Considering buying a home for the first time? You’re not alone. According to the US Census Bureau, about 65% of Americans are homeowners. Owning a home may be a goal for many Americans, but it’s not for everyone. Renting may make more financial sense in the long run. Let’s review the pros and cons of renting vs. buying, and questions to ask yourself before deciding.
The Benefits of Renting
Renting your space certainly has its perks. Aside from security and pet deposits (which can vary by the landlord), renting generally has fewer upfront costs and paperwork. Renters also have the freedom to move more often, which can be beneficial if you don’t like your neighborhood or start a new job and need to relocate. Renters also aren’t responsible for maintenance or repairs in case something breaks. They also don’t need to worry about falling home values or property taxes, and renter insurance is much cheaper than homeowners insurance.
The Drawbacks of Renting
Renting a place also has its limitations. If you love to paint and decorate your space, your lease may limit your design choices. If your landlord decides to sell the property, you may have to relocate on short notice. Renting a place also doesn’t offer the tax benefits that homeowners enjoy. The rental market is also just as competitive as the housing market, with limited vacancies at increasing rates. Even if you find a place with sensible rent, there’s always a chance that your landlord can raise the rent once your lease is up for renewal.
The Benefits of Buying
Perhaps one of the biggest benefits of buying a home is the ability to improve or upgrade it to suit your tastes. Homeowners don’t have to answer to a landlord, and unless you purchase a home with an HOA, you can decorate the exterior of your space as you see fit. Homeownership also offers possible tax benefits and allows the opportunity to build equity.
The Drawbacks of Buying
Buying a home requires a substantial amount of money and paperwork upfront. Rising home prices and low inventory in many markets also make for fierce competition, so you may find yourself bidding on a home above its value. If home values decline, you may also lose money. Although your mortgage may be less than your previous rent, there are also extra expenses you need to consider: property taxes, homeowners insurance, HOA fees, etc. Also, if something breaks or needs repairing, you will be responsible for taking care of it.
Renting vs. Buying: Which Is Cheaper?
The overall cost of owning a home tends to be higher than renting, even if your mortgage is lower than the rent payment. This is largely due to homeowner expenses that renters don’t pay, such as property taxes, homeowners insurance, HOA fees, and more.
Questions to Ask Yourself Before Renting or Buying
1. How do the home and rent prices in my location compare?
If your rent is climbing every year, a mortgage may make more sense. However, you may also face sky-high home prices, especially if you don’t have enough savings.
2. How long do I want to live here?
If you haven’t settled on a long-term location, you may want to keep renting until you’ve found the right place.
3. What are my financial goals?
If you’re considering buying a home, you may have to halt your other financial goals for the time being. For example, you may need to cut costs for a down payment. If you’ve been focused on paying down your student loans or credit card debt, can you afford to hit pause while you’re buying a home?
4. Can I handle the risks of homeownership?
The cost of homeownership doesn’t stop with your monthly mortgage. There are many other costs, such as property taxes, homeowners insurance and possible repairs.
5. How will renting or owning affect my lifestyle?
Consider your lifestyle and choices before deciding to buy or rent. If you place a high value on privacy and control, buying a home may make more sense. If you love short-term commitment and flexibility, you may want to rent for now.
6. Will I qualify for a mortgage?
To get the lowest rates and best terms, you’ll need a solid income and good credit. While it’s possible to get a mortgage with less-than-stellar credit, you’ll pay much more over time.
If you’re considering buying, now’s the time to get all squared away on your finances! Check out our 5 simple ways to maximize your 401(k) and the best credit card habits to follow.
Allison Wheeler is a writer, Bruce Springsteen enthusiast, and sixth-generation Texan living in Denton, Texas.