“If you have to ask the price, you can’t afford it.”
I always assumed this phrase is something one would say to another about their naivete concerning ignorance of differentiating between need and want.
However, this phrase goes a little deeper in terms of meaning for me.
It is always unwise to get in over your head by blindly pursuing a dream you know you can’t afford.
For example, I have always wanted to own a house in San Francisco since I was a child and watched Ted Knight on the sitcom Too Close for Comfort (I was like 6 at the time).
How many of us have recklessly pursued such interests in the past? And, suffered financial consequences that are still being paid for even today?
Isn’t amazing how stubbornness and desire can affect our lives until we have no choice, usually through the impact of financial trauma, to become realistic.
During college, I actually planned with a friend to move out to San Francisco. I even went for a visit and got face-slapped with financial reality.
The cost of a home in San Francisco has increases by over 557% since 1986.
The average price of a home in San Francisco in 1995 was about $160,000. That equates to over $270,800 in today’s money.
The point that I am getting at is that it’s better to accept financial reality now than significant debt later.
I mean, did you know that there are many cities where the average mortgage payment is cheaper than rent?
Realistic research methods and accepting need over want can do wonders for one’s financial life.
Easier said than done? Have you or anyone you’ve ever known had a car repossessed or a home foreclosed on?
Home Sweet Reality
I had a relative who had a near mental breakdown when his car got repossessed. He relishes in an identity as that of a driver in a new car.
And before you ask, no, he couldn’t afford it. But he obviously asked for it at a price that he knew he couldn’t afford.
People do the same things when it comes to home ownership.
I was obsessed with the idea of owning a home in San Francisco, or somewhere in California, for a lot longer than I should have.
Renting was out of the question, since the average rent for an apartment in San Francisco is $3,500.
Then, when I accepted I couldn’t afford a home, I did the next worst thing.
I rented a studio apartment in New York City for over a half a decade.
When buying a home, you must think about how much of your annual income will be dedicated to the mortgage.
Such a percentage is greater in some cities more than others.
In New York City, the average homeowner must use over 115% of their income to buy a new home.
Meanwhile, the average renter only needs to use 30% of their income to rent an apartment.
I should have spent that time rehabbing my credit, saving money, and considering my mortgage options.
And, I should have looked at cities where home ownership is affordable. There is nothing wrong with buying a starter home, or, being realistic about what one can afford.
With that in mind, here is a list of cities where owning a home is cheaper than renting an apartment.
And for appreciable context, it’s helpful to remember that the average rent for a one-bedroom apartment is $1,250.
Columbus, Ohio
The property tax in Columbus is about 1.57% and the average mortgage payment is about $1,160. Meanwhile, the average monthly rent is about $1,200. The average price of a home in this city is $190,000.
Anaheim, California
You’ll pay about a 0.72% property tax in Anaheim. Homes in California aren’t known for cheapness, so be prepared to pay at least $608,000. However, the average mortgage payment is $2,760 against an average $2,820 rent.
St. Louis, Missouri
The average price of a home in St. Louis is about $177,000 and the property tax is about 1.40%. You’ll pay an average $870 mortgage against a $930 rent here.
Indianapolis, Indiana
In Indianapolis, the average price for a home is $150,000. While the property tax varies, it could be as little as little as 0.87%. The average rent is $1,140 and the average mortgage is $940.
Memphis, Tennessee
You can get a home in this city for about $105,000. In Memphis, the tax rate is about $3 per $100 of property value but varies from county to county. The average mortgage is about $650 and the average rent is $850.
Baltimore, Maryland
The difference between paying rent and mortgage in Baltimore, Maryland can be over $300 under the right circumstances. You’ll pay about $111,000 for a house here and the property tax rate is about $2.25 per every $100 of value.
The average rent is $1,290 and the average mortgage payment is about $980. You’ll save almost $3,700 annually owning a home over renting here.
Know the Price
If I knew then what I know now, I would have tried to buy a home in Baltimore over a decade ago.
I want to go back in time, tackle my younger self, and slap him until he promised to take affordable home ownership properly.
According to the Mortgage Bankers Association, over a quarter of a million homes are foreclosed on in the United States every season.
We don’t always get what we want in life.
And, if you really have to ask, “How much?” then you may want to wait a little longer on negotiating that mortgage.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.