tracked by Zillow.
Still, if you’re shelling out over $2,000 per month, would that money be better spent on a mortgage? The Balance pegs the median monthly cost of homeownership at $1,558 per month, which includes the payment on the loan’s principal and interest as well as associated fees and property taxes.
Of course, mortgage rates are on the high side now, hovering above 7%, but even if you purchase now you’ll be able to refinance when rates do drop — which Freddie Mac and others predict may start next year. “Even with interest rates at a perceived high point, it could be more beneficial to pay a mortgage instead of rent. Doing so could save you a few hundred dollars a month and help you build long-term wealth,” says Kevin Crooks, AAFMAA Mortgage Services LLC (AMS) Business Development Manager.
Related: It's PCS Time — Should We Live on Base? Rent? Or Buy?
Weighing the Options
Buying instead of renting a home is not just a monetary decision though. One of the biggest factors in your rent-buy decision is knowing how long you’ll stay in an area, Crooks says. “If you’ll only be there 12-18 months, it might not be worth the money to buy,” he says, “and it may be more expedient, in and out of an area, for you to rent.”
Selling a recently purchased house costs money, he points out, including any necessary repairs and staging before it goes on the market and paying fees and real estate commissions at the close.
Renting an apartment or house is pretty straightforward. You’ll sign a lease agreement and pay a security deposit, first month's rent, and possibly the last month's rent. Once you’ve signed on the dotted line, you will pay rent each month. But there is an element of uncertainty here. When you rent, your rental payment can be increased (with proper notice). However, you won’t be responsible for major repairs and, if you receive PCS orders, you’ll have the option to terminate the lease with a 30-day notice.
What It Costs to Buy
When you buy a primary residence with a VA Home Loan, which typically offers competitive interest rates with no down payment required, you’ll need to work with a VA-approved lender such as AMS to determine how much you can borrow. Some lenders require a credit score of at least 640 and a low debt-to-income ratio, so before contacting a lender you might want to find out what your score is and take steps to improve it if needed.
In addition to lender and agent fees, you’ll pay a funding VA fee for the loan that varies by how much you’re borrowing and the amount of your down payment (if any) plus your VA status, as some Veterans are exempt from paying the VA funding fee on a VA Home Loan.
There are other low-down options, too, including mortgages with Down Payment Assistance (DPA) programs offered by many housing finance agencies and localities, FHA mortgages (as low as 3.5% down), and conventional (3% down options). Your AMS Military Mortgage Advisor can help you explore options and match you to the best financing for your situation.
Related: How Much Does It Truly Cost to Maintain a Home?
Benefits of a Mortgage and Homeownership
The good news with any fixed-rate mortgage is that you’ll pay a set monthly mortgage amount that may include an escrow account for having your mortgage company pay your property taxes and homeowners insurance. In addition, as a buyer, you also can choose where you live, remodel to your liking, and start building equity. “In many areas of the country, home prices are rising steadily and owning for even a few years can give you a good return on your investment,” Crooks says.
Of course, as a homeowner, you’ll be responsible for all maintenance and repairs — there is no landlord to call when the air-conditioner goes out!
One final note, if you absolutely love your house but need to move, you can consider renting it out. “A lot of Members own homes in multiple states to build wealth. It can be a very effective investment strategy,” Crooks says.
Related: Renting Out Your Home? Here's How to Get Started
We’re Here to Help with Your Mortgage
Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AMS Military Mortgage Advisor will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs.
Ensuring AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-422-3622!
This article was originally published July 20, 2020.