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While home ownership is out of reach for many Black Americans, most still see it as a hallmark of success.
About 66% of Black Americans consider themselves successful in some way, according to a recent report study from the Pew Research Center. Slightly more than half of respondents, 52%, believe that owning a home is important to their definition of success.
Meanwhile, 82 percent said they feel most successful when they can provide for their families, according to Pew, which surveyed 4,736 black U.S. adults between Sept. 12 and Sept. 24.
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These two indicators of success may be at odds. While home ownership is known to be a path to building wealth, a mortgage payment and other housing-related expenses can cause financial strain, leaving you with little to spend on other expenses or save for your goals.
“Being ‘house poor’ doesn’t do much for you,” said Preston D. Cherry, a certified financial planner and founder and president of Concurrent Financial Planning in Green Bay, Wisconsin.
“Owning a home has a lot more expenses than renting”
“Home ownership has a lot more expenses than renting: taxes, insurance, maintenance, down payment. All of those factors have to be considered,” said Cherry, a member of CNBC’s Financial Advisor Council.
In addition to mortgage, property taxes and insurance costs, utility and maintenance costs also tend to be higher in a house than an apartment, Kamila Elliott, CFP, co-founder and managing director of Collective Wealth Partners in Atlanta. Before you close the deal on a home, it’s important to have good estimates of these costs to predict what your realistic budget would be.
“Understand what it means to be a homeowner and how things work,” said Elliott, who is also a member of CNBC’s Financial Advisor Council.
Owning a home can also leave you without enough money to fund other financial goals, such as paying off debt, providing for additional family members or saving for retirement, Cherry said.
In some markets, renting may be the smartest financial choice, says Susan M. Wachter, professor of real estate and economics at The Wharton School of the University of Pennsylvania.
“The cost of owning a home versus renting was [making it] scary to become a home owner. It’s less expensive to be a renter in most markets in the U.S.,” Wachter said.
If you want to provide for your family and you can do that by renting as opposed to owning, “then that’s the way forward,” he said.
Give yourself grace. Home ownership will be there for you when you are ready.
Preston D. Cherry
certified financial planner
How to build wealth without owning a home
When you compare upfront costs, renting is likely to be less expensive than buying a home. A rental unit’s security deposit and a potential broker’s fee are likely to be much less money compared to a down payment, said Jacob Channel, senior economist at LendingTree.
So remember “there’s nothing wrong with being a renter,” and there are millionaires in the U.S. who could afford a home but still choose to rent, he said.
“At the end of the day, what good is being a homeowner when you can’t provide basic necessities for yourself and your loved ones?” he said.
While home ownership can create wealth in the long run, it doesn’t always happen. “Can you build wealth without owning? Yes. Rent and invest the difference,” Cheri said.
By being financially flexible, you may be able to achieve and tackle more goals than you can finance one goal, he said.
“Give yourself grace. Home ownership will be there for you when you’re ready,” Cheri said.
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