Spoiler: when it comes to renting vs. owning a home, there’s no one right answer. What it comes down to is whatever’s right for you. While your financial situation plays a significant role in your decision, there are several other factors to consider as well, such as your goals for the future and your personal preferences. Here’s what you should know about your options and some questions you should ask yourself to help you decide.
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Many people choose to rent a home, especially if they don’t anticipate staying in a certain area forever. It comes with lower upfront and maintenance costs, but the home is never truly yours.
Renting comes with lower upfront costs and no maintenance costs, but you don't build equity and you can't truly customize your home.
Homeownership is seen by many as a major life milestone that can give you equity to borrow against when you need some extra cash. However, all costs, including maintenance and taxes, are your responsibility.
Owning a home provides a sense of stability and the ability to build equity, but you're responsible for maintenance and you have less mobility.
When going over the pros and cons of renting versus owning, you might not be immediately sure what’s right for you. Fortunately, there are a few questions that you can ask yourself that might guide you to a decision.
At first glance, it might seem as though renting is the more affordable option. In some cases, it is. When you sign a lease, you pay your first and last months’ rent. Each month after that, you’re only responsible for paying the agreed-upon amount.
Renting isn't always the cheapest option, though. Although you pay more at the beginning when you buy a house, your mortgage payment never changes. Once you pay it off, that’s it. Rent can increase over the years, and it never goes away.
Assuming there are annual hikes, the cost of homeownership may actually work out to be cheaper after a few years. Your home also builds equity, something that you don’t get when you rent.
With homeownership, however, there are a few extra costs involved — especially in the beginning. While you might be able to afford the cost of a monthly mortgage payment, you also need to take the other costs associated with buying a house into consideration.
In most cases, you need to make a down payment. The minimum amount varies by mortgage type. Putting down a bigger chunk can help to increase your chances of approval, though. You’ll also have homeowner’s insurance, as well as the possibility of private mortgage insurance and homeowner’s association fees.
Of course, if you do decide that you want to buy, that doesn’t mean you need to jump into it right away. You can take a few years to save up for a down payment. Just be realistic about how much you can afford to spend on a mortgage and if you can manage all of the associated costs.
When you rent your home, you’re not responsible for any of the maintenance, repairs, or other costs. Your landlord takes care of them for you. If there’s a leak or something breaks, it’s not on you to get it fixed.
If you buy a home, on the other hand, you need to take care of any and all necessary maintenance and repairs. While homeowner’s insurance may help to alleviate some costs (for instance, if a storm causes a tree to fall on your roof), you're still responsible for them. If your water heater or HVAC unit breaks, you need to replace it. If a pipe bursts, you need to get it fixed.
Ignoring routine maintenance around the house can cause small, easily repairable issues to quickly spiral out of control. Typically speaking, the bigger the issue, the more it costs to fix.
When deciding between home renting and buying, you need to determine if you can manage the time and cost involved with maintenance and repairs. If you’re a handy person, you may be able to take care of some of them on your own. Otherwise, you’ll need to figure out if you can afford to pay for someone to come out and take care of them for you.
Where do you see yourself in the next year, two years, five years or ten years? It's true—if you're going to want to move in a year, renting might more your speed. If you're looking to put roots down, even for a few years, buying a home could be beneficial. It provides both financial and emotional benefits. The longer you stay in a house you own, the more equity you’re able to build. You’re also free to personalize your home, make upgrades, and add other touches that make that house feel like a home.
Think about your current situation and future goals. Are you looking to start a career that will force you to move across the country in a year or two? Do you plan to get married within the next couple of years? If so, you may want to rent for a while until things become more stable, and you have a better picture of your future.
On the other hand, let’s say you’re newly married, and you and your partner are thinking about starting a family soon. In this case, buying might make more sense, especially if you’re both established in your careers. Just make sure that you find a house that will give you the space you need to accommodate the family you want to have.
Both renting and buying have benefits and risks. Weigh the positive and negative aspects of each to see what comes out on top for you. With renting, you don’t have to worry about maintenance costs or repairs, and you have greater freedom. On the other hand, you could find yourself dealing with steadily increasing rent rates, deferred repair requests, and the possibility of your landlord selling the property or ceasing to lease.
Buying a home gives you greater stability. You can customize it however you want. It also builds equity over time, and you’re able to take advantage of tax incentives. The major downsides tend to be maintenance costs and the risk of the market turning, which may lead to a decrease in your home’s value.
You shouldn’t take the decision to rent or buy a house lightly. Carefully consider your options, your finances, and your goals for the future. You’ll soon figure out the right choice for you.
Asking yourself questions about what you can afford and what you want in life can help you to determine whether you should rent or buy a home.
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