As a mortgage professional, I meet a lot of folks who are just starting out. They are renters who are on the fence, wondering whether or not purchasing a home makes financial sense. This is a common question which most first time home buyers have, and it is certainly understandable. So when I have this conversation with my clients, I usually explain to them a few important facts about renting, to help them understand the real cost of renting.

First and foremost, there will be a security deposit of some sort required. It is pretty standard for that deposit to be 1 or 2 months worth of rent. I recently worked with a client in Brighton who actually had to put down three months rent as a security deposit. In addition, landlords will also usually collect the last month’s rent, totaling three months or more of rent paid upfront. If you are holding back from purchasing a home because of the down payment, it is important to remember that you can sometimes buy a house with less out of pocket expense than renting.

Depending upon what type of mortgage you take out, there is also a huge cost savings in the payments made over time. Inflation in America hovers around 3% annually. So a dollar today would be worth 97cents next year. Unfortunately, as the value of the dollar decreases from inflation, the costs to rent will increase. With a mortgage, on the other hand, you will have a fixed payment every month to plan around.

Another huge cost to renting is the lack of equity growing in a piece of property. When a mortgage is paid off, the buyer has a place to live for free (less taxes and insurance) for the rest of his or her life. A renter, on the other hand, will pay rent until the day he or she dies. This is an important difference and can save countless headaches long-term as you try to resolve your retirement planning.

These are just a few of the real costs of renting. If you have any questions about some of the costs associated with renting, or about how much house you can buy for the same monthly payment you are paying in rent, please contact me. If you have anything to add about the real cost of renting, please leave a comment.