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Show HN: Should I Get a House? a better rent vs. buy calculator (shouldigetahouse.com)
203 points by alach11 9 days ago | hide | past | favorite | 409 comments





These calculators don't reflect the reality/absurdity of the current economy. Anecdotal, but I bought a house in eastern California last year for $600k, now Zillow says it's worth $835k. Also, I'll unlikely ever be able to afford a house in the Bay Area, even though I make $220k/year at a company there. Still don't know what I'll do if my employer makes us return to the SF office in a few months. Relatedly, a ~70 year old woman bagged my groceries today and I doubt she's doing it for fun. Seems the accelerating wealth inequality is destroying our society/communities if it hasn't already.

If you had a significant other with a similar upper middle class wage, e.g., $220k * 2 = $440k you could probably swing it with more breathing room. You are wise to avoid the burden, in the chance you technically qualify for the mortgage but barely so in the Bay Area (e.g., leaving you house poor). The fact that home affordability requires a HH income in the top 2-3% is, to put it mildly, highly concerning.

It makes the trend of many millennials not trying (a bit of nihilism) seem reasonable. Why aspire for great career success and an above median income, when you can't get much for it? A better life, at that point, is likely to optimize for cheap hobbies and leave the high-pay work stress behind. Honestly, it sounds like a fairly rational decision.


The nihilism doesn't make sense from someone making $200k/yr though. If you're in a career with little advancement and making minimum wage then yeah sure, but if you write software at a FAANG, then lets back of the envelope for a second.

$200k is like 130k take home pay after taxes, (which is just shy of $11k/month). 20% down on a million dollar house is 200k. If you're able to put $4k/month towards a future down payment, that's 50 months, or just over 4 years. If you were making that when you are 30 years old, if nothing changes from then (which it won't), you can buy a million dollar house before you're 35.

If you put it into stocks instead of holding it liquid for those 4 years, then before long term cap gains tax (California and Federal), then you'll need closer to $300k. Which still seems like it should be doable before you're 40. (If you bought AAPL at the height of the 2008 bubble, you'd be doing quite well today.)

Does it seem reasonable to me that housing is this expensive in the Bay area? No! Does it seem feasible for someone who's software development career is going well, to be able to afford a house, eventually, if they make that a priority? Quite.

There are many directions someone making $200k/yr at 30 can choose to go with their money, and I don't begrudge anyone the agency to make their own decisions. But let's not say that someone making those kinds of wages can't afford a house. They may prefer to use DoorDash for every meal and extravagant vacations instead of buying a home, but people who make less money are forced to make much tougher, more existential choices on how to spend their money.


Nothing says you have to buy a house and settle long term in the Bay Area.

I’ve know people who get a rent controlled place, work 10 years, sock away $1M+ in savings, then go somewhere cheaper with good schools to have a family.

Being able to put away $1M+ in savings by the time your in your early 30’s is huge.


$200k+ yearly salary is in no way at all, middle-class.

Do you mean to say they are > or < than middle-class?

It's 4x the median per capita income in San Fransisco, and double the median household.

Or work remotely. One can make way above prevailing local salaries working remotely for SF Bay Area companies.

I'll echo this. The 6-7 years of "California" tech experience pays dividends in other countries. Ended up moving to Taipei so my example is a bit extreme, but I have quite a few friends making "low end" California $100k-120k USD/year wages while living in the middle of nowhere Canada.

I still wanted to live in a city, and Taipei has all the amenities Los Angeles or San Francisco had (nice bars, hipster coffee shops, great out doors areas). My friends wanted big wide open space and being close to family in Canada.

I was being paid on the "low end" for an engineering manager in California but in the top 1% in Taiwan.

For anyone considering trying "location arbitrage", whether that be in a "normal" city in a middle state of the USA, or a more extreme example like myself, I high recommend giving it a shot. You can _always_ move back to SF, LA, NYC, London, Hong Kong etc. The only risk you're making is the slope of your savings account decreasing slightly.

Remember, you'll never have _more_ time and _less_ responsibility then right at this moment. You'll only get less time and more responsibility as time passes on.


I think this cannot last for long - supply and demand would push wages down as more people are available for the position.

May be not this year, or next, but the long term trend of work-from-home will make this true.


I’ve been seeing this sentiment since the late 90’s. All signs point to the market staying irrational longer than I stay on the market.

> upper middle class wage, e.g., $220k

Oh, so you live on one of the coasts, then.


It would be helpful if you would post a comparison of income vs housing cost in your area. They're replying to someone posting about San Francisco.

The US: Highest inequality in the Western world.

Also the US: Everyone is middle class.


220 is a wage at the upper end of what can be typically made by the time your 30 if you’ve chosen the right careers. There are notable exceptions with recent top tech offers - but I work for a fang as a software engineer and didn’t break 200 take home until I turned 32.

If you need 2x those incomes to afford A basic necessity such as housing than we’re likely to have a problem.


> 220 is a wage at the upper end of what can be typically made by the time your 30 if you’ve chosen the right careers.

This is typically true if you work for a fang. These insane salaries rarely exist anywhere else.


I’ll offer a slight disagreement. They are more common than you think, and you don’t need to be exceptional to receive such a package. Positioning your strengths during negotiation is helpful. Knowing the market and laying out what you (presumably a developer) bring to the table goes a long way.

It is more common than you might expect across industries if you are good at what you do. I know a biz dev person at a mediocre book publisher that earns that much and they’ve worked remote much of their career.

It's not an uncommon salary - but its not typical as of 2021. The individuals with this compensation are typically either experienced, or educated in a remunerative field (including comp sci grads).

A society that sets the bar for home ownership at this level is going to have trouble, in an inflationary environment home ownership completely changes the savings rate for an individual as inflation eats away at the mortgage payment. By the time 30 years is up and the individual owns the home, they benefit from massively reduced housing costs into their retirement.

If instead these individuals are renting into their 30s/40s/50s they won't have the cash flow to backstop their retirement, fund college, create businesses, or other activities that result from capital accumulation.

What's worse is that a larger fraction of the eventual benefits that these individuals require will be paid into rent on properties that are likely owned by investment banks and others whose borrowing power is unconstrained.


> break 200 take home

Does take home mean excluding equity grants? a lot of the compensation from tech firms these days would be some form of equity.


it does not :shrug:

EDIT: For more detail, many of the higher comps you hear about for junior engineers come from stock that appreciated much faster than the company intended when they decided your comp. The more Senior roles at most big tech companies also tend to require ~8-10 years of professional experience to be hired externally.


Just to follow up on a deleted comment that thought I was complaining, I guess my point is that decent housing (both renting and owning) has become unaffordable for most people. High-income earners like myself will be okay, if okay means spending half of my salary on rent where I literally step over homeless people as part of an hourlong commute. My greater fear is what happens to the "essential workers", the heroes making $15/hr? What happens when the firefighters, EMTs, teachers, grocery store workers etc have been priced out of the state?

We're about to find out aren't we? I'm glad to not be part of that experiment.

Firefighters make 100k, some teachers do too. Depends where you live.

More over you need someone to buy your 800k house you spent 600k on. It’ll be a remote worker who buys it if the local economy can’t support that so…… hopefully remote work is here to stay.


The average salary of a firefighter in the United States is $52k. Teachers average $15/hour. No clue where you're getting these outrageous figures other than if you're a Californian and think anything about California is "normal" in the sense of the rest of the United States. If 30+ states pay firefighters $50k, and teachers make $15/hr in 40 states... actually makes California look like what it is, a massive bubble.

I submit the housing market of Phoenix, Arizona as an example of peak bubble. There are numerous houses on the market today that were previously sold... ~30 days ago. This feels more ludicrous than the speculative housing bubble of '07.

A co-worker from southern California just went to Arizona and purchased 4 homes as investments. He deemed them good value compared to current California market and was basically able to buy 4 units vs 1 around LA for the same price.

The fact that you and everyone else claim we're in a peak bubble is evidence to me that we're not in a peak bubble.

not a bubble in the sense that building new housing in most of California is practically illegal given the amount of local points of veto and existing zoning


Yeah, pretty much anywhere California money is cashing out and fleeing too is way more insane than California itself.

Meanwhile for half the sale price of one 1200 sq. ft. 3/2 townhome on the Peninsula I could purchase 3 4-unit multifamilies on mortgage, each grossing about $50k/year in rents.

Will the appreciation of these properties be the same as that townhome? Almost certainly not. But money has time value, and the ancillary costs of ownership in CA are far greater.


Traveled though Missoula this summer and the housing market is absolutely wild.

I did a six month consulting gig in Cupertino a few years ago. I lived right at the edge of Cupertino and San Jose. I was paying well over $2k per month for a 1BR apartment — much more than my 4BR house payment here in Austin, where my wife stayed while I was in Cupertino.

I saw a house for sale there not far from my apartment complex. Literally a shack that was not fit for human habitation. It was selling for over $600k, and the land value alone was closer to $700k — yes, the “house” really was that bad.

I was a consultant, so I was barely within my “spend 1/3 of your income on housing” rule. I calculated that to be converted to an employee, they’d have to pay me north of $250k per year in order to be able to afford that same apartment.

I was not at all unhappy when they told me that my consulting contract was up earlier than expected, and I got to go back home to Austin just before Christmas of that year.

And housing prices in Cupertino has risen steadily by 20% year-over-year, and have done for at least a decade or two. Where else in the world can you get a guaranteed 20% annual increase on your investment?

California can keep their damn sky-high housing prices. I just wish they wouldn’t bring that shit with them when they move from California to Austin.


At the current rate of price increases it pays more to be a property owner than a top 3% income. There will clearly be no future implications to this /s

This is our exact challenge. I do well, work in the bay area, but the down payment, not the monthly, is the main hurdle to homeownership.

I used to think that, but really the monthly income is the harder and more important hurdle. It's not how much you put down, it's how much you can finance.

You have to do the IPO stock option dance.

> Relatedly, a ~70 year old woman bagged my groceries today and I doubt she's doing it for fun. Seems the accelerating wealth inequality is destroying our society/communities if it hasn't already.

Savings and share-of-total-wealth rates (measured at same-age) are incredibly bad past the Boomer generation, dropping off with each generation.

There's going to be a whole lot more of this starting in about 10 years, when Gen X hits retirement age but can't retire at anywhere near the same rate their predecessors did.

I wouldn't count on inheritance to solve the problem, either. That's all gonna go to hospitals and nursing homes.


Sell the house, and together with the savings you might already have you can do the FIRE thing somewhere where living is cheap.

[deleted]

The parent comment made no complaints and their salary offers no implications on the greater health of the economy.

Similarly, I bought last Sept in Nashville, TN and Zillow says my house is up 13.5% already. The Nashville housing market is especially ridiculous, it's one of the hottest in the US.

> Relatedly, a ~70 year old woman bagged my groceries today and I doubt she's doing it for fun. Seems the accelerating wealth inequality is destroying our society/communities if it hasn't already.

Let's not forget about the error in extending unemployment and benefits that the current administration passed. We should all hope and petition that a 4th stimulus check does NOT go out (inflation). The fact of the matter is, these policies are keeping a lot of the lower income workers out of the job market because they are still making more off unemployment than going back to the workforce. I estimate, this imbalance in the market will correct in September when these benefits end.


A bunch of states have ended the benefits, and it turns out the free market didn’t magically correct itself.

https://www.google.com/amp/s/www.cnbc.com/amp/2021/06/23/end...


In contrast, those companies that are offering $15+/hour wages are seeing applications through the roof. [0]

I don’t mean to discount inflation, as it will likely be an increasing issue in the immediate future [1].

But it’s very clear that the issue isn’t unemployment stipends: it’s the low wages of working class jobs that are the issue. Unemployment and the pandemic seemed to just be the push for many people to realize their worth as human beings is more than $7.50/hour.

[0]: https://www.washingtonpost.com/business/2021/06/10/worker-sh...

[1]: https://www.axios.com/ceos-warn-inflation-alarm-sound-da5e2d...


I'm confused at your invocation of that quote. Are you saying the solution to this woman having to work a job she doesn't like is to force low income workers to work jobs they don't like? And the flood of low income workers who have no choice but to work these jobs will alleviate wealth inequality?

You get old enough, and you get tired of somebody else making decisions from afar that affect your day to day life with no real consequences to them.

Little things like the kitchen layout being moronic and having zero drawers get old when it isn't your choice to remodel or live with it.

And while it's nice to say "just move", let's not forget that moving costs a couple months rent and a massive time investment to find a place to move to that's actually better.

And then your current landlord gets some shitheel realtor to rent the place who repeatedly tries to schedule showings on an hour's notice.

I'm pretty convinced most people buy because they're either tired of the bullshit that comes with renting or want to buy into a specific school district, not because they're worried about making a return on their investment.


Funny, I'm the opposite.

The more I get older the less I want to deal with bullshit home maintenance, and the infinite time suck that is customization and endless improvements.

Really part of a general life shift from "if you want it done right, do it yourself" and "if it's worth doing, it's worth doing right" -- to "outsourcing is a valuable tool" and "perfection is the enemy of the good".

I realize my time is valuable and I want to make sure I spend it where it counts -- on people, activities, experiences, travel.

When I rent a place, the kitchen layout and drawers are already good enough or else I wouldn't have rented it. And the things that aren't "perfect" I've decided I can live with, because nothing is perfect and there are more important things in the world to pay attention to.

To be clear: your viewpoint is entirely valid too, for yourself. But you're not speaking for everyone who "gets old enough" -- other people grow in the exact opposite direction.


Honestly, I think both of you have much better insight into the "rent or buy" tradeoffs than any calculator can provide.

Personally, I only think renting is "worth it" if you can't afford the house you want, or you just don't like homeownership. I also think owning is only "worth it" if you like the freedom to do whatever you want to your property or plan to stay put for a long time. No calculator can decide that for you.


Regarding the point about "freedom to do whatever you want to your property" - how does that fit with the rules that condo boards, home owner associations, and other relevant groups place on owners in their "jurisdiction".

I agree with you on your points, I have this rent-vs-buy mental agonising every few months. I'm just curious what folks are doing - if freedom is the key value, then basically you buy land somewhere where the least amount of people can harass you, and hope property prices and crime/services are at levels one can tolerate.


You need to weigh that when choosing where to buy. I walked away from a plot of land that came with a stupid HOA. The immediate neighbor wasn't part of the HOA and didn't have to follow the stupid rules.

(No plots within the HOA land had sold at the time.)


Regardless of age, needs and priorities change. There's no joy in moving, but it's still better than the time suck of hiring a contractor, electrician, and/or plumber. AND having to pay them.

Owning is nice. But it's more limited and more time consuming. There's a cost associated with that.


Owning is nice. But it's more limited and more time consuming. There's a cost associated with that.

I'm not sure I agree that owning is limiting, it can be more time consuming if you don't want to hire people to do the work that the condo gives you "for free", but there are few limits.

In my last condo, a neighbor spent months trying to get approval to put a pre-fab sauna on her outdoor patio, she submitted the architectural review forms, made several changes so it would "fit into the character of the complex" even though it was on a back deck facing a natural area, no one would see it unless they walked in that 5 foot strip of land behind the complex. I'm not sure if it ever go approved, I moved out before she had final approval.

On the other hand, my wife and I decided on a whim a few months ago that we wanted to put in a hot tub in our new house’s back yard. We talked to a contractor, he came out and did a site survey, then put us on a wait list for a hot tub. A few weeks later, he had a returned unit (new owner didn't like the way it looked) that matched what we wanted, the next week he brought it out and installed it. The whole process took about a month from start to finish, and probably could have taken a week or two if demand wasn't so high.


I very much identify with this. During COVID, we wanted to get a trampoline for our youngest kid who really enjoyed using a friend's.

How much aggravation was it? We own our house, so it was: Order it on Amazon, wait a couple days, then spend 90 minutes putting it together. The hardest part was finding one with fully enclosed springs that was in-stock.

He's jumped on it an average of at least 5 days a week, including sometimes in a light rain if he had excess energy to burn off. If we had a rented place or a shared yard or an HOA, who knows whether we'd have ever gotten it done?


Limited as in, you can't simply upgrade or down grade in say BRs or baths or location, or yard.

Owning is a commitment. And there's absolutely nothing wrong with that commitment; other than the fact there are costs associated with that. Those forgotten costs are often significant.


Ahh yeah, that's mostly true, but it's still possible to add a room to a house, or change the yard to suit your needs, so I still think owning a house is less limiting.

Though what you're calling a "limit" is really lack of stability -- you're free to pick up and move at any time when you live in an apartment, but your landlord is also (usually) free to ask you to leave at any time, so you can't count on having a long term stable place to live.

I was forced into leaving my last 2 apartments, one was was the owner wanted to stop renting and move back in to her place. The other was when the owner raised the rent by nearly 50% at the end of the lease term.

Now that I'm a homeowner, it's much less likely that I can be forced out of my home.


I dont like the process of moving, but the cleanup, and starting again is a wonderful relief from a previous burden.

And the elimination/ebay'ing of items that you realize you haven't touched or unpacked since your last move.

Arguably untouched junk in American households has better housing than most people in this world.


People have way too much junk here. I'm more of the mind "will I get my dollars worth out of this?" before I buy. I prefer the liquidity of cash over having to deal with owning, monitoring, moving, or selling another asset. I assume best case I can get half of what I paid for it. If it's super niche, I'll be lucky to even find a buyer. If it's expensive, I just assume I'm gonna take a huge loss. That's why I don't like buying too many things. Stuff is great...until you have to move.

i guess you love total code rewrite too :D

I love reform so much that I'd make Martin Luther look like a Catholic apologist!

> Owning is nice. But it's more limited and more time consuming. There's a cost associated with that.

I'm living in SEA.the cost of owning a house isn't a lot where i live. so I'm surprised to keep hearing this from those living in US.

can you elaborate a bit more what kind of cost do have when owning a house?


Mow the lawn, water the lawn, tend the flower bed, paint the house (or replace the siding), replace the shingles on the roof after the hailstorm, fix the A/C, replace the refrigerator, etc. Some of the those are more frequent that others, of course, but things break over time.

Other costs of ownership are property tax (generally about 1% of the property value per year), gas/water/electricity are more expensive than renting because the house is bigger, there is home owners' insurance, and possibly neighborhood association fees. And then when you sell, you have capital gains tax and seller tends to pay the broker's fees for both the buy and seller, which totals up to about 6% of the selling price. There's probably sales tax, too.


house in Asia is rather small so no lawn :D you gotta be quite rich to have lawn.

we use concrete to build houses here so fixing roof is not needed.

AC and refrigerator rarely broke down.


As you say, needs and priorities are different. Yes, home maintenance is a pain--and at this point I have pretty much no interests other than maintenance or otherwise proactively dealing with issues. But I dread the thought of moving. And I probably have too much stuff but things are as they are.

In other words, buying vs renting shouldn't only be based on numbers/math. I own a home for 8+ years and I have probably spent shit load of money in maintenance/prop.taxes/repairs that I probably wouldn't if I was just renting but there is no way in hell I am giving up my freedom of doing whatever I want to my home (yes yes there are limits with township/HOA etc). I don't need no landlord to tell me what I can and cannot do with my home for the most part. That itself is worth it for me. And yes there are added benefits like Building equity over years, hopefully having a place of your own to retire etc etc.

Owning your own home is an emotion. It is a feeling that you have a place of your own. You cannot just put numbers on it. Yes don't buy a home if you are 23 and move every 2 years in your car etc. But if you are looking to raise a family, want to settle down in a place, owning a home is almost always worth it as long as you are doing it within your means.


I quite agree with this. People - often people with choices and means (money) - spend a lot of time agonizing over optimal monetary outcomes, except:

You're going to die.

The experiences you accumulate are what makes a life, as one moves through time in a one-way fashion.

No one gives a shit if you die old and efficent, unless that's the thing that made you sleep soundly at night.

I've rented and I've owned. They both have pros and cons. Now, as I get old, I like the idea of owning something where I can do whatever the hell I want, and moreoever, I can live away from humans who have parties, make noise or compete for space. Like you'd find in a rental building. I'd like to be able to build my own gym in a garage instead of timing my trips to a gym based on how crowded it is, and I'd like to buy a couch I'll use for many years to come instead of something that has to move around.

A cost-effective life is only a happy life if cost-effectiveness in and of itself makes you happy.


Yeah. By all means run the numbers. But at the end of the day most people probably shouldn't make a decision based on the numbers except maybe in some specific apartment vs. condo scenarios where they plan to stay in the area for a while.

Otherwise, the type of place you want, how important mobility is to you, your freedom to make changes (and conversely your interest and willingness to do maintenance/repairs/manage projects), etc. should probably mostly be the deciding factors.


I think it's implicitly assumed that anyone looking at the numbers is on the fence about buying vs renting to begin with, otherwise why would they care?

This can be true even if you've got strong opinions on lifestyle, in the case where you're pulled in multiple directions by different needs (e.g. you want to manage the risk of rent increasing at the same time as future house prices rise but you still value mobility, or you're frustrated with landlords but don't have a lot of project work planned, and so on).


> I'm pretty convinced most people buy because they're either tired of the bullshit that comes with renting or want to buy into a specific school district, not because they're worried about making a return on their investment.

Another big factor is noise. A detached house is going to be quieter than most apartments in a shared building. That was the big reason we moved to a house. I'm a light sleeper and noise from people walking around upstairs was driving me nuts. Moving to a house with no one walking around above me was a huge improvement in my sleep.

Edit: Yes, you can rent houses too, but at least where I live (Minneapolis) this doesn't seem to be very common.


Noise was a big one for us, but it was the opposite problem. We were starting to have children and I didn't want to worry about making noise and disturbing my neighbors. In single family detached housing we can make as much noise as we want and only disturb ourselves.

Yeah, that's a good point. Sometimes my landlord (who lived above me) asked me to turn the music down while I was working from home.

This is highly dependent on the building. I have been in houses where all night you hear loud motorbikes and bogans doing burnouts while my current apartment has incredible sound insulation and double glazed windows to the point I wouldn't know other people live here if I didn't see them in the hallway.

I've lived in a number of apartments and none were like this. Sounds amazing! But does it also have good sound insulation between apartments?

This is a 2019 30 level apt building. In the hallways I sometimes hear people talking but its very quiet. Inside my apt I can only hear the door directly opposite mine closing and it's also not very loud.

I'm guessing its all dependent on how much money was spent on noise insulation. Between rooms inside my apt there is very little sound insulation which is not a big deal for me but maybe for others.


One would think that, but I am starting to believe there is a leaf blower running nearby during every daylight hour.

Eh, almost no one I’ve seen has ever spent less by moving to their own home. They’ll typically end up spending at least half of what they spent as rent just on things other than the mortgage (which would typically be much higher than the rent by itself). Now of course they often would get a larger, nicer place that’s exactly what they wanted, but let’s not kid ourselves that home ownership is somehow cheaper. It never is (except during the times when the prices went up no matter what).

But you don't "lose" or "spend" the equity portion of your mortgage bill.

That's the difference. If you have a $2500/month mortgage, by year 10 or so that's probably $1000 equity + $1500 interest.

The "interest" portion gets tax-deducted (so you get a portion of it back), while the $1000 equity is literally yours. When you sell the house, that's the portion you get back.

---------

So really, $2500/month mortgage (after a few years of living there) is really a $1000 cost + $1500 forced savings account. Then some maintenance / taxes on top of that.

Since you're building equity while living in a home, a $2500 mortgage is in fact far far cheaper than a $2500 rental.

-------

If this is confusing, then think about the "down payment" when you first get the mortgage. A $100,000 down payment may have cost you cash, but its not like the down payment disappears. When you sell the house and close the mortgage, that $100,000 comes back to you (plus all the equity you gained).


You are ignoring costs that are truly just lost and don't exist with a rental payment, like repairs and insurance and HOA, etc.

But I'm not ignoring them.

I'm currently paying a $1600 / month mortgage, of which $1000 is principal, $400 is interest and $200 is escrow (tax / insurance) in an area with $2000/month rent.

So I'm really paying $600 / month for interest, tax, insurance. It's another $1400/month before I get to rent prices.

And even with a new roof and new deck last year, I'm no where close to renters prices in terms of actual cost. Especially considering that I had no maintenance costs in 2019 (lucky year)

And those $2000/month apartments are literally my next door neighbors. I get way more room than them, a private garage and lots of other benefits. (Those apartment dwellers occasionally ask me if they can park in my driveway when space runs out. That's how close they are.).


And 10 years from now inflation will have only increased the tax and insurance. In almost any locale, buying is inarguably the better option.

> $1000 is principal, $400 is interest

Your numbers don't seem normal. Looking at a mortgage calculator, given a new $370,000 home price, with 20% down, 3.92% interest... the P&I is $1,399. Of that, $967 is interest and $432 is principal. Those numbers are almost the reverse of yours. It wouldn't be until ~year 20 of the mortgage that the numbers would match yours.


Try again: 15-Year mortgage 2.375% interest. Aka: current market conditions. With interest rates so low, your monthly payments are minuscule right now and make the 15-Year a good option.

Any homeowner with good credit scores can right now switch off their current mortgage into a 15-Y 2.375% ish loan.


I bought a house three years ago. It burned down one year ago. I am buying another house this month that is 40% more expensive, and will be paying less on a monthly basis. This is due to (1) rolling over money invested into the first house, and (2) stupidly low interest rates.

If you can realistically afford a house, I don't see how renting could ever make sense, at least not when the prices are close. Basically, consider a mortgage payment as a rental payment where they match 50% of your rent into a nice investment fund you can cash out anytime you like.


You're simplifying it, though.

- It's generally nowhere near 50% (of the cost of owning) going to principal

- Buying ties you into the house, or at least ties other costs to moving. If you're likely to need to move again in under 5 years, that cost is high.

- Related to the cost of moving, but... if you're moving to a new area and want to take some time to pick out where you're going to live for 20 years, then renting for a few makes sense.

Honestly, there's just a lot of reasons that can make it financially reasonable to rent instead of own.


Most of the homeowners I know have 30 year mortgages. As such, my comment that your numbers don't seem normal is fairly accurate given the people I know. Is it a lot more common to take a 15 yr loan among your friends / in your area?

If your mortgage is lower than the rent that means your location appreciated very significantly. Given stagnant prices mortgage being lower than rent doesn’t make sense. Now the question for someone buying today is if they expect that to happen in the future. For me the answer is not positive enough to gamble buying a place.

It's a townhome, so the appreciation I got is far less than the larger single family homes in my area. Furthermore, I've ignored appreciation from my calculations above (since my property has appreciated considerably, its as if I've gained $60,000 in equity). Frankly, appreciation of assets is one of the biggest reasons to own rather than rent.

Townhomes are like apartments but no worries about bothering people below your floors (or people above you annoying you when they move chairs). They also build equity at higher rates than renting. Bonus points: I have a dedicated driveway + garage while my neighbors are sharing their parking space with each other (and often run out).

Also like, +1000 sq. feet. 3 stories of space helps a lot compared to the apartment sizes.

-----------

Look, not everywhere is the crappy San Francisco housing market. There are plenty of locations in the USA where rent prices are terrible and ownership is much better financially. Any location that's constantly building new homes (pushing home ownership prices down, and therefore rent prices down) will probably have a market like mine where ownership is in fact the better financial decision.


My mortgage is $3,000/month. My rent at the place I moved out of would have been $2,500/month.

That's very little difference, ultimately, when it comes to the equity part of the equation.

I've had some upfront costs in the first three months, but none were surprises (appliances, knew that the AC was past its usable life.


If your building has HOA dues, renting doesn't mean you aren't paying it; it just means your landlord built the cost of it into your rent. Same with property tax and the landlord's home insurance payment. After which, if you want to be safe, you then need to spend more to get renter's insurance.

And I would expect a landlord would build estimated repair costs into the rent as well, at least to some extent. Of course that doesn't mean something unexpectedly expensive couldn't happen.


I see this claim a lot - "you can't save on rent because your landlord has to cover their costs".

But this is only true if your landlord purchased at the time you rented. I rented a $1.8M apartment for $3,000 per month (~1/3 of total ownership costs). That's because my landlord bought 20 years before when the apartment was worth $200k. His monthly costs were maybe $1,000.


Your landlord doesn’t save on HOA fees, repairs, taxes, or insurance because they bought 20 years ago. Those are all costs that are charged in present dollars. Repair services want to get paid in 2021 dollars. Property taxes are based on assessments of current value. Insurance premiums are set to cover present replacement costs.

The only thing your landlord saves on by buying 20 years ago is the nominal cost of the property itself, either as a low fixed mortgage payment, or as a paid-off property.

This is just the effect of time and a fixed mortgage rate. If you were able to buy now, in 20 years you could be in the same position with respect to your property costs.


Owner owns the building, he’s the HOA.

Property taxes are capped in terms of growth. Likely paying 10% of what I’d pay if I bought.

And biggest of all, he locked in his mortgage payment while rents went up 4x. And rents were still lower than cost of owning as housing prices priced in appreciation.


I am extremely doubtful of the claim that an apartment that only nets 36,000 in rent per year is somehow worth 1,800,000. That's a 2% return before any associated costs. I literally just looked at another rental property that was netting 8k a month across all tenants and was listed at 1,150,000. There is no way that other owner could actually sell that place for 1,800,000.

There are plenty of places that rent far below what they cost the landlord in mortgage/taxes/HOA/repairs/etc.

Home ownership, especially buying a home as an "investment" is such an emotional thing that plenty of people buy property just to buy property, the math doesn't come into it. Most of the time, even with the appreciation of the property that they sell, the landlord would have been better off putting their money into other more liquid investments with higher returns.

But, many people just buy property because they don't know any better.


Not sure what to tell you. The place two doors down that was smaller went for $1.5M.

Of course the landlord couldn’t sell it for $1.8M with me in it (because of SF rent control). But when I moved out and it was empty? They absolutely could.


Huh? My landlord wasn't eating the HOA costs out of the goodness of his heart, that's a lost cause whether you rent or own.

You lose it until you sell it. It's unfair to say just because it's an illiquid equity that it's same as cash.

You can definitely spend less when your mortgage is paid off.

But I'll admit that part of my reason for buying was to prevent the situation where I might be living on a fixed income some day, and having my rent go up every year. That seemed like a good thing to try to prevent.

Buying a house requires a high monthly payment, which remains constant over time, and one day ends. Renting requires a high monthly payment that rises over time, sometimes unpredictably, and never ends.


You'll be spending less in 3 to 5 years than others pay to lease, and building equity besides.

At some point, though, the mortgage is paid off and maybe you're paying something like $1K/month for taxes and maintenance for a property that may have a decent amount of land if you're outside a city--an amount that isn't going to go up. (Taxes vary a lot of course although that is presumably reflected in area rents as well.)

You may be right, especially absent property appreciation, but there's a lot of value in having a fairly predictable set of costs into an indefinite future absent really unpredictable problems. And not being forced to move at some point.


If you look at the home as a long-term investment, it's almost always cheaper than renting since your mortgage stays the same, while rents almost always rise.

You may be paying more in mortgage+taxes+insurance+maintenance when you buy the house, but 10 year later, rents have almost certainly gone up.


> If you look at the home as a long-term investment, it's almost always cheaper than renting since your mortgage stays the same, while rents almost always rise.

We had our monthly house payment more than double due to hurricane insurance increases. This even tho our particular area hasn't had a landfall in 100 years & gets hit less than DC, NYC, etc.


but apartment building owners didn't see a corresponding increase?

Landlord insurance goes up but only covers the structure and costs less, while homeowners covers more perils and contents.

Yes, but in an area with such a hurricane risk that it led to an increase so great that it more than doubled someone's home mortgage, it would have had to have had a large impact on landlord's structure insurance, raising rents. For someone with a $1000/month house payment, that's $24,000/year in extra premiums.

If that's a $200,000 house, in 10 years the extra premium would cover the house... I don't see how landlords could escape levying a rent increase when faced with such a huge increase in insurance prices.


> Yes, but in an area with such a hurricane risk that it led to an increase so great that it more than doubled someone's home mortgage,

I believe you assume that the increase was tied to our increased risk. It would be more accurate to say that it was tied to risk of other places, hundreds of miles away. In my post, I had stated that we were at less risk than major mid-Atlantic cities.


No, I'm trying to figure out how residential properties had such a huge increase in insurance rates (whatever the cause), while landlords were spared the increase.

I can understand that a huge insurance rate increase would make your house much more expensive than you thought it would be, I'm just trying to understand how such a rate increase only applied to residential houses, but not rental properties (many of which are just residential houses).


>let’s not kid ourselves that home ownership is somehow cheaper. It never is (except during the times when the prices went up no matter what).

It's important to take into account the intangibles of buying vs. renting. It's not just a straight up financial calculation. Buying makes your living situation far more stable than renting. If I miss my rent for 3 months, I'll be getting a knock from the sheriff and put out on the street. If I miss my mortgage for 3 months it can take over a year to be foreclosed on. On top of that, buying puts you in a community of owners. It's a completely separate population from renters. People are far more incentivized to act civil and be considerate of their neighbors when everyone owns and lives somewhere long term. Not to mention the ability to renovate, add on, and otherwise make a house into a home. Buying is an emotional decision as much as it is financial.


My home's mortgage + escrow payment is ~$200/mo more than the apartment I moved from. Of course there are additional costs, I now water a lawn in addition to my usual water usage, I have to factor in some savings for repairs, etc, so closer to ~$650/mo increase.

But in the end I have 2.5x the square footage, a private yard/pool/grill vs. community, a two-car private garage with guaranteed electric vehicle charging, the ability to furnish however I wish, and to top it off much less reduced risk of housing inflation (a very real concern).

Nine years ago in the same market where I own my house an apartment unit I used to rent was ~$900/mo. The same unit on the market today is $2,352/mo. Even if home values increase and my property taxes jump it won't jump that high.


Fyi if all properties increase equally in value and municipal costs remain the same, so do your taxes.

Yeah, but the taxes I pay is less than a quarter of my monthly outlay of mortgage+escrow. Even if my taxes double from my home's value doubling my monthly outlay won'd double. Meanwhile my rent will easily double, probably even more than that in the same market.

Sorry I meant to say that if all houses double in value, and municipal costs don't change, then your taxes do not change. Just because the value goes up does not imply that taxes go up.

If they don't change the tax rate, and my home doubles in appraised value, my tax liability on the property doubles. True, the city might reduce tax rates if property values explode like that but they might also just continue to take in the revenue. ¯\_(ツ)_/¯ Another example of why its good to be active in local politics.

FWIW, I live in Texas so this place gets a good chunk of its tax revenue from property taxes. The odds of them cutting the tax rate just because your house shot up in cost at least to me seems pretty low. This is one of the problems of gentrification, where long time owners find they are unable to continue owning in the $90k house they bought 20 years ago because now they pay property taxes on a $750k property.


I bought my house for 225k, our neighborhood is selling for 650k now.

My mortgage is much more affordable than the rents that have gone up over the years to more closely reflect the 650k pricing.

But damn the taxes are gonna hurt everyone here... renter or owner (as the renter you're just covering them for the owner)


Taxes are a function of municipal costs and the value of all properties. If they all go up equally in value and costs remain constant then your taxes should not increase

In theory, you are correct. In practice, in a city or area with different valuations it may vary.

For example, in my city, 70% of households rent and half of those are in the hood. Bad neighborhood valuations are essentially a factor of Section 8 prevailing rent, and many properties fall off (as they stop meeting HUD standards) and get abandoned as they decay, because slumlords.

The effect is that in a good neighborhood, your pro rata share of the levy always climbs, even without an increase in value.


Great point. I wanted to point that out though because some people assume that there is a proportional relationship between property value and taxes.

In practice, though, that's not the case. In many jurisdictions you get yearly reassessments as to your home's value, and your taxes change to match that value. I don't think I've heard of a place where they decide to lower your taxes (or keep them the same) when your home value is reassessed higher, regardless of what's happening with municipal costs.

My property taxes have gone up 10% year over year and in 2 years my property taxes will surpass my mortgage.

It’s not day to day cheaper but you hope net zero in the end and maybe you make some profit. If you have a down payment to otherwise invest then maybe renting is ok…

It is.

Not only is our house cheaper than a decent 3 bedroom apartment, but we’ve been here about 15 years and will own the place free and clear in ~5.


Yeah, I wish we had German-style "unfurnished" apartments available in the US where you can rent an apartment that's literally concrete subfloor and unpainted walls, no kitchen appliances or cabinets, etc. I guess Americans move too frequently to make this viable.

Would your landlord pay you for the improvements you make? Is seems a full interior build out could cost tens of thousands of euros. Why not just buy if you have that much free cash sitting around for a down payment? And what happens if your landlord tries to push you out?

I think this is not going to make sense if your only point of reference is residential rentals in a typical American city, but this is how it is done in at least some places in Europe. People tend to stay in one place for much longer than Americans. If you're on a budget you can go to Ikea and buy a kitchen...based on my friends' places I'd say that's the norm.

Do you take the kitchen with you when you leave or does the landlord tear it down?

Some people do yes, I’ve heard a few people dismantle and take it with them, more common is that you offer the next tenants to pay for the kitchen at a reduced rate. Keep in mind it’s very difficult to kick a tenant out of a rental here and you can often keep a flat for as long as you want so doing large renovations to a rented flat isn’t uncommon.

You can only move IKEA furniture once. If you move it twice it will fall apart.

Germany has national rent control[1][2] and leases are heritable. Leasing in Germany is much more like owning than it is in the USA.

[1] https://mietspiegeltabelle.de/

[2] https://de.wikipedia.org/wiki/Mietspiegel


Longer leases are the norm. You’re not stuck in annual lease hell when the market is hot.

Don’t Germans generally move their whole kitchen? I think I remember this correctly from taking German a bunch of years ago.

I really do not get the appeal of moving your own cabinets from apartment to apartment. But I guess it does allow you to customize your rented place more than is possible in the US.

> cabinets from apartment to apartment.

unless these cabinets are somehow standarized sizes, how can they be moved?


If you're worried about losing a couple months' rent, kitchen remodels are not for you...

A kitchen remodel is done once and probably not again until you sell and someone else moves in.

Moving rentals every time something annoys you could be very frequent.


Kitchen remodel is probably 30k plus. You can move many man times for cheaper. Lots of places accept $500 security don’t have to put in 1.5 months.

The household who would move every time something annoyed them in a rental does not seem likely to remodel only the kitchen and nothing else between the time they buy a house and sell it. (You have to either tradeoff kitchen remodel costs against kitchen annoyances or many remodels against many annoyances, but it seems unreasonable to tradeoff kitchen remodel against all annoyances.)

Some people move (rental) apartments every 12 months. Thats very common and adds up fast even if you're not broke.

I've never lost a deposit or watched extra rent vanish by moving. I'm confused why anyone would let that happen.

Maybe it's a regional thing?


In some areas, tenants pay a broker placement fee of a month's rent, plus an application and credit check fee. In all regions, tenants pay for the move costs itself. Many times you discover that your furniture isn't quite right, your Ikea-grade knockdown furniture didn't all survive the move intact, you "need" to buy a different rug for one of the rooms, you might want to have more than 0 days of overlap between the places to make the move easier (or you might be forced to take a month overlap to secure the place you want), and add some custom-sized blackout window shades to sleep, etc...

I read the above as "[an amount of extra expenses equal to] a couple months' rent" rather than literally "an extra two months' of rent checks to the landlord".


I have a dog, and after a lease ended the landlord told me they hired "experts" that said the dog ruined the carpet and i'd have to pay $1000 to replace it. Very hard to argue against without hiring expensive people as well.

To be clear, I don't think my dog caused $1000 in damage to the carpet, but i can understand how any damage may be undesirable and there is no partial carpet replacements.

This was first apartment with dog, so this was an unknown expense.


> or watched extra rent vanish by moving

Oh let me list all the ways a landlord will screw you!

It depends, heavily, on lease agreement. Where I was, a lease is for a given period of time, often 12 months. (Not aligned to anything: literally $DATE_WE_SIGNED to that +12 mo.) Breaking the lease requires paying it to completion. On average, that means 6 months of rent. Now, if you did the work of finding a tenant that the landlord approved of, that new tenant could then take the apartment (and you'd be off the hook once they started renting).

Since I know many people think this: leases don't necessarily turn into month-to-months: legally, they could, but my landlord typically did not allow this to happen: at the end of the 12 month lease, they will typically raise the rent at which point the lease contract gets renewed: often you have two choices: renew for 12 months at the higher rent, or renew as a month-to-month at an even higher rent; IME, around 5%. Now you have to balance the likelihood of moving vs not: if you don't move, you'll pay 60% of a month's rent over the term of the lease for nothing. Even if you are moving, you might not be moving at your lease date exactly, so even with planning, if you degrade the lease to a month-to-month on the renewal prior to your move, there might be a few months were you're paying 5% more just 'cause.

Giving notice to quit usually requires, e.g., 30 days, so you'll be on the hook for next month's rent, too, even if you'll have moved out by then. This is hard to avoid, since otherwise you risk not having a home if you can't get the next play lined up.

Now, of course, if you're going to move, and you can plan, at all, then you do everything in your power to align these stars to minimize the cost, doing whatever is appropriate for whatever state your lease is in.

(In my case, we opted to turn the lease into a month-to-month, and paid exactly 2 months at the higher rate, or ~10% or $200 over the 12 month. That renewal weirdly also came with a 15 mo option, which was new; over that rate it cost $300 to abandon ship. Honestly, other factors dominated, like pay adjustments due to new locale, local housing costs, even just the moving costs. But it did occupy time, worry, and made logistics unnecessarily more difficult. We also had no overlap due to the magic of family and the nature of our move.)


> And then your current landlord gets some shitheel realtor to rent the place who repeatedly tries to schedule showings on an hour's notice.

Yup. "We know you work from home so we've told the realtor to be considerate of your time". Bear in mind I have a dog and a cat.

4 days and FOURTEEN showings later (often spaced with little gaps, so it's in and out not blocks of time), I'm complaining to the landlord, who agrees that that is ridiculous. Realtor: "Oh well, it's a hot market and they'll be out of the house soon enough."


We bought because we wanted a rural property where we could keep horses. Can't really get that with renting or put a monetary value on that.

The people buying are millennials (currently the largest generation) that are settling down in their location of choice.

I predicted this would have happened slowly over the next 15 years, but covid and inner-city violence triggered a flight to the suburbs....hence increases in real estate.


Conversely, to me that the flexibility to just pick up and leave is far more appealing than settling down and owning something. I've moved 7 times in the last 6 years, and I'll probably move again when my current lease is up next year.

Similarly I've hated renting from owners doing it for the "investment", where the going rent is typically much cheaper than the mortgage for the property (California). Many landlords think they are giving you some great deal when they are the ones who bought beyond their means..

For multifamily housing the price of a building is usually such that if you put around 40% of the purchase price down the building is cash flow break even after mortgage, taxes, expenses. The same is basically true if you buy a house to rent out. This is the case because over long periods of time real estate has appreciated by 8% per year with much less volatility compared to the stock market, and favorable tax rules (particularly depreciation) mean you can "lose" a lot of money on paper and claim those losses to offset other income. Your landlord is not giving you a great deal.

"..claim those losses to offset other income"

Be careful. If you are thinking of renting out a house remember you need to return a large portion of that depreciation back to the IRS. It isn't free money. Even professional landlords don't know about this.

https://homeguides.sfgate.com/paying-back-depreciation-renta...


Anyone with a competent accountant will avoid that. You can invest in like investments and avoid recapture.

There’s a whole industry around this generation of “free money”. The owner of a Hampton Inn / Fairfield Inn, etc, makes more money on selling off accelerated depreciation than on renting rooms.


Yes. There is a 1031 exchange. That is when you purchase another like kind investment property. I should have stated during a 'sell'. Lots of landlords actually need to sell homes. So no, a competent accountant will not avoid it during a sell.

Oh totally agree there, accountants aren’t magicians. But planning is part of accounting competence.

For example, you could avoid this issue by not deducting, or do a like kind purchase if something that produces income more passively.

If a landlord just bungles around without knowing what they are doing, recapture taxes are probably one of many issues they are facing.


I don’t know about CA, but in Toronto there are so many “investment” condos that renters can get great deals. Renting a new condo for $2,000 per month that costs $800,000 to buy (~$4,000 per month total costs with HOA and down payment opportunity cost) is an amazing deal.

In 2021, the buy vs rent decision is a little like Should I buy a whale ranch on Mars or Venus?

I suggest that the decision whether to rent a house might want to take into account that each rental ad is getting hundreds of applicants, each day - with few new ads showing up.

ref: https://www.militarytimes.com/pay-benefits/mil-money/2021/07...

ref: https://www.amisun.com/2021/06/27/once-in-a-generation-housi...

ref: https://www.thedenverchannel.com/news/national-politics/the-...

ref: https://www.cbc.ca/news/bidding-wars-to-rent-a-house-in-onta...

Buying isn't any better with sales going to all-cash buyers who are paying way above and beyond market.


Buying isn't any better with sales going to all-cash buyers who are paying way above and beyond market.

If that's the price houses are selling for, that is the market price.


> If that's the price houses are selling for, that is the market price.

I'll rephrase it this way. Cash buyers are paying way above and beyond what the house was listed for.

Likewise prospective renters are offering rents above what is advertised.


Fair enough. Maybe this is a recent trend in your area, but in Vancouver people have started referring to asking prices as "liar prices" or "marketing prices" -- they're often set low to attract interest with no intention of actually selling at that price.

In my case, I bought a house last summer and offered exactly the seller's asking price -- which they rejected, countering $5k higher (which I agreed to).


Yeah, but people are listing low to attract more eyeballs.

I sold a place in the bay area 5 years ago. I knowingly listed it about $200k under what we expect it to go for based on comps. Huge swarm of interest and many buyers offering a price at around what we expected.

It's just a sales strategy.


> Yeah, but people are listing low to attract more eyeballs.

Any other year I'd accept that. However, that's unlikely to be true this year - in most US markets. Buyers and renters alike are bidding up properties because there is one property or less for every 100 prospects.

Here, landlords get 400 applicants the first day a rental is listed. The second day they get 400 more unique applicants. The rental we just moved into was up for less than 2 hours and received 50 applications. We won by paying 6 mos in advance + last + 1.5x security.


Look, you don't have to take my word for it, the data is public. Go look up the comps and you'll see they match. There's nothing to "accept," it's just a fact.

There have always been hundreds of prospects for each house sold. When I sold the aforementioned house we got roughly 500 people the first weekend and we were in contract after just a few days. It's been a hot market for a very long time.

Sellers set a low price because the price doesn't matter. It will be bid at the market price regardless.


Guess you’re not familiar with the concept of scarcity and outlier buyers.

A majority, or even a large minority, of sales cannot be above market price, by definition. If there are enough cash buyers that it's being difficult to buy at a given price, the market price is clearly somewhere above it.

You seem to be leveraging specific terminology in order to obscure the larger point - that buyers & renters are making substantially higher offers than homeowners are looking for. It is unclear how that helps move this discussion along.

In volatile markets, sellers often set the initial price well below their reserve price to attract a bidding war. This forces buyers to make their own determination of market value rather than anchoring to the list price. You most commonly see this in markets where there is a lot of price volatility or supply constraints such that it is difficult to determine a priori what a fair market price is, which describes a lot of markets these days.

Most buyers know this and bid their estimate of the fair market price, which may be well above list and hopefully the reserve price. This is a sensible strategy when the seller has no idea what a reasonable price actually is but there is a large number of buyers.


You said ‘market price’ but you meant ‘asking price’ (UK) or ‘list price’ (US).

Or, more simply, bubbles.

I suspect that was intended to mean "list price".

Why would you assume it's to rent a house? It's a great time to be an apartment renter in big markets like NYC. I just got 2 months free on my lease renewal and I've seen even better deals out there but I didn't want to move.

At least in the part I'm looking at, this was still true at the end of May but is not even close now.

Same here in Somerville outside Boston. There was a giant exodus last year due to COVID and landlords are desperate for any warm body even at a steep discount from the former rent.

Completely the opposite here in Seattle. The rental market is bonkers right now, with very little inventory in places where people want to live. That is very different to how it was just a few months ago.

Isn't that the trick where the price looks good initially and then it goes up wickedly after 12 months because they won't give you free months when you renew?

The price can always be raised at the conclusion of a leasing period so there isn't really any unusual trickery involved. If anything the disclosure that the free months apply only to the first leasing period is less deceptive than raising the rent without any warning upon lease renewal.

My wife wants to buy a house, but I'm unable to make life decisions without trying to minmax them. I wasn't satisfied with existing rent vs. buy calculators, so I decided to build my own! I'm not a developer, so I apologize if it's a little rough looking...

Some things it takes into account:

  - The actual rate of return on your down payment and extra costs of a house
  - Inflation
  - Itemized deductions on your taxes
  - The impact of state taxes
  - Mortgage interest deduction limit and SALT tax deduction limit
Let me know what you think or what improvements you would like to see!

This is missing a rate of return on the money you would otherwise use for the down payment, information on whether that return would be taxable or is sheltered in a Roth or similar tax shelter, current and anticipated tax brackets if one sees that income taxed (at both time of sale and possibly retirement), current and anticipated capital gains rates that might apply to the gains from the home sale in the future (if you're over the threshhold)...

> rate of return the money you would otherwise use for the down payment

Really the most important number, but all of these suggestions are crucial to the calculation. Money that doesn't get invested in a house gets invested in other things. Pretend it's in an index fund.


But when you take out a morgage you can leverage 800k of the banks money at negative real interrst rates, effectively paying you tens of thousands over the course of the loan and any appreciation of that asset gets multiplied by 5x on your initial down payment.

Negative because the loan interest rate is below inflation?

Yup, mortgages are around 3% and the fed rate is near 0 for the next year or 2. If inflation averages over 3% per year, you are getting paid the difference to borrow.

Probably want to allow for the possibility of rent rises over time.

One thing that I think this actually shows pretty well is the notion that part of the answer depends on how long you intend to stay in a place. If you expect to move in two or three years, it's probably not worth the hassle/expense of buying. If you intend to stay 5+ years in one place, it makes more sense to buy.


>Probably want to allow for the possibility of rent rises over time.

Most definitely, my apartment before buying a home was ~$100/month less than my current mortgage, now (3 years later) the rent for the exact same apartment is ~$300/month more than my mortgage.


> Probably want to allow for the possibility of rent rises over time.

Isn't that counting inflation twice?


Rents are only a part of inflation measurements and can easily outpace the general rate.

California's recent rent control laws caps rent increases at 10% or 5% + the yearly CPI increase (whichever is less) every year, for example, explicitly allowing rent increases to outpace the general inflation rate. Personally, the rent I pay has gone up 9% this year.

Rents can change based on whether an area becomes more or less desirable, as insurance or other costs for landlords change, as ownership of rental units consolidates, etc.--that is, for many reasons that might be only tangentially connected or even completely divorced from the reasons that the costs of other goods and services are changing.


No, rents go up and down for reasons other than inflation.

That is another type of inflation, but it's an interesting point that you may care about both the general consumer inflation rate (for its interaction with the mortgage interest rate) and the rent price inflation rate.

I just assumed the inflation rate was applied to both rent and house price, as a general change in the value of a dollar. While they mostly move in line together, rent prices and home prices don't always move together so a change in value term that effects one and not the other might be useful.

This all depends on geography though. Buying in the bay area and only staying for 2.01 years could get you a pretty hefty ROR assuming you don't remodel anything, considering the supply constraints. Maybe covid & remote work will change that.

Maybe. Flipping is a risky business. Returns are not guaranteed. If you're just looking for a place to live, you should really evaluate it on that basis.

I know something who went bankrupt and got a divorce after flipping condos in chicsgo just before the housing bust. It works until it doesn’t and it’s usually catastrophic.

The best/ most powerful rent vs buy calculator I am aware of is the one offered here:

https://michaelbluejay.com/house/rentvsbuy.html

browsing it might give you some ideas of features you can add to your calculator. It's also a small thing but having the choice to select the downpayment based on percentage down might be nice.

I don't know why your calculator tells me getting a house is not worth even if it thinks the transaction is profitable. It states my cumulative profit is $29,030 but I shouldn't get a house.


The determination of whether to buy the house is based on the calculated rate of return. So even if you make a profit, if the time horizon is large you’d be better off investing that money in stocks.

The UI doesn’t make that clear enough.


Houses are both leveraged investments (in a non-productive depreciating asset, I know, I know) and a forced savings mechanism. Investment in stocks by average people is not leveraged, and nor is there a forcing function that makes you put money into the stocks every month or you end up homeless.

These two functions have some value - especially the latter.


> The determination of whether to buy the house is based on the calculated rate of return. So even if you make a profit, if the time horizon is large you’d be better off investing that money in stocks.

Can you give a more detailed example? What time horizon are you picturing? After you pay off the house you lose the leverage advantage of returns on selling a house you bought with a mortgage vs selling stocks, but you also stop having to pay the mortgage at all while you'd still be renting, likely at a far higher market rate, so looking at the post-mortgage-payoff curves, it's hard for me to see where the invested down payment + (mortgage + tax + upkeep - minus - rent) returns would be expected to be high enough to make up for that.

(The more rational counterargument, though, would likely be around diversification? Better to have land + stocks then just one...)


It doesn't always make sense to buy rather than rent, but it all depends on your assumptions for stock returns vs house prices changes, inflation, maintenance, real estate tax increases, rent increases, how long you expect to live in a house and if there's an arbitrage in the local market between renting and buying.

Also most people don't buy a house for life, and if you sell the house through a realtor they get 6% or so of the proceeds.

This isn't something you can just logic an answer for without running it through a rent vs buy calculator, but investment expert and author William Bernstein suggests a rule of thumb that you should not spend more than fifteen years of market rent on a house purchase. In other words you can look up what the house you are considering buying would cost to rent, and as a rule of thumb if the sale price is more than 15 years of rent it's a bad deal. This is obviously an imprecise rule of thumb since it doesn't account for variations in real estate tax per region, but it's a starting point if you don't have a good rent vs buy calculator.


Stock returns are generally higher than real estate. So you might start off with higher YoY values for the house initially, due to leverage (1.03x a big number vs 1.07x a small number), but stock would catch up over time.

I wonder if it is purposefully biased towards renting so he can use it to convince his wife to rent when he says that she wants to buy.

Some decisions aren’t mathematical. Sometimes it’s better to make a decision based on whether or not it makes sense for the family as opposed to dollars and sense.

If your wife wants to buy a place, I suggest finding a compromise to figure out how to make both parties happy.


At the same time, you should be highly skeptical of anyone encouraging you to make what might be the single largest purchase of your life without carefully working through the financials. Maybe your preferred option will cost you an extra $50,000 over the next decade and you decided to go with it anyway. That's totally fine as long as it is a conscious choice. If the difference is $500,000 then perhaps you should consider how strongly you actually care about renting vs. buying...

This is nice. I definitely played around with some calculators like this when I was deciding to buy a house a few years ago.

Off the top of my head, some things I'd add to make this more useful to a wide audience:

- I don't know what I pay in state income and sales taxes. But I do know my income and my state's tax rate; income tax could be derived from that. I'm not sure how you'd estimate sales tax, though - you'd have to know how much of my spending is taxable.

- I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year; maybe default to that, especially since a first-time home owner doesn't really know what those costs are. However, older houses will require more maintenance and that cost probably scales with square footage, not cost.

- you're assuming a 30-year mortgage - I'd put in the ability to change mortgage length. (Also, maybe a link to somewhere where I can find out what mortgage rates are.)


Maintenance cost likely scales with both size and cost. Size, for obvious reasons, and cost because the labor/materials cost of a repair is likely correlated with housing prices in the area. You then have to account for the portion of cost that's already correlated with size...

+1 to mortgage length. We heavily pivoted our decision to buy on getting a 7 year ARM because my friend and I knew we wouldn't grow old together there (wanting to do things like get married and have our own families). A time bomb on the mortgage was a feature, for us, and a cost savings.


In my experience as a small-time landlord, maintenance does scale somewhat with cost, but not linearly. A lot of big costs on the materials side (like say, a furnace) are more or less fixed. At least, repairs don't cost 4x as much in a 800k house as they do in a 200k house of the same size.

> I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year

It's a very poor rule of thumb. Contrary to the other comment, these costs don't increase linearly with value of the house. Sure, if I live in an expensive area, it may go up 30%, but not much more. Looking at how much my house has appreciated, I can assure you I pay not much more in maintenance than when I bought it.

The 1% rule came about when the median house price was under $200K.


There's a very interesting subset of people on Reddit's Personal Finance forum who seem to think that buying was the right move (kinda, see below) for them, but that renters "don't know how good they have it".

Watch any one of the threads on "should I buy/can I afford/pros/cons", and you'll see a vocal subset who seem hellbent on convincing people that owning a house is nothing more than opening your wallet/checkbook/credit card every other weekend for the "next four digit maintenance issue".


I can sympathize with that. Buying a house was the right move for me but my wallet screams sometimes.

(I feel the same way about having kids.)


Furthermore, if you live in an early 1800s farmhouse like I do (which was very much a fixer-upper when I moved in and still sort of is), that's a very different situation from a modern in-city condo or even a new development.

If your wife wants to buy a house… buy the house.

Nice project but if you are serious about buying a home, don't just look at numbers. Figure out what you and your wife want for yourself in next 2-5-7 years. If you see you guys staying in 1 place and build a family further, buying a home may not be a bad idea considering your finances are in shape (good credit, have 20% downpayment etc etc). I would say rule of thumb is 7 years in 1 place. If you are going to live in same place for 7+ years, buy with 20% down and total cost not >25-30% of monthly pay.

Life opportunity cost. When you buy a house you are making a big commitment. It will guide the path of your life. These days with remote work that's less and more of an issue. What if you would be happier living in the south of France?

I'd love it to provide some mechanism for guestimating my taxes (maybe based on the state or city I live in) - I was too lazy to dig out a tax return to fill out those fields, which meant I couldn't easily use the calculator.

Especially outside of major cities, there are about a gazillion towns that have different tax rates that go to paying the local schools, emergency services, and town administration. Maybe there are APIs for that sort of information but I don't know.

That's why I want a guesstimate - give me a rough idea of how the tool works and that will convince me to dig out a tax return and fill in the fields for the most accurate estimate possible.

The home only expenses (down payment, home owners, etc) when you chose rent should be converted to a standard rate of return of VOO (index of SP 500) for the 15 years. THIS would be the greatest calculator ever built ever.

this is great!!

The final cashflow amount of the house graph (in the example) ends in the negative, s this accurate?


It is accurate! While the house cashflow is negative in the example, it's at least less negative than the apartment cash flow. Maybe the moral of the story is living with your parents for free is better than either option!

Depending on your circumstances, it may not be possible to seriously consider it, but another alternative to rent-vs-buy might include various van/camper/coach options, which can be parked for months at a time at "seasonal" campsites, often for $500-1000/month.

Obviously equipment like this isn't going to appreciate either, and you'll be subject to all the same maintenance costs of owning, so in some ways it's the worst of both worlds— but it may still be cheaper than trying to rent if you can't or won't enter the market right now and mooching from family isn't an option.


If this calculator is rent vs buy, why does the graph compare house vs apartment? For both houses and apartments, they can be bought or rented. Are you someplace where one type of home can only be bought and the other can only be rented?

Nah this is just bad terminology on the site. I’ll fix it. In my personal situation I’m deciding between continuing to rent my apartment vs. buying a house.

Automated state tax generation. Historical house appreciation by state or even better, city.

Option to account for income from money in sp500.


>> My wife wants to buy a house...

A pilot once shared with me the rule of the three F's. If it floats, flies, or fornicates, it's cheaper to rent than to own. You may substitute a 4 letter word for that last one.

Anyway, you got a wife already so thats one. House don't start with F, so buy.


Seems like an oversimplification, usually it depends on other factors like how long you plan to live there.

Where do I enter the intangible value of owning: "Don't have to worry about getting priced out if the neighborhood becomes popular; can do any improvements I want, when I want, how I want, and they become an asset; don't have to worry about not getting lease renewed at an inconvenient time (perhaps in the middle of a school year) when the owner's nephew gets divorced and needs a place; on the other hand, don't have to worry if I do want/need to move unexpectedly, but I'm in the middle of a lease."

Versus, of course, for renting: "don't have to worry that the roof will need replacement, etc."

Finally, you can do all the calculating you want, but retrospectively the biggest effect on financial outcome is liable to be whether you bought in what turns out to be the Detroit vs. Silicon Valley of say 40 years ago. Who knew back then? Who knows now? You pay your money and you take your chances.


> Versus, of course, for renting: "don't have to worry that the roof will need replacement, etc."

This is kind of a tangent, but worrying about maintenance is exactly why I own a house. When I rented, poor maintenance issues were my problem whether or not they were my responsibility. I'd much rather be empowered to do preventive maintenance or fix things immediately, than be forced to wait until something fails plus a few days for someone to show up to fix it.


presumably for a renter, if the roof fell off, you leave and stop paying rent. The owner will have to fix it at their own expense, before putting it back up on the market.

The majority of issues that people face with their dwellings are nuisance issues. Leaky or clogged plumbing. Malfunctioning appliances. Faulty fixtures. These aren’t things anyone would pay a lease break fee for, nor would they be anything that would preclude the sale of a home.

If a roof had a leak in a rental, you could easily find yourself with a landlord who patches it, regardless of the fact it really needs replaced. What do they care if you have to make a renters insurance claim every 6 months? It ain’t their stuff!


This is the whole point of doing the calculation. If you determine that you're going to have $10,000 less in pocket per year, then you can make the call whether the freedom of owning a house is worth it for you for that price or not.

A hidden intangible that cannot be measured is that owners are much more likely to know and socialize with their neighbors. Even in a mostly homeowner neighborhoods, "the renters" often don't develop social ties the same way that owners do. There is something about knowing you are stuck there quasi-permanently with the same people.

A hidden major problem too can also be your neighbors, who can be incredibly annoying and won't go anywhere anytime soon. If you rent, oh well, go somewhere else.

Not so easy with a house, also excluding neighbors who do legal things that devalue your home.


> can do any improvements I want, when I want

This is the main thing I'm wondering about. Most people I know who own homes enjoy working on them. Home improvement becomes a hobby that they like, whether it's basic plumbing or painting the walls or building a deck. I despise this work (even though I do basic carpentry), and I fully consider it work that detracts from my life. It's like doing the dishes, it's a chore, and often stressful. Is owning a home worthwhile if I have no interest in these things? I do have great interest in privacy, not answering to a landlord, and not being priced out of an area.


> I despise this work (even though I do basic carpentry), and I fully consider it work that detracts from my life.

I felt that way when I bought my house too. My experiences:

Get used to the house never being fully OK. Things will continue to break, but over 90% of them aren't urgent. By the time I get one thing fixed (either by myself or by paying someone), something else is broken. That's OK. As time goes by, you realize that most of these things aren't really that important.

Yes, my toilet has a leak so I've turned it off for now: I have 2 others in the house. It's not urgent.

I cannot make ice in my fridge because the water hose to the fridge is leaking - had to shut off faucet. Am I going to chuck an otherwise good fridge over this? No. So for the past so many years, I manually add the water to the ice maker to make ice.

My over-the-stove microwave died. Twice. Am I going to rush and buy another brand new one? No. I'll wait till there is a sale. In the mean time, I can get a perfectly good used microwave for $20.

The list goes on and on.

If you want everything working all the time, then it will be a major pain.

Just learn how to find decent professionals/contractors, and learn to research prices before calling them.


I do a substantial majority of the repairs and maintenance on our cars and our house. It's a hobby of sorts, but it's also a real stretch to say that I enjoy it.

I do it because it's a phenomenal way to save money (and that savings is not taxed, meaning that if I avoid paying a contractor $5000, it's about the same financially as earning an extra $8500) and many of the jobs don't take an extraordinary amount of time or skill once I factor in the time required to get three contractors to actually show up and submit bids, choose the one I want to use, and do what project management is required to hold them to the standards we agreed to in the contract.

I don't know if you need to have interest in doing home repairs, but you need to have a willingness to do or to manage them.

Homeowners are at the bottom of the pecking order when it comes to contractors’ priorities. Property managers, landlords, and general contractors/builders can all give them more repeat business than homeowners can, so we get put at the bottom of the stack.


I enjoy part of it. I like creating something new... building a shed or trellis, adding a new light fixture. I don't like fixing leaks, patching walls, and so on.

But doing this stuff yourself is so much better financially. You don't turn a profit by paying contractors to improve your house; you profit by investing your own labor to do it at 20% of that cost.

Imagine investing in a stock where you could put in some labor now and then, and have that actually result in substantially higher stock prices.


I felt the exact same way, I bought because I had a few rental properties in a row that would take us in, then kick us after the minimum contract length. Nothing to do with us, just selling, renovating and driving up rent etc.

I got so sick of moving a family with an energetic one year old, I just recently purchased a place. Now my extended family has come to help on the house and I’ve found the work surprisingly pleasing(where I felt I have always hated this type of work).

After so many years moving pixels around on a screen, physical work with a group of people is just, nice.

But that’s just me, I’m sure you very well might still hate it but I was pleasantly surprised.


I think it is still worthwhile, especially if you have an interest in privacy. In an apartment, a landlord is generally allowed to have reasonable access to the premises, can choose whoever they want to do the repairs, etc. They generally control the property.

With a house, even if you have all maintenance outsourced, you choose who performs the labor and when they do. My last apartment was horrible with surprise inspections, and I've had similar issues with them scheduling contractors at inconvenient or unknown times. It's much nicer owning a home even if you don't like doing the maintenance yourself.


I was renting a great place last year, reasonable rent, fantastic location, etc. But my landlord lived next door and believed, with him being the 'owner', he could call round for a chat anytime he felt like it, this would go as far as him coming up to the kitchen window as I was making dinner and hanging around at the usual time I would return from work.

Within a couple of weeks I was staying at work later, leaving in the morning earlier and generally avoiding the place at every opportunity.

I left a few months ago at significant expense and don't regret doing so one tiny bit.

There is much more to the equation than money.


> can do any improvements I want, when I want, how I want, and they become an asset

Depends on the HOA rules, if you have an HOA.

As for whether they'll be an asset, it depends on the improvement ;-) I tour open houses often, and people definitely have done some typically undesirable improvements.


> Don't have to worry about getting priced out if the neighborhood becomes popular

That's what property taxes are for.


And if they cant raise taxes they'll just legislate your standard of living via bylaw then sick enforcement on you to the same effect.

"Rich but not Koch and Murdoch rich" people are f-ing terrible to live with. They give a shit about everything.


That depends on what state you live in. CA property taxes can't go up by more than 2% (or thereabouts - the specifics don't matter) per year, and aren't pegged to the actual current value of your home.

Mega-Classic from The New York Times: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

A beautiful, in-depth calculator to answer "Is it better to rent or buy?"


This is the one to use, the OP is overly simplistic. The NYT model is great, if only to realize that only two variables drive the output; what do you forecast the stock market to do, and what do you forecast the housing market to do.

The compound interest from allocating your resources to the faster growing of the two vastly overwhelms small compounding or even large fixed costs.

The real question is therefore - how long do you believe housing prices will keep increasing in your chosen area?

A secondary concern that is harder to price and seldom included in these models is that buying housing is a good hedge against being priced out of the area you work & want to live.

Of course it’s not a purely financial decision but I think it’s important to be aware of what you’re leaving on the table whichever option you choose.


One piece of millenial defeatism I hear a lot is "Ugh, I'll never be able to afford a 20% down payment, home ownership is impossible"

I'm not sure where this myth came from, but as a millenial who went through the buying process in 2012 and again in 2016, I remember both times the lender just asked how much we wanted to put down. We could have gone as low as 3%, or maybe even lower.

Yes, you have to pay PMI (private mortgage insurance) for probably a couple hundred bucks extra a month if you don't have 20% equity in the house- but you can stop paying it as soon as you get to 20, and you can count increases in the home value towards that (through renovations or just market conditions). You can even have the interest rate increased very slightly instead of a separate PMI payment if you want to spread out the cost over the entire loan.

The point is, you'll likely need to have 3 months rent for first, last, and security deposit when you start an apartment rental anyway, so the initial costs might be closer than you think.


I mean this is the definition of a strawman argument. Whether it's 10 or 20% down payment is not that significant. Even 5% is un-affordable.

The median sale price of a home was $347,000 last month (0). 5% down on that is $17,350, accounting for closing costs you're going to need around $24,000 in cash to purchase a home.

Which isn't all that much money, except if you consider that it's more than 1/3rd of the median family income (1) and nearly 3 times the median household savings balance (2).

The takeaway from these numbers should be that swathes of people cannot afford homes.

(0) https://fred.stlouisfed.org/series/MSPUS#

(1) https://www.census.gov/library/publications/2020/demo/p60-27...

(2) https://www.valuepenguin.com/banking/average-savings-account... (perhaps there is a better source for this).


5% is not not 3x the median savings balance of families seriously trying to buy a home. That’s setting aside that lower income families tend to live near lower priced homes.

Lower down payments meaningfully increase access to real estate. It matters hugely to be able to accelerate purchase timing by years, or decades.


This reads a bit like "if you exclude all the people that can't afford a home, then the data suggests everyone can afford a home."

Of course lower down payments increase access to real estate. The problem is half of all Americans can't even afford closing costs, let alone a down payment.


Close-it’s saying that there is a group of Americans approaching a 3.5-5% down payment who are in economically similar situations to people without savings, the difference being their saving/spending priorities.

Appreciate the concession about the lower down payment mattering.


It looks like the flow of your idea is to examine a "typical" family, demonstrate that they can't easily afford a home, and rely on most real-world distributions being nice to conclude that many people can't easily afford homes.

Ignoring the conclusion for the moment, that kind of an argument shouldn't just take into account the median savings balance; the median family has one or more individuals age 35+ and $40k+ in home equity -- they can afford a home as evidenced by the fact that they already bought one, and that additional factor to net worth is sufficient to allow them to easily switch homes if desired.

The conclusion itself definitely seems true in many cases, but if families are willing to move and switch careers I'm not sure it's that big of a deal. In every city over 30k people I've visited I've been able to clear $25+/hr just delivering doordash, and many of those have nice 2-3 bedroom homes under $150k. I nearly bought a $180k triplex after a couple years as a lowly pizza driver, and the only reason I didn't become a landlord then and there is because my girlfriend at the time convinced me college would be a better investment (I don't know that it necessarily was, but looking at my current career trajectory I don't have any evidence to the contrary).

Home ownership still wouldn't be totally trivial per se (maybe taking up to 3-5yrs), but in the vast majority of circumstances I'd wager without further proof that the things holding people back from home ownership are stronger alternative preferences (particular careers, cities, ...), and a lack of knowledge about what opportunities are available.


The median household savings account balance is not relevant to this discussion. Savings accounts are an anachronism, most people don’t have them regardless of how much money they have. By that standard of “savings”, I am flat broke.

The median household in the US has >$12,000 in cash that can be saved per year after all ordinary expenses, not even just necessary expenses, per government survey data. So your $24,000 is an easily achievable two years of savings for the median household.

That’s a pretty low bar.


Who pays closing costs when you are buying a house for the first time?

Closing costs are market dependent. Whether you are first time buyer or an nth time buyer, it doesn't matter.

In this market, the buyer is on the hook for what might have otherwise been the seller's expense.

The buyer.

Very true. FHA loans let you put as little down as 3.5% for first time buyers. I wouldn’t recommend it but the opportunity is there.

FHA loans in a competitive market put the buyer at an extreme disadvantage versus conventional or cash.

You still hear of people in these markets snagging homes for like 5% down even with the competition. Maybe I misunderstand, but you don't pay any realtor any money until you buy the home. Seems that there isn't any pain being 'in the market' continually getting out offered 99 times out of 100, if it means you get an offer that one time and are going to be renting anyway until then. Plus the whole time you are presumably saving more money and coming up with a stronger down payment.

Yes, but if you make an offer contingent on bank financing, and someone else makes an offer contingent on nothing, which offer would you choose as a seller? Guaranteed money now? or probably getting money after the bank completes their paperwork? Many people selling a home already have another home somewhere else, and they're not interested in keeping around another empty house to make payments on.

Even if you're financing, you don't have to make your offer contingent on financing. It puts your deposit at risk, but it might be easier than finding a seller who will accept that risk.

Not all offers are going to be all cash. People still buy homes putting down 5% or less in these hot markets, even if its not as common.

For sure, I'm just expanding on why it might be smart not to.

I bought in a buyers market and still opted to put down as much as I could, rather than as much as I was required, so that I could have a better chance to get my 1st favorite pick. I personally wouldn't want to be in the position to settle on my 15th(+) favorite house. There's a lot of people being forced to make a lot of compromises right now -- will they be happy with their decisions years from now?


For a lot of people, the thinking is years from now they will walk out with enough equity and gain to put a down payment on what they want without compromises. Hardly anyone gets everything they want in a first house.

> I remember both times the lender just asked how much we wanted to put down

Well then why doesn't everyone say zero? Why is it even a thing?


You usually can't put zero down. You have options but zero is not one of them.

But in answer to your question putting more down can get you a better interest rate on the loan or less fees.


I don't know about other countries, but in Canada, the banks cannot legally approve a mortgage without a 5% or higher down payment.

Because more equity = lower risk

and lower risk = more options and lower borrowing costs


But if you go with 3% down, add pmi to your monthly payment and it's going to be tough to be in the same ballpark as a rental.

Example: 377k home, 3% down is a $1461 payment; the $673 of equity you build each month is offset by $300 of pmi (not tax deductible). To sell will cost 6% (~24k if it appreciates to 400k). The likelihood of this being > rent of a equivalent home or leaving you underwater in 3 years is high.


"To sell will cost 6%"

I just sold a house a week ago without an agent. You can list on MLS for $45 and pay a flat fee to a broker in your neighborhood for ~1-2k. If you are selling do not pay agents. The market is red hot - they wont do anything except call you in 48hrs with offers. The title company does all the important paperwork anyway.


There are companies such as proportunity that will co-invest your downpayment as well

I understand this is necessary for a lot of buyers, but if you are able to afford more of a down payment, it can be more prudent financially. Besides avoiding PMI, you're less likely to be underwater on the loan. If you only have 5% equity, you will have to pay to move if your home price drops more than 5% and you have to move for a job or other circumstance. 20% is a lot, but if it's doable, it gives you more of a buffer in the event of some bad luck.

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