Many of us grew up hearing, from parents or otherwise, that real estate was the best way to build wealth and that paying rent was basically “throwing money away.”

But if you’re not in a place to afford a down payment, either right now or maybe ever, don’t despair. Because guess what? Owning your home isn’t actually the surefire road to wealth that it’s made out to be. In fact, it might not even be the best way to do it at all anymore. 

While you should be asking yourself plenty of questions about your own financial situation, here’s some additional mythbusting food for thought.

Homeownership costs more than just a mortgage

One of the biggest misconceptions about homeownership is that, after the down payment and closing costs, the monthly cost of owning a home is “basically the same” as paying rent. If you think about it, this myth is probably a big source of a lot of your FOMO, too — it makes owning your home seem easy, once you get over that big initial hurdle. 

In reality, there are a lot more costs associated with owning a home than you might think. On top of the recommended 20% down payment, 3–5% closing costs, and base mortgage payment (which, btw, includes interest), homebuyers are also responsible for property taxes, homeowners insurance, and about 1% of the property’s value in regular maintenance. (All that stuff that, as a renter, you can bug your landlord to take care of? That’d be your problem now.)

What would that look like? Let’s break down an example. Say you buy a home in the great state of Ohio that costs $444,000. 

• A 20% down payment would be $88,800.

• Let’s say you lucked out and your closing costs were just 3%. That would be $13,320 added to the price of the home. So already you’re either putting about $102,000 down up front, or else taking out a mortgage that looks more like $457,000. 

• Let’s say your 30-year mortgage has an interest rate of 7.35%.

• Annual property tax = about $9,100.

• Annual homeowners insurance = about $2,151.

And that’s before you factor in the cost of keeping up your home. You’d now be responsible for:

• Repairs, big and small

• Updates and renovations (no one keeps everything exactly as is!)

• Ongoing maintenance

• Seasonal maintenance

Even if these line items are one-time costs, they should be factored into the overall cost of owning a home. If you have to spend $20,000 re-tiling the roof on a $444,000 house, that house‌ costs $464,000.

Maybe you could squeeze all that into your budget. But then how much wiggle room would that leave for you to invest toward your dream retirement or other long-term goals? That’s a big potential wealth-building tradeoff. Because while yes, real estate is an investment in and of itself … 

Real estate isn’t as good an investment as you think

Not only is buying (and owning) a home expensive, it might not even be worth the expense. 

Historically, returns on real estate — aka the rate at which your home increases in value over time — haven’t significantly outpaced inflation. That means that whatever price at which you sell your home could be essentially the same price you bought it for a few years ago. You’d need to hold onto the property for an average of five to seven years just to break even, especially with all those extra costs. 

All investments are a risk, but with homeownership, you’re continuously sinking more money into the investment with no way to guarantee it’ll pay off long-term. Even housing economists say you’d probably be better off putting your money into your investment portfolio.

Renting‌ has its advantages

At the end of the day, you should pretty much only be buying a home if owning your own home is important to you. Homebuying isn’t the status symbol that people — be they realtors or influencers — want you to think it is. 

On the other hand, renting, as annoying as it can be, offers a lot more freedom than it sometimes gets credit for. Your costs are limited, most maintenance is covered by the owner, and most importantly, if you decide you don’t like your place, it’s a lot cheaper to save up for a move than it is for a down payment.

Navigate what comes next

All of that said, if you are planning to buy a home / if you've decided homeownership is right for you, we can help you go into the process as prepared as possible — an Ellevest financial planner can guide you through the process of becoming a homeowner in our Homebuying Strategy Session.

Wherever you’re at in your journey, we’ve got answers.

Disclosures