Housing News

Renting to Save Money? Buying a Home is Cheaper Than Rent in These Cities

Attention renters, falling mortgage rates are making monthly mortgage payments cheaper than rent in certain markets.

Zillow crunched the numbers and found that buying a home may be a better financial option than renting in 22 of the 50 largest metropolitan areas. In fact, in some metros, homebuyers can save more than $400 per month over renters.

"This analysis shows homeownership may be more within reach than most renters think," said Zillow Home Loans Senior Economist Orphe Divounguy in a statement.

In the New Orleans, Chicago, and Pittsburgh metros, homeowners can save between $300-$450 a month owning a home rather than renting.

The Zillow analysis compared the cost of rent to a mortgage payment (minus taxes and insurance) with the assumption that the homebuyer is putting down a 20% down payment on the home. Zillow used a 6.5% interest rate and a 30-year fixed mortgage to figure out the difference.

It should be noted that the prevailing market mortgage rate is even lower than Zillow used in its calculations, which would make buying a home even cheaper. However, many homebuyers do not have a 20% down payment (nor is it necessary to secure a home loan). So, it’s important to weigh all the factors when making a decision like this.

Buyers and renters have different costs associated with renting and homeownership. While homeowners pay taxes and homeowner’s insurance, while renter’s insurance is not required by law, landlords may require it of their tenants. Renters also may have to pay extra for pet fees and parking.

If it makes sense for you to do so, buying a home may help you grow your wealth by building equity in your home.

"Coming up with the down payment is still a huge barrier, but for those who can make it work, homeownership may come with lower monthly costs and the ability to build long-term wealth in the form of home equity — something you lose out on as a renter,” said Divounguy.

Buying a home comes with several other advantages, according to experts. Landlords can increase rent payments on a whim, but mortgage payments can actually decrease over time if you pay off your private mortgage insurance or can refinance your home loan to a lower rate.

You can also often get more space when you buy a home than you have while renting. Plus, if you buy a home, you can customize it to your needs without having to worry about getting a security deposit back or being charged when your landlord decides to change things back once you’ve moved.

Here are the top 10 markets where it may make more sense to buy than to rent, according to Zillow:

1. New Orleans: $446 in savings

2. Chicago: $434 in savings

3. Pittsburgh: $321 in savings

4. Miami: $314 in savings

5. Memphis, Tenn.: $290 in savings

6. Cleveland: $265 in savings

7. Detroit: $213 in savings

8. Tampa, Fla.: $191 in savings

9. Oklahoma City: $188 in savings

10. Houston: $182 in savings