re: If I’m not shooting for 20% for a down payment, what percentage should be the minimum?

The equation for home ownership as a wealth creation vehicle has a lot more variables than typically get cited, creating a biased analysis.

It's easy to say rent equals X per month x number of months = dollars "down the drain." Add in a couple extras like rent insurance and utilities and you have a pretty good idea of cash flow over longer periods of time [ignoring qualitative factors like living in smaller spaces, not having a yard, having the amenities of an apartment complex, etc.].

For a home purchase, this equation is really, really complex with a lot of unknowns. Even the 'knowns' are a much longer list to analyze than the rent equation.

Home price
Fees to purchase the home
Interest
Property taxes
Home insurance
Home maintenance
Utilities
Home improvements
Sales price
Fees to sell the home

Some of those buckets of costs are very difficult to estimate, especially across a 30 year+ time frame. Some of these cost buckets are fairly straightforward (Home price, interest over life of mortgage, utilities estimate, home insurance, general estimate to buy and sell the home); however, others are quite variable (maintenance and home improvements in particular).

Simply put, homeowners aren't tracking these variable costs of ownership at this granular of a level across time so that they can understand their cost/benefit 30 years from now. Therefore, these analyses underweight those costs [and don't consider the time/hassle qualitatively] by nature. As notsince98 described, the expenses required to 'earn the equity' are not fully captured in most of these analyses.

Personally, I view housing as an expense first and foremost. Any wealth creation is a benefit that should not be expected but is welcomed. The qualitative factors matter a lot more than the pure financial variables in the decision of renting vs. buying, IMO.

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I don't think you read the numbers very closely

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I read the numbers. You just presented the costs of owning a home, which remain relatively constant, and I showed that the costs of renting, with prices expected to rise, end up being similar in the end.

Ok how about this as an example. We just built a new house in a suburb of Columbus. It’s a little over 2000 square feet with 3 bedrooms and 2.5 baths, plus an office and open loft area (that could have been a 4th bedroom). Our total monthly costs including our house payment, PMI, home insurance, and property taxes is about $1,900 per month.

There are also some brand new apartment complexes nearby, and only one offers 3 bedrooms and is a little less than 1500 square feet. Those start our at $1,980 per month. And those don’t have the 2 car garage and basement for storage. And those prices will surely rise, as we were the 2nd hottest real estate market last year. On average, rent increases by about 4% per year, as do home prices, a trend that been pretty constant for 40 years.

So if we say my average housing cost is $2,100 a month, accounting for tax increases and maintenance, offset by the eventual drop in PMI, I will have paid $780,000 in home costs, including closing on it last year. But my home would be worth roughly $900,000 if we use the $275,000 appraised value at closing and the 4% annual increase but without any additional improvements (finishing the basement).

Ok the other hand the rental costs of that nearby apartments, with 75% of the available space, and no basement, would be over $1.3 million over the same 20 years.

So I’m not pretending that a home is an investment vehicle first and foremost, but the equity isn’t something that has no real world importance. But even then, I would save over $540,000 over the course of 30 years than I would renting. So that nearly $900,000 in equity would be a nice thing to have on top of it. And if we don’t use that equity, and stay there forever, then we end up saving $70,000+ per year compared to renting from 31 year onward.

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One question about your analysis, is $2,400/year really a good estimate on home maintenance?

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Well since my home is a new build, I was accounting for the benefit of having a bunch of warranties, which isn’t the case when one buys an older home.

But at the same time, my monthly PITI is actually $24 less than I specified, and getting PMI dropped off would probably give an extra $30,000 buffer.

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How do you take into account that most people are going to move at least twice over 30 years? Therefore, the cost of buying, selling, and moving is experienced at least twice.

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I considered this because I’m sure we will move, but at the same time, we would be able to use that equity towards a new home.

In addition, the renter will likely move a lot more, and landlords do everything they can to keep as much of the security deposit as possible.

Regardless, owning a home as largely overrated as a wealth generator. At the same time, when you consider that it is a necessity to live, it is a wealth generator compared to the alternative over time. Of course, this under the assumption that one’s at a place where their own life goals make more sense to own a home (family, not planning on moving for a while, etc).

I just think notsince98 misrepresented it as “losing money” when that money has to go to an alternative that is likely as expensive if not more expensive in the long run and builds $0 wealth. I mean if I could live rent free and invest it all in the market instead, that would be more ideal. But that’s not a realistic comparison.