Financial Literacy: Renting vs Buying a Home
Comparing costs, benefits, risks, and long-term financial impact
Financial Literacy: Renting vs Buying a Home
Comparing costs, benefits, risks, and long-term financial impact
Financial Literacy - Grade 9-12
- 1
A student is comparing two housing options after graduation. Renting an apartment costs $1,400 per month. Buying a small home would require a monthly mortgage payment of $1,650, plus $250 per month for property taxes and insurance. What is the monthly cost difference between renting and buying?
Add all monthly homeownership costs before comparing them to rent.
Renting costs $1,400 per month. Buying costs $1,650 + $250 = $1,900 per month. Buying costs $500 more per month than renting. - 2
A renter pays $1,250 per month. The lease also requires a one-time security deposit equal to one month of rent. How much will the renter pay in rent and deposit during the first year?
The renter pays $1,250 x 12 = $15,000 in rent for the year. The security deposit is $1,250, so the first-year total is $16,250. - 3
A buyer purchases a home for $240,000 and makes a 10% down payment. How much is the down payment, and how much money must be borrowed through a mortgage?
Find 10% by multiplying the home price by 0.10.
The down payment is 10% of $240,000, which is $24,000. The buyer must borrow $240,000 - $24,000 = $216,000 through a mortgage. - 4
Look at a simple comparison chart with two columns labeled Renting and Buying. Renting lists lower upfront cost, easier to move, and no repair responsibility. Buying lists builds equity, possible home value increase, and owner pays repairs. Write one financial advantage of renting and one financial advantage of buying.
One financial advantage of renting is that it usually has a lower upfront cost. One financial advantage of buying is that the owner can build equity over time. - 5
A homeowner pays $1,800 per month for a mortgage, $300 per month for property taxes and insurance, and $200 per month on average for maintenance. What is the homeowner's total monthly housing cost?
The total monthly housing cost is $1,800 + $300 + $200 = $2,300 per month. - 6
A renter expects to live in a city for only 18 months before moving for college or work. Explain why renting may be a better choice than buying in this situation.
Think about flexibility, moving costs, and the costs of buying and selling a home.
Renting may be better because it is usually easier and cheaper to move after a short time. Buying a home has large upfront costs and selling soon can be expensive. - 7
A buyer pays $8,000 in closing costs when purchasing a home. If the buyer saves $300 per month compared with renting, how many months will it take for the monthly savings to equal the closing costs?
Divide the upfront cost by the monthly savings.
It will take $8,000 divided by $300, which is about 26.7 months. The buyer would need about 27 months for the monthly savings to equal the closing costs. - 8
A home is worth $300,000. After five years, the homeowner still owes $260,000 on the mortgage. What is the homeowner's equity in the home?
Equity is the home's value minus the amount still owed. The homeowner's equity is $300,000 - $260,000 = $40,000. - 9
A line graph shows monthly rent increasing from $1,200 to $1,500 over five years, while a fixed mortgage payment stays at $1,350 per month. Explain one lesson the graph teaches about renting and buying.
Compare how the two lines change over time.
The graph shows that rent can increase over time while a fixed mortgage payment can stay the same. This means buying with a fixed-rate mortgage may make monthly payments more predictable. - 10
A renter does not pay for major repairs when the apartment's water heater breaks. A homeowner with the same problem must pay $1,200 for the repair. Explain how repair responsibility affects the rent-versus-buy decision.
Repair responsibility matters because homeowners must budget for maintenance and unexpected repairs. Renters usually have fewer repair costs because the landlord is responsible for major property repairs. - 11
A pie chart of first-year buying costs shows a $20,000 down payment, $6,000 closing costs, and $3,000 moving and setup costs. What is the total first-year upfront cost of buying the home?
Add each section of the pie chart.
The total first-year upfront cost is $20,000 + $6,000 + $3,000 = $29,000. - 12
Two friends are deciding between renting and buying. Friend A wants flexibility to move within a year and has little savings. Friend B has stable income, savings for a down payment, and plans to stay in one place for at least seven years. Which friend is likely better prepared to buy a home, and why?
Buying usually works better for people with savings, steady income, and a longer time horizon.
Friend B is likely better prepared to buy a home because they have stable income, savings for a down payment, and a long-term plan to stay in one place. Friend A may be better suited to renting because they need flexibility and have little savings.