Zillow Home Loans’ new BuyAbility tool is a quick way to determine if homeownership is within reach, and if it’s possible to secure a mortgage that costs less than rent
, /PRNewswire/ — The monthly cost of homeownership may be more attainable than people think. But, it depends on where they live. According to a new Zillow Home Loans analysis1, a monthly mortgage payment is actually less expensive than rent in 22 of the 50 largest U.S. metros. Recent dips in mortgage rates, which have fallen to the lowest level since early 2023, have significantly reduced monthly payments.
New Orleans, Chicago and Pittsburgh offer the greatest savings when comparing the cost of rent to a mortgage payment, before taxes and insurance, and assuming a buyer can put 20% down. For those who can put together a down payment, buying a home in these cities may be the right move.
In Chicago, the typical rent payment is $2,074 per month, but a monthly mortgage payment2 is $1,640 — a savings of $434 a month by owning rather than renting. In New Orleans, homeowners can also save nearly $450 a month paying a mortgage rather than renting, and in Pittsburgh, the savings are about $320 a month. These savings are even more surprising when considering that homes for sale tend to be larger than the typical rental.
This trend also holds true across the U.S. The typical rent payment nationally is $2,063 a month, but the typical mortgage payment is $1,827 — a savings of $236 a month by owning rather than renting.
“This analysis shows homeownership may be more within reach than most renters think,” said Zillow Home Loans Senior Economist Orphe Divounguy. “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. With mortgage rates dropping, it’s a great time to see how your affordability has changed and if it makes more sense to buy than rent.”
Beyond monthly rent or mortgage payments, there are additional costs for both renting and homeownership that must be considered. Homeowners pay taxes, insurance, and utilities on a monthly basis, and should be prepared for ongoing maintenance costs. Renters also typically need insurance, and will often pay extra for parking, pets, and utilities.
There are pros and cons to both buying and renting, but generally, the longer you plan to stay in your house, the more financial sense it makes to buy. Mortgage payments can decrease over time by paying off private mortgage insurance or refinancing your loan at a lower rate, whereas rent payments have the potential to increase at each lease renewal. Beyond that, mortgage payments build homeowners’ equity in their house — increasing their financial stake in their home as time passes.
Rent growth has come down from pandemic-era highs and returned to long-run norms, but prices are still climbing. The typical rent is 3.4% more expensive than a year ago and nearly 34% more expensive than before the pandemic. The for-sale market, on the other hand, is offering opportunities for buyers heading into the fall, with more than 1 in 4 sellers cutting prices. With inventory up 22% compared to a year ago, buyers are gaining bargaining power.
One easy way for buyers to see if their potential mortgage payment is cheaper than their rent is to use BuyAbility, a new tool from Zillow Home Loans. BuyAbility quickly gives prospective home buyers an idea of how much they can afford and their likelihood of getting pre-approved for a mortgage. Buyers can check in with BuyAbility regularly on the Home Loans tab on Zillow’s app to see how their estimate changes with current mortgage rates or a change to their credit score.
U.S. Metros Where Mortgage Payments are Lower Than Rent
|
Metro Area |
Typical Rent Payment |
Typical Mortgage Payment |
Monthly Savings |
|
New Orleans |
$1,652 |
$1,206 |
$446 |
|
Chicago |
$2,074 |
$1,640 |
$434 |
|
Pittsburgh |
$1,413 |
$1,092 |
$321 |
|
Miami |
$2,787 |
$2,473 |
$314 |
|
Memphis |
$1,499 |
$1,209 |
$290 |
|
Cleveland |
$1,436 |
$1,171 |
$265 |
|
Detroit |
$1,499 |
$1,286 |
$213 |
|
Tampa |
$2,106 |
$1,914 |
$191 |
|
Oklahoma City |
$1,373 |
$1,185 |
$188 |
|
Houston |
$1,735 |
$1,553 |
$182 |
|
Birmingham |
$1,418 |
$1,265 |
$153 |
|
Indianapolis |
$1,569 |
$1,417 |
$152 |
|
St. Louis |
$1,413 |
$1,273 |
$139 |
|
Louisville |
$1,395 |
$1,305 |
$89 |
|
Cincinnati |
$1,527 |
$1,446 |
$81 |
|
Orlando |
$2,089 |
$2,008 |
$81 |
|
New York |
$3,471 |
$3,399 |
$72 |
|
Hartford |
$1,916 |
$1,846 |
$70 |
|
San Antonio |
$1,505 |
$1,439 |
$66 |
|
Philadelphia |
$1,870 |
$1,846 |
$24 |
|
Virginia Beach |
$1,787 |
$1,777 |
$10 |
|
Buffalo |
$1,361 |
$1,354 |
$8 |
|
1 Analysis used Zillow data to compare the cost of a monthly mortgage payment to the typical rent payment among the 50 largest U.S. metro areas. Analysis assumed a 20% down payment, a 6.5% interest rate and a 30-year fixed mortgage. Rental and mortgage figures don’t include the cost of insurance or property taxes. |
|
2 Assuming a 20% down payment, a 6.5% interest rate and a 30-year fixed mortgage. |
About Zillow Group:
Zillow Group, Inc. (Nasdaq: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing and renting experiences.
Zillow Group’s affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans℠, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+℠, Spruce® and Follow Up Boss®.
All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2023 MFTB Holdco, Inc., a Zillow affiliate.
Other costs on both sides. Taxes, insurance, maintenance, utilities. For renters – may be charged extra for parking, pets, potentially utilities. The longer you plan to stay in your house, the more sense it makes to buy. Mortgage payments are relatively fixed, whereas rent payments have the potential to increase at each lease renewal.
SOURCE Zillow Home Loans
