Buying vs Renting a Home in 2023: Texas Edition

Home ownership presents an opportunity to build equity in your home which you can recoup when you sell. In some situations, however, renting makes more sense for the time being. You might not have enough cash on hand for a down payment, or you might have credit problems that keep you from qualifying for a mortgage.

This article examines financial and intangible factors as you’re making the decision to rent or buy in Texas’ major metropolitan areas.

» READ MORE: When it’s Actually Smarter to Rent than Buy

Explaining What Goes into Rent and Mortgage Payments

Owning a home is a long-term investment. The up-front costs are greater than if you were to continue renting. The long-term benefits, however, tend to be much better than remaining a renting tenant.

Costs associated with owning a home include the following:

• Mortgage Payments, including principal and interest: As a homeowner, you’re paying down the cost of your property each month combined with a payment to your lender called interest. As a renter, you’re not working toward owning the property or paying your landlord interest; you’re paying your landlord a fee to use the property temporarily. In the end, these elements of monthly payments between homeowners and renters often shake out to be a similar amount.

• Homeowner’s Insurance: While this is designed to be paid for by the property owner, as a renter, your landlord likely has homeowner’s insurance (and you’re likely helping him or her pay that bill).

• Mortgage Insurance: This protects your lender (not your home). It’s a pesky expense, but is often a worthy trade off for loan programs that allow very low down payment requirements.

• Property Tax: Homeowners have more insight and tax advantages when it comes to property tax, and both owners and renters will feel the effects of property tax in their monthly payments.

• Homeowners Association (HOA) Fees, if applicable: Not every property is part of an HOA. But if it is, as a homeowner, this is often paid as part of your mortgage. Likewise, as a renter, it’s taken care of by your rental payment.

• Maintenance and Repair Costs: Renting typically only involves monthly rent paid to a landlord or management company, owning a home involves several expenses in addition to the monthly mortgage payment.

Most of these costs will vary depending on factors like the size, purchase price, fair market value, and location of the home.

How We Calculated Realistic Buy vs Rent Comparisons

The comparison of costs presented below is based on estimated or average costs for Texas for a home of 1,500 to 2,000 square feet, including the following:

• Mortgage Interest Rates: Freddie Mac reports that the national average interest rate for a 30-year fixed-rate mortgage in late February 2023 is 6.5%.

• Property Tax: The median property tax rate in Texas in 2023 is 1.81% of a home’s assessed value, according to tax-rates.org. The amount of tax owed will go up as a property’s assessed value goes up, and it will decrease if the value goes down.

• Maintenance and Repair Costs: Several methods are available for estimating the cost of home maintenance and repairs over time. We will use the “square footage rule,” which sets aside $1 per square foot per year for maintenance and repair costs.

• Homeowners Insurance: According to Forbes, the average annual cost of a homeowners insurance policy with $200,000 in dwelling coverage in Texas is $1,740. Our adverse weather conditions, especially considering hail, results in higher-than-average costs for Texans as compared to the US average. According to Policy Genius, the average premium for a $300,000 home in the US comes in at $1,899 per year.

• Home Purchase Prices: The cost of a new home in different Texas metro areas is based on current listings on Zillow.com.

• Rental Rates: Similar to the estimated purchase price, the estimated cost of renting a 1,500- to 2,000-square-foot home comes from Zillow.com.

If the following examples seem out of reach due to the high down payment amounts, don’t worry: buying a home does not require a 20% down payment. Down payments of 10%, 5%, 3.5%, and even 0% are common. Lower down payments still earn you a bigger bang for your housing bucks compared to renting. Check out loan option pages for simple information about down payment requirements.

If you have bought a home in any of these areas within the last five to ten years, these down payments would likely be possible since you’ve built so much equity in your current Texas home!

Greater Houston

Get in touch with trusted mortgage professionals in Houston.

• Estimated home purchase price: $375,000
• Estimated monthly rental cost: $1,900

*For accuracy, “Sales Price” figures include adding 4% average annual value appreciation and subtracting 6% of the home sale for agent fees on each area’s example comparison.

Greater Austin

Get in touch with experienced mortgage professionals in greater Austin.

• Estimated home purchase price: $500,000
• Estimated monthly rental cost: $2,100

*For accuracy, “Sales Price” figures include adding 4% average annual value appreciation and subtracting 6% of the home sale for agent fees on each area’s example comparison.

Greater San Antonio

Get in touch with experienced mortgage professionals in San Antonio.

• Estimated home purchase price: $300,000
• Estimated monthly rental cost: $1,600

*For accuracy, “Sales Price” figures include adding 4% average annual value appreciation and subtracting 6% of the home sale for agent fees on each area’s example comparison.

Greater Dallas/Fort Worth

Get in touch with experienced mortgage professionals in the DFW metroplex: Boyd/Southlake & McKinney.

• Estimated home purchase price: $375,000
• Estimated monthly rental cost: $2,000

*For accuracy, “Sales Price” figures include adding 4% average annual value appreciation and subtracting 6% of the home sale for agent fees on each area’s example comparison.

More The Wood Group of Fairway office locations!

Is your area not represented in these examples? We have physical office locations all across the great state of Texas. With The Wood Group of Fairway, you’ll find a perfect balance of modern tech and real human help.

In addition, we’re no stranger to helping out-of-state buyers find their dream home. You can expect the exact same level of care and professionalism even if we never meet face-to-face!

Intangible Costs of Buying vs Renting a Home

Some factors that you might be considering when deciding whether to buy or rent are too intangible to quantify. Unlike comparing mortgage payments to rent payments, it can be difficult to put a value on not having to put up with your landlord anymore or finally being able to have a purple accent wall. You could have more privacy in your own home, or you might place great value on being able to customize the space for particular purposes.

Get started on your mortgage pre-approval!

We’ll repeat the same advice we’ve given for years: if you can reasonably afford to buy a home instead of rent, buying is likely your best choice from a long-term financial perspective. The common question of “is it a good time to buy?” can be answered with this advice. You may have missed the sub-3% interest rate boat during the height of COVID-19, but that doesn’t mean you should continue waiting for rates to drop again.

Countless people dream of owning their own homes. Thanks to mortgage financing, that dream is within reach for more people than ever before. With the right guidance you can find your path to making home ownership a reality.

The mortgage professionals at The Wood Group of Fairway will answer your questions and discuss your best options. Get started on your free pre-approval today by answering a few easy questions!