The long debate in consumer real estate has always been whether you should rent or buy a home. Many people feel like buying a home is too expensive, while others think you’re wasting money on a house you don’t own. Renting and purchasing a home can be good decisions for the right situation. Before making your decision, it’s important to weigh the pros and cons of your situation. Factors to Consider When Renting or Buying a Home
When you’re trying to decide between renting and buying, you may be overwhelmed with everything to consider. Everyone’s situation is unique, so you must view each factor through the lens of your finances. We’ve compiled a list of things to consider that should help you down the path of choosing to rent or buy your next home.
Things to consider when deciding between buying and renting a home include the following:
- How your current finances look: Before wasting your time trying to make a decision, you should first make sure that you can afford to purchase a home. When reviewing your finances, you will want to ensure you have enough reserves to fund the down payment along with closing costs.
- How long do you plan on staying put: Those who like to move around or travel a lot might find renting the better choice. If a large down payment is required, it can take years of being in the home before you benefit financially.
- Current job security: Having a stable job isn’t just essential to get approved for a loan or be approved as a renter; it’s also how you’re going to pay for your home each month. The lender will review your last two years of employment and determine the probability of the income continuing. If you are a recent graduate, the lender will most likely request transcripts to show you are new to the workforce
- Your investment appetite: When you buy a home, you can build equity and make a good return over time, especially if you upgrade the property and take good care of it. Keeping a home for years is one of the most popular ways to grow a little bit of wealth.
- Whether you can afford the upkeep of home ownership: When you’re renting, and something breaks, your landlord will fix it, but when you buy a home, you have to keep up with the maintenance of the property. If something breaks, you’ll have to fork over the money to fix it. So having enough extra income in your savings account to account for potential repairs is necessary if you buy a home.
- Making your home your own: When you buy a home, you can change it however you want. However, when you rent, the landlord likely won’t let you do much to it, and you may not even be allowed to paint often. You’ll likely want to buy if you want to customize your home.
Make sure you’ve carefully weighed all the external factors of buying versus renting a home before making a decision. Buying a home is a significant investment, so you should be sure that it’s the right choice for your needs before moving forward.
Pros & Cons of Buying a Home
There is great pride in owning your own home. Many still consider it the American dream to buy a house and make it your own. There are a lot of pros and cons to consider if you’re considering buying your own home.
The pros of buying a home include the following:
- Owning builds equity: Owning can build equity over time and help grow your overall wealth. Many consider it a wise financial decision.
- Control: You’ll gain more control over your living situation, from not having to move frequently to changing paint colors or even having pets.
- Consistent payment amounts: Buying brings stable monthly payments that won’t suddenly increase as the market grows. You can budget what you’ll pay a year from now without worrying about how the market might change before your next lease.
- Tax benefits: You might receive tax benefits from buying or selling a home, depending on your financial situation.
- Stability: Your family can create more stability in the community you live in when you buy because you know that you can continue living there as long as you can make your mortgage payments.
The cons of buying a home include the following:
- Responsibility: Buying means you have to pay for all maintenance yourself and find a way to get it done.
- The financial investment: Typically, you’ll have to provide a large down payment upfront, and this money could be spent on other investments that have the potential to out-earn what your home investment might one day provide.
- Little flexibility: It is not easy to move and becomes expensive to do so if you own your home.
- Property taxes: You’ll have to pay property taxes on your home every year.
Buying a home is typically best if you have stable employment and plan on remaining in the same house for several years.
Pros and Cons of Renting a Home
Renting a home gives you the flexibility and overall affordability that you may crave, but there can also be plenty of negative impacts. The costs can be inconsistent, and you may have to move yearly, depending on where you live.
The pros of renting a home include the following:
- You save money in the short term: In the short term, renting is less expensive than buying because you don’t have to come up with a large down payment or lump sum.
- The flexibility to move: You have much more flexibility with changing the home and moving around. This is great for individuals not set on living in the same place for years to come.
- You can build your credit: Renting can build your credit if it isn’t yet strong enough to buy, or at least provide credit references if you’re a good renter.
- No maintenance requirements: When you rent, you aren’t responsible for the maintenance of the home. Instead, you can call your landlord and have them fix any issues.
- You won’t owe property taxes: You won’t have to pay property taxes if you’re renting.
The cons of renting a home include:
- Your rent can frequently increase: Your monthly housing costs aren’t stable from year to year. As your lease expires, your landlord might raise the rent, or you could find it challenging to keep costs down in a competitive market if you move.
- You won’t build equity: You don’t get to build equity. Instead, your landlord receives all of the equity out of the home, no matter how well you take care of it.
- Finding a good place to rent can be competitive: It can be difficult to find the right place to live in competitive markets, especially if you’re moving and trying to keep your kids in the same schools.
- Renting creates uncertainty beyond your contract: There’s a chance you might have to relocate quickly if the property is sold or your lease isn’t renewed unexpectedly.
- You have no control over changing the property: You’ll often have to go through an arduous process to change anything in the home and aren’t guaranteed approval.
Renting a home is typically best if you need flexibility and don’t anticipate being tied down to one location for too long.
Costs of Buying and Renting a Home
Many believe that buying a home is more affordable than renting over the long haul, is one of the biggest reasons many decide to buy. However, that’s not always the case. When considering the cost of both buying and renting, most people who argue that buying is cheaper normally only consider the cost of paying for your home each month. Buying a home also requires a large down payment, property taxes, and ongoing maintenance costs that become difficult to overcome if you don’t stay in the house for a while.
However, when you total the costs up a 30-year mortgage, buying a home almost always i the more affordable option. That scenario doesn’t fit everyone’s situation, though. There are too many factors to consider that vary by market to conclude a straight answer of which option is more affordable for you. Both can be great financial decisions, depending on your situation.
Should You Rent or Buy Your Next Home?
So, which option is better for you? Unfortunately, the answer is that it depends on your circumstances. If you have stable employment and income and don’t mind staying in one place for several years, then buying a home could be the right choice for you. On the other hand, renting might be the better option if you’re not ready to stay in a single home for years or you don’t have a significant amount of money to put down.