What Are the Pros and Cons of Renting a Home vs. Buying One?
Buying a home is a substantial investment, but it's a wiser financial decision over the long-term to rent in some situations. Before committing, carefully consider current circumstances, along with short- and long-term plans. Once these are determined, it's a good idea to list all the pros and cons of renting and buying to help come to the right personal decision.
What Are Short- and Long-Term Goals?
There is no right or wrong answer to the question of renting vs. owning. A decision should depend upon personal preferences, financial goals, and economic circumstances. Thinking about both short- and long-term goals can help provide some valuable insight.
- Would the move be a long-term one or just a temporary location?
- Is a job dependent upon making a permanent move?
- Are there plans to add members to the household?
- What are current mortgage rates? Are they expected to drop within the next year or two so that it might make more sense to wait? What should you know about applying for a mortgage?
- How does the local market look? Is it a seller's or a buyer's market? If time is flexible, it might be best to wait to buy.
If planning to set roots in a location for a long time, it's often more feasible and makes better financial sense to buy a home. However, for others, renting is the right decision. Here is a look at the pros and cons of each.
Pros & Cons of Renting a Home
Renting a home means cheaper payments, no responsibility for property taxes or maintenance costs, no down payment (rental deposits are far smaller than down payments for purchase), and it's easier to relocate if an unexpected life change happens. Drawbacks associated with renting include potential rent increases, no tax benefits, and a requirement to follow a landlord's or property management's rules. If someone needs to break a lease, this can be costly. Also important to consider: no wealth accumulation occurs because rent payments go to the property owner.
Pros & Cons of Buying a Home
Buying a home helps build wealth because, with every mortgage payment, equity is built. In other words, payments eventually stop, and a valuable asset retains value. Other advantages of home purchase include additional tax deductions (especially if running a business from home), better control over living conditions, freedom to make cosmetic or structural changes, and a more substantial level of stability.
However, this doesn't mean ownership comes without drawbacks. While equity is built, other costs, such as unexpected repairs, come with homeownership. A home inspection can help avoid any initial surprises but is an added expense. Owners are responsible for everything. It's also harder to move when life changes occur.
Why Doing the Math Is Important
Aside from calculating monthly payments, look at other fees and costs when weighing rentals vs. ownership. Rentals may come with fees for amenities or pets, along with uncertainty about annual rent increases. Potential homeowners need to consider HOA fees and property taxes.
In many instances, if living in a high-rent area, a landlord might charge $1,700+ to rent, whereas a mortgage might be in the same ballpark, or in some cases, lower. In other regions, rent may be substantially cheaper than a mortgage, and this provides an ability to save up for a larger down payment or invest money elsewhere. When deciding between rentals and homeownership, run the numbers to see which option makes financial sense while aligning the decision with life's plans and eventual goals.