Are you considering moving and wondering if you should rent or buying a house right now in Metro Detroit is better?

Rent or Buy a House: What’s More Affordable?

Have you caught recent reports saying it’s cheaper to rent or buy a house in Metro Detroit? This might be true for some if you consider the monthly payments. However, a big part of the picture is missing: home equity. Let’s dive into why building equity might tip the scales favor buying in Metro Detroit.

What the Headlines Are Based on

Recent national data compares the median rental payment and the median mortgage payment. The data suggests renting may be more affordable monthly, particularly if you don’t need much space. Yet, when you look at two-bedroom homes, the difference narrows. The median monthly mortgage is $2040, while rent is $1889—a mere $151 difference. But let’s dig deeper and consider the role of equity.

Mortgage Rates vs Purchasing Power

The graph below will help you determine your purchasing power. You should stay close to your budget if you purchase a home for $260,000.00 at a 7% mortgage rate. If you’re not putting down 20%, you’ll need to add property taxes, home insurance, and payment mortgage insurance (PMI) to your payment. Remember that you’ll also have an additional write-off on your income tax.

How Equity Shifts the Perspective

Renting means your payments cover your living space and the property owner’s costs. At the end of your lease, besides possibly getting your deposit back, the money you’ve spent is gone for good.

Buying a home is different. Your mortgage payments are not just for shelter; they’re an investment. Every payment increases your home equity—essentially the part of your home you truly “own.” Your equity also grows as home values rise.

To put this into perspective, consider the Home Price Expectations Survey, which gathers insights from over 100 experts. They predict home prices will rise in the next five years, including Metro Detroit. Imagine buying a home for $400,000. If you stay put for five years, you could gain over $83,000 in equity as your home’s value increases.

Here’s a quick comparison: even if renting saves you a bit each month, you miss out on this equity, which is like leaving money on the table.

Is it Worth Missing Out on Equity Gains?

While renting might save you a bit now, you lose out on the potential equity gains. So, the real question is what fits your financial situation best. Don’t buy if it doesn’t make sense financially. However, if you can manage it, adding home equity could tip the scales in favor of buying as a more beneficial long-term strategy.

Bottom Line

Ultimately, buying a home in Metro Detroit offers benefits that renting doesn’t, like the opportunity to build equity. Thanks to long-term rises in home value, this could mean greater financial growth. If you’re considering buying, let’s explore your options to find the best path.