Money myths: Should you give up on your home-buying dreams?

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Hanna Horvath, CFP®

Hanna Horvath, CFP®

Managing Editor & Certified Financial Planner™

Hanna Horvath, CFP®, is a certified financial planner and former managing editor at Policygenius. Her work has also been featured in NBC News, Business Insider, Inc. Magazine, CNBC, Best Company, and HerMoney.

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Buying a home is often seen as a long-term financial goal. But is it worth it anymore? The real estate market is currently hot: Demand has outpaced new homes coming on the market, driving prices to record highs.

Not to mention homeownership has fallen in the past couple of decades, especially among young Americans. In 1985, more than 45% of Americans ages 25 to 34 were homeowners. In 2015, only 35% were.

Why homeownership is falling

Rising home prices are partly to blame. The median sale price of a home was $385,000 in July, according to That's up 10.3% from this time last year.

Here are some of the least affordable places to live in America.

Younger Americans also may be less financially able to purchase a home. Millennial households (age 20 to 35) in 2016 had higher household debt and a lower overall net worth than Generation X households in 2001, according to the Federal Reserve St. Louis branch.

“It was proper to buy a home back then. The grand majority of Americans owned homes,” said Dennis Nolte, certified financial planner and vice president of Seacoast Investment Services. “But now the numbers don’t support that. Not everyone has the appropriate credit or cash flow.”

Lifestyle changes may also contribute to this decline. Millennials are delaying life events like marriage and starting a family, said Nolte. More young adults are living with their parents.

Whether owning a home is your next financial goal or you’re weighing your options, here’s what you need to know about buying versus renting.

When buying a home isn’t worth it

Potential homeowners should plan for more than just the cost of the down payment and the mortgage payment. There are additional expenses, like property taxes and basic upkeep, not to mention unexpected emergency costs. Here are some examples.

The financial burden of owning a home can often be higher than homeowners realize.

“I am encouraging my clients to hesitate before they buy,” said Scott Hammel, certified financial planner at Atlas Wealth Advisors. “I think the financial benefits of buying are often vastly overstated.”

There are nonfinancial reasons why renting may make more sense than buying. For example, you may not plan to stay in the same area for long. Or you’re unwilling or unable to maintain a home yourself.

“Some argue that ‘renting is just throwing money away,’ but I don’t necessarily believe this,” said Lindsay Martinez, certified financial planner and founder of Xennial Planning. “Everyone needs a roof over their head. And if you have to sacrifice your cash flow to purchase a home, it may not be worth it.”

Here are the best cities for renters, based on the Policygenius Renters Index.

But that doesn’t mean you should swear off buying forever. There are some lifestyles that support home ownership over renting.

When buying a home may make more sense

If your job is stable and you’re ready to put down roots, it may be a good time to purchase a home if you can afford the down payment.

“It depends what you’re looking for,” Nolte said. “If you’re looking for a more permanent place to live and you want more control over your domain, you may want to buy.”

Rent prices have also increased nearly 19% between 2011 and 2019. Rent can potentially increase every year, while mortgage costs stay the same. Renters also don’t get the tax benefits homeowners do.

“It may be better to have that peace of mind over worrying about if your rent is going up,” said Martinez.

But before you put down an offer, here are some financial tips to keep in mind.

What potential homeowners should know

Before buying a home, make sure your credit is in check. Having a good credit score will typically mean better mortgage rates. Learn more here. And while you don’t necessarily need a 20% down payment, it’s recommended. Without it, you may have to pay for private mortgage insurance.

Once you buy a home, make sure you’re getting the most out of it. Take advantage of any tax deductions available, said Hammel.

“The recent tax law changes have really reduced the benefit for most people now,” he said. “If you don't itemize your taxes, you basically get no mortgage interest deduction.”

Want to learn more? Here’s a financial guide on if you should buy a home or rent.

Image: Phillip Blackowl