Should You Rent or Buy a Home?

Note: This blog was originally published in September 2014 and has been updated.

One of life’s classic conundrums is whether it’s better to rent or buy a home. Making the transition from renter to homeowner is a significant milestone, and it’s one that should be considered carefully. If you’re still weighing your options, here are some significant points to consider when deciding if you should rent or buy a home.

Renting

Benefits

Renting comes with less commitment than owning. Leases can be short or long term—common leasing periods include month-to-month, six months, and one year. For people who move around frequently, renting allows for more flexibility. It’s also easier to move out if you’re just renting since you have minimal financial responsibility in the matter.

Renting can be a better choice if you’re a student or are just starting your career and have less savings. There is a lower barrier to entry when you rent, as you just need to pay an application fee, security deposit, and first and last rent payments. During tax season, you won’t have to pay property taxes since you don’t own the home.

Living in a rental means maintenance duties are shared between you and your landlord. Though each situation varies, landlords are usually responsible for paying for and scheduling general maintenance. This can be a beneficial if you prefer someone else handling the day-to-day issues.

Drawbacks

There are plenty of renting horror stories involving rundown properties and unethical landlords. Though not every rental agreement is nightmare-inducing, it’s a risk that comes with relying on someone else to keep you housed. Agreeing to a lease sometimes means abiding by guest restrictions and pet bans, among other rules.

As a renter, you’re limited in what you can change in the house. Any alterations, whether it’s repainting a room or replacing flooring, require permission from the property owner. If the home needs major repairs, your landlord may be slow or even reluctant to fix them. Your freedom varies depending on your landlord, lease, and state tenant laws, but you generally can’t make unilateral decisions regarding the house.

Even if you are allowed to make improvements, any equity created will benefit your landlord, not you. Your rent goes towards the property’s mortgage payments, upkeep, and taxes, but this has no long-term advantages for you. Additionally, your rent payments can fluctuate due to local market forces. You may start out with a reasonable rent, only to have it skyrocket the next leasing period.

Owning

Benefits

The ability to build equity in your home is an attractive key feature that makes homeownership distinct from renting. Equity is how much ownership you have in your home, and it can be increased through mortgage payments, certain home improvements, and a rising local housing market. Once you’ve built enough equity in your home (usually 20% or more), you can leverage it to finance home repairs or other expenses using a home equity loan or a home equity line of credit (HELOC). With all the effort and love you put into your home, you deserve to let your home work for you! Being able to say that you own your home is priceless and something to be proud of.      

It’s normal to want to make your living space reflect your personality and needs, and owning a home allows you customize it the way you want it. You can paint your living room any color you want, renovate your kitchen, or schedule a repair without going through your landlord’s red tape. Homeownership gives you the freedom to create the home of your dreams.

Owning a home allows you to build financial security over time. When you sell your home, you can use the money from the sale to put towards in your next home or another investment. The value of your home’s equity can also be passed on to your beneficiaries, creating generational wealth. Unlike other investments like stocks, property ownership tends to be very stable, and the land it sits on has inherent value.

Drawbacks

Although you will never have to worry about increasing rent as a homeowner, you’ll need to be conscious of property taxes and insurance costs. These necessary and unavoidable fees can increase from year to year, and they won’t disappear after you’ve paid off your mortgage.

Though the benefits of homeownership are rewarding, it takes work and money to maintain the quality of your home. You may be able to complete some rapids yourself, but others will require a professional. Throughout the year, you’ll need to schedule various checkups for your home, such as pest control, HVAC servicing, and chimney cleaning. Emergency repairs are rare, but often more expensive. Aim to have at least 1-4% of the home’s purchase price in reserves to finance maintenance costs.

If you own, the moving process will be more complex than if you were renting. Selling a home involves hiring a real estate agent, working with buyers, and being flexible if a deal falls through. It’s not something you can easily walk away from, and the housing market is constantly changing.

Renting and buying both have upsides and downsides, but it’s up to you to decide which makes the most sense for your financial situation and life goals. Even if you aren’t quite ready to own a home in the immediate future, you can still take steps to put yourself in a better position to buy when the time is right. Paying down debt, increasing savings, and improving your credit score will go a long way into preparing for the homebuying journey. It’s never too early to find a Loan Originator to guide you and make you feel more confident in the process. Renting means answering to someone else when it comes to making decisions about your house, while owning a home puts the power in your hands.

If you have questions about becoming a homeowner, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!

These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact us.