The Real Cost of Homeownership: Buying vs. Renting Affordability

Many renters believe that buying a home is beyond their budget because the monthly mortgage payment appears to be much higher than their rent. While that is sometimes true, the actual cost of homeownership can be closer than many people realize once federal tax savings and long-term equity growth are considered.

Example

Assume a tenant earning $75,000 per year currently rents a home for $1,850 per month. Instead, they purchase that same home using the following financing:

• Purchase Price: $290,000

• Down Payment: 3.5% ($10,150)

• FHA 30-Year Fixed Mortgage: $279,850

• Interest Rate: 6.5%

Estimated Monthly Housing Payment

• Principal & Interest: $1,769

• Property Taxes: $242

• Homeowners Insurance: $150

• FHA Mortgage Insurance: $128

Total Monthly Payment: $2,289

Tax Benefit

During the first year, the homeowner is estimated to pay approximately:

• Mortgage Interest: $18,100

• Property Taxes: $2,904

Total potential itemized deductions: $21,004.

For a single taxpayer in 2026, this exceeds the standard deduction by about $4,900. Assuming a 22% federal tax bracket, the homeowner would save approximately $1,078 in federal income taxes, or about $90 per month.

This reduces the effective monthly cost of homeownership to approximately $2,199.

Compared to renting at $1,850 per month, the homeowner is effectively paying only about $349 more each month.

Building Wealth

Unlike rent, a mortgage payment builds ownership. A portion of each payment reduces the loan balance, increasing the homeowner’s equity. In addition, homes have historically appreciated over time, although appreciation is never guaranteed.

Assuming a conservative 3% annual appreciation, after five years the homeowner would have approximately:

• $46,200 in home appreciation

• $17,900 in mortgage principal paid down

• $10,150 original down payment

Total Estimated Equity After Five Years: Approximately $74,000

Success Story

This brings me to the story of an acquittance of mine many years ago.  She was a single woman in her mid-20s.  I mentioned to her that, with the tax savings discussed above,she could own a home and pay about the same, or maybe even a little less each month than she was paying in rent.  From that point forward, she was determined that she was going to purchase a home.

It did not take her very long to find the perfect house.  Offer was made, accepted and a short time later, she was moving in.  She sold this house 6 years later when she relocated.  However, in the 6 years that she owned this home, the house appreciated 75% over what she had paid for it.  She was able to use this equity to purchase her new home in her new city and was able to continue to increase her net wealth.

Conclusion

Every buyer’s financial situation is different, and homeownership may not be for everyone. However, for many qualified renters, the difference in monthly cost may be far smaller than expected, while the opportunity to build long-term wealth through homeownership can be substantial.