Renting vs. Buying a Home

Renting vs. buying: pros and cons

As you decide whether you should rent or buy a house, consider the pros and cons of each.

Pros of renting a house

• Home repairs: If something breaks in a home you're renting, it's typically on the landlord to fix, not you. So when the air conditioning unit stops working in the middle of summer, you don’t have to spend thousands of dollars to fix it.
• Monthly housing expenses: For the most part, when renting a house your monthly housing costs will stay the same, aside from minor fluctuations in utility costs. Your base rent doesn’t change and you likely won’t need to budget for any emergency repairs, maintenance costs, or factor in property taxes.
• Flexibility: You can move out when your lease is finished or relocate to another city without having to worry about selling your home. Renting a house also allows you to see which home styles you like, which floor plans you don’t like, and if a neighborhood is the right fit, before buying a home.
• Investment opportunities: Renting can free up some of your income, since you won’t be spending it on repairs or upgrades. You may have extra funds, also called disposable income, to invest in building your finances rather than investing in a home. You may even be able to save money towards a down payment.

Cons of renting a house

• Temporary: The biggest pro of renting is also the biggest con. If you’re planning to put down roots in a community, renting may not be the best option, as most leases last for only a year or two.
• Uncertainty: There's no telling when the home's owner may decide they don't want the responsibility of being a landlord anymore. When your rent is up, they can decide to sell, which means you'll need to relocate. Similarly, when your lease is up, your apartment may not offer you the option to renew your lease.
• Possible rent increases: When renting, each year you renew your lease it’s possible your rent will increase. Depending on whether you negotiate rent, the new cost may be out of your budget. In that case, you’ll likely need to find a new rental.
• No home equity: As a renter, you don’t build any equity—that's the percentage of the home's value you've paid for, rather than what your lender still owns. When you pay your rent each month, you're helping someone else build equity, when you could use those funds to improve your own finances.
• As-is home: You usually don't have the option of modifying a rental home to suit your needs. Some landlords may allow you to make small changes like painting the walls in your living space, but you'll probably have to paint them back to the original color when you move out.

Pros of buying a house

• Building equity: As a homeowner, you’ll have a chance to build equity and potentially increase your home’s value. The longer you own your home, the more equity you have, and the more money you're likely to make when you sell it. Equity can also allow you to borrow money for big expenses and build wealth that benefits you later in life.
• Customizable: Buying a home means it’s yours - you can paint it, remodel it, and customize the space to your liking without having to follow a landlord’s rules. This pride of ownership is a big advantage for those looking to settle down.
• Stability: You won’t be at the mercy of a landlord who may decide to sell the home once your lease is up. You have the freedom to decide how long you want to stay in the home, and ultimately if or when you want to sell.
• Tax benefits: Some homeowners qualify for tax breaks, which are reductions in your federal or state taxes. Many first-time buyers can receive tax deductions, such as on their mortgage interest, which can save you money at tax time.

Cons of buying a house

• Closing costs: During the homebuying process, you also have to factor in typical closing costs and other upfront costs and expenses—inspection, title insurance, lender fees—which often total 2%–5% of the home's purchase price. However, there are many downpayment assistance programs that may be able to help you cover certain closing costs.
• Home value: Ideally, your home’s value will increase between the time you buy and the time you sell, but it doesn’t always. Events outside of your control, such as a change in the economy, can potentially reduce your home's value. Then there's the money you’ve spent improving the property and other fees you’ve paid as a homeowner, such as HOA dues, homeowners insurance, and more. The longer you stay in your home, the more time you have to spread these additional costs out and increase your return on investment.
• Home maintenance expenses: With owning a home comes the responsibility of home maintenance. If there’s a leak in the roof, it's up to you to deal with and pay for repairs. You’ll also need to be prepared in the case of an emergency repair, such as a burst pipe or broken heater.
• Investment limitations: When buying, you may be placing most of your money into one investment - the house. That means you may not have extra cash lying around to invest in stocks or other investments. That said, any improvements you make to your home could turn into worthy long-term investments once it’s time to sell.
• Property taxes: As a homeowner, another important cost to factor in is property taxes. Depending on the area you buy a home in, property taxes may be a substantial cost to consider. If you're renting an apartment, you won't pay property taxes. If you're renting a home, your landlord will likely factor property taxes into your monthly rent payment.

Takeaway: renting vs. buying a home

Whether you make the decision to rent or buy a house, it’s a personal decision and one that means taking a look at different aspects of your life. From your financial situation to lifestyle, job situation and long-term goals, there are many factors that can determine whether you should rent or buy a house. If you're still not sure which option is right for you, talk to a mortgage lender or real estate agent who can give you professional guidance.