A Tale of Two People: Renting vs. Buying with a 600 Credit Score

Alex, the Renter:

Alex found a comfortable 3-bedroom, 2-bathroom home to rent for $2,000 per month. Alongside this rent, Alex also pays $50 per month for pet rent, a one-time deposit of $2,000, a non-refundable $200 pet deposit, and $20 per month for renter’s insurance.

Total expenses over 2 years:

1. Rent & Pet Rent: $2,050 x 24 months = $49,200
2. Renter’s Insurance: $20 x 24 months = $480
3. Initial Deposits (including pet): $2,200
4. Total Spent:$51,880
5. Equity Gained:$0

Jordan, the Buyer:

Jordan found a home in a rural area listed at $310,000 with a recent price reduction of $15,000 and negotiated a deal where instead of dropping the price by $15,000, he asked the seller to provide this money toward closing costs and permanently buy down the interest rate.

Jordan secured:

1. USDA loan with no down payment
2. Reduced interest rate: 5.875% (6.674% APR)
3. Total monthly mortgage payment (including taxes, insurance, and HOA): approximately $2,284

Over two years, Jordan’s home appreciates modestly at 1.5% per year.

After 2 years:

1. Home value increased to approximately: $319,393
2. Remaining loan balance after 2 years: approximately $301,972
3. Home equity after 2 years: approximately $17,421

Total expenses for mortgage over 2 years: approximately $54,816

Comparing Net Worth After Two Years:

1. Alex, the Renter: Paid $51,880 in housing expenses with no equity gained.
2. Jordan, the Buyer: Built around $17,421 in equity, significantly boosting financial stability.

Key Takeaway:

Renting might initially seem more affordable month-to-month, but it doesn’t build wealth. Alex would have saved about $5,136.00 over the two years as a renter but after two years, he doesn't own a home and would been better of by approximately $12,285 (equity by buying-$17,421 minus the amount he would have saved by renting-$5,136. Buying, even with moderate credit, can significantly improve your financial position through building equity, especially when strategically using seller concessions to lower upfront costs and interest rates.

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