Imagine this scenario: Beth is 36 years old and has been renting throughout her adult life. For the past two years she’s been living on her own in a three-bedroom rental she feels could be her “forever” home, located in a neighborhood she loves.
Recently, her landlord offered to sell her the house and she’s giving it serious thought. Right now, she’s paying $2,350 a month in rent, and her landlord is offering to sell the house to her for $450,000.
Beth has talked with her bank and, with 20% down and an interest rate of 6.95% on a fixed 30-year mortgage, her monthly mortgage payments would be about the same as her rent ($2,383) — so it seems like a great deal.
Still, Beth has never owned property and she’s nervous about taking the leap. As she mulls the pros and cons, she’s wondering if she’s failing to take all the factors into consideration.
Here are a few things Beth should consider before making a decision.
It’s common to compare rent payments to the monthly cost of a mortgage, but the ongoing costs of owning a home can stretch well beyond the mortgage payments.
Many first-time homebuyers budget for the down payment, but neglect or underestimate other costs that are due before or at closing.
In addition to her down payment, Beth will need to pay other fees to acquire her new home — and the closing costs, appraisal and inspection fees, escrow fees, attorney fees, service fees and other small administrative costs can quickly add up. Closing costs typically come in at around 2% to 5% of the purchase price, according to Zillow.
Owning a home will also likely bring on expenses that Beth doesn’t incur when renting. These include property taxes, higher insurance premiums, repairs and maintenance, as well as potential homeowner’s association or condo fees.
“The overall monthly costs of owning, including mortgage payment, insurance, and taxes, was more expensive than renting in three out of every five of the major metros in the U.S. after 20% down, at the start of 2024,” wrote Susan Kelleher in an article for Zoom.
While the costs vary from state to state (and on the type of property you’re purchasing), the average property tax bill in the U.S. was $4,380 in 2023, according to the American Community Survey.
As for insurance, the average annual cost for renter’s insurance (for up to $300,000 in liability) was $263 in January 2025, according to Insurance.com. Meanwhile, the average cost of homeowners insurance was $2,601 per year as of March 2025.
There’s also a common rule of thumb that says you need to set aside about 1% of your property value each year for repairs and maintenance.
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While it’s not paid out of pocket, there’s also an opportunity cost to buying a home.
Opportunity cost is the value you pass up by using your money to buy a house instead of something else, and there are both financial and non-financial opportunity costs to buying a home.
Money that Beth spends on the down payment — as well as the extra expenses that come from homeownership — is money that she won’t have available for other investments. Some studies have shown that over the long term, houses have historically underperformed compared to the stock market as an investment.
“Stocks have returned, on average, about 8% to 12% per year while real estate has generated returns of 2% to 4% per year,” Peter Earle, an economist at the American Institute for Economic Research, told U.S. News.
One of the biggest non-financial opportunity costs is the loss of freedom. When you own a house, it’s much harder to move to a new place (or a new city or country), and there are higher transaction costs to doing so.
Even given these opportunity costs, there can be psychological and social benefits to owning a home — and Beth may still want to buy one. But she’ll also want to consider what she might be giving up and whether she’s okay with that.
Having assessed all of the costs of buying a home, Beth may also want to consider whether she’s financially ready.
For example, she’ll likely need a steady source of income such as a secure job or a healthy business, and she’ll want to pay off any high-interest debt to help improve her credit score and ensure she can meet her higher monthly housing expenses.
Ideally, Beth will have an emergency fund and insurance to help cover losses to her income if she’s struck with an emergency, illness or disability.
In setting a target for her down payment, she should also account for closing costs and for the potential that her lender may want her to prove that, after closing, she’ll have up to six months of reserves for mandatory housing expenses such as taxes and insurance.
The U.S. Department of Housing and Urban Development has resources that can help first-time homebuyers assess their readiness, but Beth may want to talk to an advisor who can help her create a financial plan that will lead her to homeownership if she’s not ready today.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
