Cost ratio of mortgage payment vs. rent?
October 6, 2006 10:17 PM   Subscribe

When you made the jump from paying the rent to paying a mortgage, what was the ratio?

I'm considering becoming a first-time homebuyer, and I'm looking for anecdotal accounts of the ratio of the rent one was paying versus the mortgage payment. For example, my parents related that they were paying $200 a month in rent until they bought their first home (in California), at which point their mortgage was $600 monthly. A 1:3 ratio.

Just trying to get a feel for the cost jump most people face. No need to post dollar amounts involved if you'd rather not. I also understand that there are tax benefits, etc. that come along with owning a home, but for the purposes of this question I'm just interested in the change in actual monthly outgoing cash. Thanks!
posted by woj to Work & Money (36 answers total) 3 users marked this as a favorite
In 1988 we went from $325/month for rent to $500/month for a house.

Bear in mind that early in most mortgages you can deduct the majority of that payment from your income tax gross adjusted income (in the U.S.) So, If I was at a 28% marginal rate at the time (can't remember), the $500 was the equivalent of $360/month after taxes.
posted by Doohickie at 10:21 PM on October 6, 2006

(The majority is deductible because it is mortgage interest.)
posted by Doohickie at 10:22 PM on October 6, 2006

(And taxes.)
posted by Doohickie at 10:22 PM on October 6, 2006

I just bought a condo a month ago, my first place. My rent was $1020 before and my mortgate is $1600, plus $200 or so for condo/HOA fees. I got special financing for the first three years, though. Year four on my mortgage will be about $1900.
posted by Khalad at 10:23 PM on October 6, 2006

in 1990, in Toronto, we were paying $700 a month for a tiny apartment on Richmond St., right behind the Big Bop, a trashy downtown bar.
We bought a crappy small house in North York that year, and while the location sucked (really far away from downtown), we had some friends rent rooms from us while we lived there (we were all in our 20's and in school.)
Our mortgage was $600 a month, they each paid $250 a month, so it worked out pretty well.

We're in our second home now, and our mortgage is almost paid down. I would totally recommend buying vs. renting, especially if you can buy a place with a rental apartment.
posted by chococat at 10:40 PM on October 6, 2006

With all tax effects, including property taxes, mortgage deduction etc. - the monthly payments were about 20% higher but the space was doubled, plus we had our own yard and garage.
posted by caddis at 11:03 PM on October 6, 2006

I am a first-time homebuyer closing in two weeks! I currently pay $750 in rent. My monthly payments will be appr. $900, including a $300 monthly condo fee and a percentage of the property tax each month. I've already picked out the color I am painting my living room.
posted by Foam Pants at 11:09 PM on October 6, 2006

Went from a studio apt in Capitol Hill in Seattle in 1999 to a ~3 bedroom house in the Greenwood neighborhood. I think our full payment (Principal, Interest, Taxes + Insurance) was 3x. Then their were the utilities, and all the furniture, and all the fixes and improvements...
posted by Good Brain at 11:15 PM on October 6, 2006

1:3 ratio here too, in NZ (where owning your own home is practically a national religion) in 1988. The drop in discretionary income was a shock to the system (shrubs instead of beer?!) but part and parcel of being grown up.
posted by Pigpen at 11:20 PM on October 6, 2006

I fear the most important consideration is being missed - how large a down payment can you put down? The amount you actually finance is the primary driver of your monthly payments.

I went from renting which consumed roughly 21% of monthly net pay to owning with mortgage payments totalling about 7% of my monthly net.

The more cash you put down now frees up remarkably large amounts of cash, not only immediately in the form of lower mortgage payment, but over time as that difference in outgoing cash flow can be retained and used for other purposes.
posted by Mutant at 11:20 PM on October 6, 2006

1k to 2800.
posted by iamabot at 11:28 PM on October 6, 2006

posted by 5bux at 11:42 PM on October 6, 2006

1:1, but my house was real cheap.
posted by handee at 4:45 AM on October 7, 2006

US$695 to US$730.
posted by QIbHom at 4:49 AM on October 7, 2006

We're paying about the same, but we rented in NYC and bought a cheap house in an unfashionable part of the Berkshires.
posted by languagehat at 5:04 AM on October 7, 2006

The wife and I were paying a combination of two rents totalling about 750 GBP before buying a place and getting a mortgage for less than 700GBP. It probably all depends on how much you really want to stretch yourself - do you get a place where the mortgage payments are no different to your rent (maybe that's all you can afford) or can you cut back so you have surplus money to pay for a higher mortgage on a more expensive property?
We went for the former, and haven't looked back since! :)
posted by Chunder at 5:39 AM on October 7, 2006

I think one thing people forget is that down the road your mortgage payment will be LOWER than area rentals. While rents rise a fixed rate mortgage will stay the same payment. Sure property taxes will go up, but they are deductable. So now while rents in my Boston suburb are about $1200.00 month my Mortgage (after 20 years) is $800.00 per month and taxes around 200.00
posted by Gungho at 6:06 AM on October 7, 2006

$1600 to $1080. But that's renting in Brooklyn and buying in an unhip part of Austin, TX. Our transition rental here in Austin makes it a more realistic ratio of $600 to $1080.
posted by dirtdirt at 6:41 AM on October 7, 2006

About 1:2. 1 was rent in Oakland, CA, 2 is mortgage in Leesburg, VA.
posted by pmbuko at 7:00 AM on October 7, 2006

Almost 1:1 here in the Philadelphia area. When you are doing your calculations, keep in mind the considerable tax savings (USA) that you'll get from paying a mortgage. That tax savings for me was almost 30%. For example, a $1000/month mortgage might only cost you $700/month after you add in your tax savings. When you are figuring out the financials for your mortgage, I would highly recommend you speak with a CPA to find out your exact tax savings and how much home you *really* can afford [lending agencies can sometimes skew the numbers in their favor - having a good CPA helps to bring you a solid perspective of what is best for you].
posted by galimatias at 7:14 AM on October 7, 2006

A little less than 1:1 after having put 20% down. Rents are very high in a college town. I imagine the reverse is true in California.
posted by Gable Oak at 7:15 AM on October 7, 2006

$1100 to $2800 (two years ago) in Northern Virginia.

Rent on the same apartment has since gone up to around $1800
posted by wildeepdotorg at 7:34 AM on October 7, 2006

Our rent was $750 per month vs. our house payment of roughly $1000, but we bought a bigger, newer house in a better neighborhood.
posted by mr_crash_davis at 7:50 AM on October 7, 2006

rent: 485
house: 'bout 700 (hard to calculate, since I got cash out too)
posted by notsnot at 8:48 AM on October 7, 2006

Rent prior to wonership: $750

Mortgage on new condo: $815 + $250 assessment + $1400/year on property taxes (which works out to $116/month extra) for a grand total of $1181.

Not sure of the ratio there but there ya go. We knew we'd be paying extra for the privilege of home/condo ownership but we were willing to do this for the long term investment advantages.
posted by KevinSkomsvold at 8:59 AM on October 7, 2006

The rule of thumb I've heard is that you should not be paying much more than 1/3 of your income to housing costs, whether you're renting or owning.
posted by LobsterMitten at 9:31 AM on October 7, 2006

LobsterMitten is correct: Your total housing costs should be between 25% and 35% of your income. If you make $50k, your monthly payments should not exceed the $1042 to $1458 range. That range is a good one to allow you enough money to cover all your obligations and still have some savings each month (assuming good financial discipline). "Housing costs" as I've described above consist of your mortgage and interest payments, insurance costs, and taxes AFTER the tax discounts are allotted for. Depending on how much maintenance, projects, and repairs are going to be done to your home, adjust accordingly (e.g. don't spend 35% if you know the place will be a black hole for expensive and necessary improvement projects - you'll have no money left over!)

The same general rule applies for renting, too. Don't spend more than 25%-35% of your income on rent, especially since it is essentially wasted money.
posted by galimatias at 10:19 AM on October 7, 2006

the considerable tax savings (USA)

But bear in mind that you're only really getting tax savings on interest+taxes that are above the standard deduction.

Say your deductible expenses are \$12000, which wouldn't be out of line for a little house 'round these parts. The standard deduction for a couple this year is \$10300, so you were going to get that whether you rented, owned, lived with your mom, or huddled under an overpass. You're actual tax savings are only on the \$1700 over the std deduction.

So if you're in the 25\% bracket, your actual tax savings over renting the same place for the same cost are a whopping \$425 / year.
posted by ROU_Xenophobe at 10:42 AM on October 7, 2006

The first I did it was 1987, from 1-br in Takoma Park, MD to studio co-op in DC, and it was about 1:1. The second time was 1998 in San Diego from 3-br apt to 4-br house, and it was -- again -- about 1:1. That last one was also a move from a desirable neighorborhood to a transitional one, which explains a lot of why the house was so cheap.
posted by Robert Angelo at 11:48 AM on October 7, 2006

about 1:2.5 but this is the bay area and everything is insane here. was paying $3000/mo for a 1500sq/ft house in mountain view in 2001.
posted by joeblough at 11:52 AM on October 7, 2006

I was paying 537 CDN to rent, going to 1400 CDN mortgage. (It's not a fair comparison, because the 537 was with a roommate.) I was paying 925 to live by myself before that.
posted by chunking express at 1:05 PM on October 7, 2006

Not trying to diss, but the fact that you're even asking this question means you need to read this book, stat. (Or anything by Robert Irwin.) As evidenced by the answers here, everything is relative -- which means that a zillion anecdotal accounts aren't going to help you if you're serious about buying a house.

The rent-vs.-mortgage-ratio question is the same as, "How much will my monthly car payment be?" It's completely unrelated to the amount of debt you'll be responsible for -- and thus can get you into a shitload of trouble.

Go to Yahoo Finance and goof around on the calculators. Plug in how much you want to pay every month, based on a standard 30-year mortgage, and how much you have in the bank -- and you'll find out all about the really important stuff like PMI, downpayments, income-to-mortgage ratios, and tax savings.
posted by turducken at 1:33 PM on October 7, 2006

We bought in Socal in 2001, and bought a condo exactly the same as the one we were renting (across the road, same development, same layout, everything, so its a pretty good comparison). Ratio was about 1:1.5 before interest deduction tax benefits. More like 1:0.8 after taking those tax benefits into account. Things may be very different where you live, with today's prices/interest rates and depending on your tax/deductions situation.
posted by Joh at 2:04 PM on October 7, 2006

2004, Rent was $650. Mortgage payment became $600, but when property taxes, insurance, etc are included (because it is all one payment to the mortgage company) we come in just shy of $800.
posted by iurodivii at 8:09 AM on October 8, 2006

The idea that owning will be cheaper "down the road" is not always true. For example, I pay about $1450 for rent for a full house + really thorough renters insurance. Has a little yard, deck, attick, lots of storage in the basement and garage etc...

Two doors down from me a townhome which comprises a tiny slice of a building (about 1/4) the building with no yard or outside space whatsoever just sold for $519,000.

You would have to live to be several hundred years old before buying would make any sense at all over renting in most areas of Seattle.
posted by Riemann at 4:06 PM on October 8, 2006

I know this doesn't directly answer your question, but there's more to consider than just the ratio. In buying a house, you assume the expenses of upkeep and repairs. That means everything from new paint and water heater replacement to taxes and interest.

Oh, and anyone telling you that you'll save money because of the tax benefits has fallen for the lie. While you'll be paying, say $7000 in interest each year, you'll get a credit of, say, $1400. That's not profit, just a reduced expense; an expense *you* still have to pay out of your pocket.
posted by kc0dxh at 2:35 PM on October 9, 2006

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