The real estate site Trulia reports that buying a house is 38 percent cheaper than renting across the country. The comparison for apartments and condos, though, can be complicated. Consider your specific costs, like homeowner's association fees, mortgage interest rates and average rental prices, before you make the call.
Condo Costs and Apartment Costs
Condo owners and apartment renters incur different types of housing costs at different points in their lives. Buying a condo involves a large upfront payment, but it becomes less expensive down the road. Rent, on the other hand, is an ongoing cost that tends to rise as cost of living and home prices increase.
Initial and Ongoing Condo Costs
Purchasing a condo involves a large upfront investment. Most lenders require you to make a down payment when you buy a condo. You don't have to make a 20 percent down payment, but doing so can get you the best interest rates and help you avoid mortgage insurance premiums. Exact requirements vary by lender, but Trusted Choice reports that a down payment of at least 10 percent is standard.
Condo owners are responsible for a lot of costs. Buying a condo means you'll pay for:
- A mortgage payment consisting of interest fees and principal repayment
- Property taxes
- Homeowner's insurance
- Homeowner's association fees
- Maintenance, appliances and some repairs
- Any special assessments your homeowner's association levies on you
However, you can write off the cost of interest payments and property taxes as a tax deduction.
Initial and Ongoing Rent Costs
Compared to condo owners, renters don't have as many itemized costs. Apartment renters are usually required to make a security deposit before moving in, which is often equal to a month's rent. Depending on how you leave the apartment, you may or may not get this deposit back. You typically won't pay property taxes, HOA fees or repairs; these costs are the responsibility of the property owner.
Because of the high upfront costs involved in purchasing a condo, buying can be more expensive than renting in the short term. Later in life, however, this may switch. Assuming that you sign on for a traditional mortgage, your mortgage payment amount will stay the same until you pay off the principal of the loan. After that point, you're not responsible for any mortgage payments.
Rental costs, on the other hand, have historically increased over time as home prices increase. Because your rental payments don't go towards building equity in a home, they'll never go away and they'll probably only get higher.
Location and HOA Considerations
As a general rule, buying is cheaper than renting in the long run. However, it's not always a clear decision for a condo with HOA fees. Trulia reports that, for 2015, HOA fees actually make it cheaper to rent versus buy in Honolulu. It's still cheaper to buy with an HOA than rent in other cities, but only by a small margin in New York City, San Jose, Calif., Lancaster, Pa, and Portland, Ore.
Make the Comparison
Whether or not buying a condo is ultimately cheaper, and by what margin, varies based on the condo price, your interest rate, HOA fees, average rental costs and other factors. However, tools are available to help you decide.
After entering your customized information, Trulia's Rent or Buy tool tells you if it makes more financial sense to rent an apartment or buy a condo. Use Advanced Settings for the condo's HOA fees and information about your mortgage. Bankrate.com provides a similar calculator that considers your savings and personal debt level.