Nov. 16, 2017
By Jennifer Riner, Trulia
Millennials love to rent, right? Turns out renting is more of a financial need than a preference. Gathering the money needed for a down payment, all while balancing student loan debt and steep rent prices, is no easy feat. However, buying is beyond advantageous – to the point where you can save more money owning your own home than you would renting with a roommate.
Although buying is less of a bargain when you compare the costs to splitting the rent, the savings hold true in many major markets – including Columbia.
Rent vs. Buy
Before diving directly into the costs of buying a starter home versus renting with a roommate, consider the standard rent vs. buy gap for the Columbia real estate market. The median home price (as of Sept. 2017) is $125,952, making it one of the more affordable cities in the state.
Because year-over-year rent price growth has outpaced home price appreciation, Columbia’s rent vs. buy equation has tilted in greater favor of home ownership in recent years. In 2012, it was 40 percent cheaper to buy. In 2013 and 2014, buying was less advantageous at a 38.6 and 38.8 percent savings, respectively. It wasn’t until 2016 when home ownership passed the 50 percent threshold, albeit marginally. In 2017, buying a home in Columbia is the best deal seen in five years.
With 20 percent down on a 30-year fixed mortgage with a 3.75 percent interest rate, Columbia home buyers now save 52.6 percent compared to renters. Keep in mind, this calculation assumes the alternative is paying for a median-priced apartment at $1,200 per month entirely solo. Further, to reach this number, buyers must stay in their homes for at least seven years and fall under a 25 percent income tax rate.
Buying a Starter Home in Columbia
Fortunately for first-time home buyers in Columbia, the metro-wide median starter home price is an affordable $59,533. With 20 percent down, or the recommended amount needed to avoid private mortgage insurance (PMI), starter home buyers would owe $11,900 upfront for the down payment alone.
Using a mortgage calculator reveals that the monthly payments for a starter home, again with a 30-year fixed mortgage interest rate of 3.75 percent, would equal $335 – including principal, interest, taxes and insurance. Keep in mind, this total does not include Homeowners Association dues, which are more common in condominiums and other residential developments with amenities to maintain.
On the other hand, splitting the median rent two ways means each person pays $600 per month for the duration of their lease. Already, buying your own starter home is considerably cheaper (on a monthly basis) than renting with one roommate. However, there are other expenses to consider, like the down payment, attorney’s fees and maintenance incidentals.
After averaging out all costs of home ownership and renting, buying a starter home in Columbia is still 45.3 percent cheaper than renting with a roommate.
Keep in mind, not every neighborhood benefits from such affordability. Homes in Elgin and listings in Lake Murray typically see higher list prices – even for entry-level homes – that could alter the potential savings. Before you start your search, use a home affordability calculator to estimate your potential buying power and compare that to your current rent.
Overall, Columbia ranked among the top 10 cities where being a starter homeowner pays off, according to Trulia’s most recent Rent vs. Buy report.
Given the clear financial advantages of home ownership, getting started on your first home search in Columbia is both exciting and somewhat alleviating. Some choose home ownership for its apparent savings, but the investment potential and the bragging rights are second to none.
To launch your starter home search the right way, contact the Columbia real estate experts at J. King Real Estate today.