Renting vs Buying A House – What You Should Choose?
Choosing to rent or buy your home is a major decision that affects not only your lifestyle but also your financial health. Real estate ownership is touted as an investment that is likely to build equity and a source of tax deductions.
Renting also has its advantages, including little to no responsibility and flexibility. However, people often believe that buying a home, rather than renting, is a more financially sound decision.
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In the U.S., many people lean toward ownership. This is partly because of the decades-old message that being a homeowner is the key to happiness and part of the American dream. Real estate is also big business for everyone, from mortgage lenders to real estate agents to home improvement stores.
It is a part of our cultural mindset and economy. However, it's important to remember that owning a home isn’t always better than renting, and renting is not always as simple as it seems. Consider the pros and cons of each to figure out whether renting or owning is best for you.
Renting vs. buying a home is a big decision. In recent years, a higher percentage of U.S. households were renting than at any point since 1965, according to a Pew Research Center report. However, both have key advantages and disadvantages that should be considered before making a choice.
There’s no doubt that buying a home is a major life decision, but is it right for you? Of course, there’s no single correct answer, as there are pros and cons to both renting and buying. A major factor in anyone’s decision-making process, though, is one’s personal finances. In most cases, renting seems to be the more affordable option.
However, that’s not always the case. Your decision can boil down to several lifestyle considerations such as whether you want flexibility or stability, what your career goals are and whether you want a place to truly call your own. If you’re on the fence about whether you should rent or buy, read on to find out what you need to consider before taking the plunge.
Having a place to call your own is everyone’s dream. Pandemic or not, all we want is to provide a safe and comfortable place for ourselves and our loved ones. This desire comes with the decision to buy or rent a house. Renting is probably the easier choice.
However, when you rent, you can’t stay in your house forever because you don’t own it. On the other hand, buying a house guarantees you’ll have a house to live in for the long term. But the initial considerations are quite taxing and dependent on your financial capacity.
Owning and renting each has their advantages, but what’s best for you depends on your circumstances. Here are some things to keep in mind as you weigh the benefits of renting against the benefits of owning. Owning a home is a financial commitment that requires you to plan ahead and reflect on where your life is headed.
Before deciding whether to rent or buy, ask yourself what your budget is and if either choice would require you to stretch your finances. Write out your additional financial and savings goals to see how each choice might affect them. Make sure you still have enough money to save for retirement, for example. Compare some specifics to see which is a better fit.
Renting A House
Owning a home means owning the majority of the property itself, not just the structure. As you might guess, this typically comes with a hefty price tag. One of the things that makes renting a great option is the fact that property management is a cinch. When you rent, you only have to worry about your personal living space. Renting helps you save money and your time.
You don't have to deal with maintenance or repairs. And if you want to add on to your house, you can. This means that if you ever move into a new neighbourhood or acquire new furniture, you won’t have to invest in buying a new home in order to make your home feel like home. You don't have to deal with a roof leak or other issues on a daily basis, either. To be sure, renting also comes with some downsides.
With renting, you could be putting thousands of dollars down on something you will eventually own, but it won’t be yours right away. You will take on many of the same responsibilities that homeowners do, such as maintaining your home and ensuring the yard is mowed.
Depending on how close you live to work, you may also have to pay for transportation. While you won’t need to pay for things like property taxes or pest control, you will likely still be responsible for a mortgage payment and other maintenance fees. You could also have to deal with maintenance issues, such as a leaky roof or furnace, and find out you can’t fix them on your own.
Buying A House
Owning a home means purchasing a property that you need to pay taxes on and possibly utilities. Though you’ll never have to worry about repairs, maintenance or a new roof, a landlord might. Generally speaking, you’ll also be liable for all damages that occur on your property. Aside from this, owning a home comes with some other perks. If you’re single, owning a house can be a great way to meet other people.
Many homeowners invite neighbours over for barbecues and holiday celebrations. It’s also an excellent opportunity to decorate your home in a style you like. On the other hand, owning a house may be tough in some areas. On average, you’ll have to pay property taxes and mortgage interest payments, as well as property insurance.
You can own a home without taking on a huge financial burden, though you will likely need a substantial down payment. It’s possible to buy a home without putting down a down payment, but it will cost you significantly more. If you’re planning to rent for a while, a mortgage payment that covers two or three years may be fine, but you’ll want to take into consideration your long-term goals and be prepared to be in it for the long haul. Keep in mind, however, that owning a home does provide an option to cash out if you later decide you want to buy another one.
Renting vs Buying
You can get a better deal by renting than you can by buying a home. The real benefit is the flexibility, but that doesn’t mean you need to trade your savings for your landlord.
The location: This will depend on a number of factors, but the most important factor is your chosen lifestyle.
- Are you a homebody?
- Or do you spend much of your time at work?
- Will you want to be able to walk to work or would you prefer to drive?
- What other forms of transportation are available in the neighbourhood?
- Will you commute to work?
- If you work from home, will that location make it possible?
- Are you able to share the rent with roommates?
What You Can Afford to Rent: Renting is typically cheaper than buying. One reason is that homeowners pay property tax, insurance, maintenance and repairs – items renters don’t have to worry about. Also, you can reduce your monthly housing costs by choosing to live in a smaller space. So you don’t have to worry about a large mortgage payment.
However, there are other benefits of owning a home – things that can make renting seem less tempting. Rental rates rise over time and you can’t take that into consideration when budgeting. You also don’t have a garage for your car or any other storage space, which is also a huge cost saver. If you rent, you can also be in a position to live anywhere within the same city or town and move elsewhere to get a better deal or a new experience.
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Pros Of Renting A House
Renting can help you manage your finances on a fixed monthly amount. You don't have to worry about an unexpected, monthly expense like property taxes or maintenance. If your circumstances change or you're travelling, you can simply move in a short time and you won't have to worry about getting yourself in debt.
Renting a house lets you consider your needs carefully without taking on too much responsibility. The best way to pay off debt is to spend less, not more. Keep your spending under control by renting a house and living on a smaller income than you're used to. This allows you to save up money and pay off your debt faster.
Renting a house has the advantage of not tying you down to a large one. You can lease the property if you like. Rental property owners often take care of the other perks. Properties are often newer and may have high ceilings and energy-efficient appliances.
Home insurance is usually less expensive, as is homeowner’s insurance. They do have other drawbacks, though. An example is mortgage interest on a rental property is often less than the interest on a mortgage, so you might not be able to deduct mortgage interest for rental income. Additionally, you have to make the decision every year on whether or not to rent or buy. If you move, you’ll need to pay off your existing mortgage in addition to having a new one.
Cons Of Renting A House
Fees. Renting a home typically comes with a myriad of added fees. These can include utilities, maintenance, homeowners insurance, property taxes, mortgage insurance, and other costs. They can really add up. A fixed monthly fee may be preferable in the long run, especially if you plan to sell your home one day.
Housing price. Rental housing tends to have more stable prices than homeownership. While it is possible to get a good deal on a home to rent, the cost of ownership might be lower than you expect. Consider renting and setting up a plan to get a mortgage if you decide to buy.
The long-term effects of a mortgage aren't as good for landlords as it is for homeowners. The seller controls the property, so he or she can raise the rent if the market goes sour. As a landlord, you have no control over this and it can be a drag.
Property management fees and the cost of utilities are also a concern if you're not a landlord and just want to rent it out for an affordable price. Some people think that renting makes it easy to not have to pay for maintenance or repairs. While it does offer some protection from maintenance, this doesn't apply to the house itself. If the roof falls in, you will have to deal with it.
Pros Of Buying A House
Eliminates the risks of being a landlord – When you rent, you need to protect the building, make sure you get the necessary permits, make repairs to your home, and when the property goes on sale, you need to find a new tenant. Since you are not a homeowner, these tasks tend to fall to others and thus incur substantial costs.
When you buy, you have to take precautions. There’s also the possibility that you’ll have trouble selling your home in the future if you need to sell to cover some of your debts. Buying a home is a sound investment in your family’s future. Since you are living in your home for many years to come, you need to make sure that it’s safe and comfortable for your family to live in.
Lower mortgage payments – As opposed to renting, the property owner is on the hook for the principal and interest payments. They must also bear responsibility for fixing or replacing the property and have a lien placed on it by the bank. Buying also makes it easier to sell a home or refinance at a lower interest rate.
Quick and easy renovation – A house that needs work can cost more than the original purchase price of the home, including the cost of renovations, property taxes, insurance and landscaping, among other expenses. With a house that needs little to no work to live in, you could be mortgage-free much sooner, especially if you're able to remodel before selling or renting.
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Cons Of Buying A House
The biggest con of buying a house is the ability to choose which part of your house will be your own space. If your landlord is uncomfortable letting your housemates rent out the basement, say, then you might have to share it, or find another place to live.
Of course, the cost of keeping a home and having a good landlord is better than a roach-infested mess, but if you have to save up to buy a home, make sure you have a good reason why. Also, be sure to factor in things like taxes, insurance, and maintenance costs to the mix.
Remember that buying a home is a big commitment, and you want to be sure you’ll be happy in the home. There are definitely pros to renting, especially if you plan to stay in the same place for a long time.
When you buy a home, your living expenses will almost certainly increase in the coming years. If you plan on renting long-term, you’ll have to decide if you can afford to live comfortably and pay for housing with some extra debt, or if you can’t.
Buying comes with plenty of downsides, like high property taxes and insurance premiums, maintenance and repairs, and the time commitment of homeownership. Even if you rent an apartment, you’ll still need to manage your landlord’s schedule. That time could be better spent building your career, travelling, or exercising. Purchasing a house takes a lot of work to keep it in shape.
Making Decisions About Whether To Rent Or Buy
Deciding on whether to buy a house is not like making a decision to rent one. You have to first determine the total costs of owning versus renting. It’s worth looking into whether you’ll pay more for your mortgage if you rent or buy a house, as you may not know this before you buy.
Depending on your financial situation, you may be able to qualify for a mortgage to buy a house without a down payment. If you have the income, you’ll have to find a lender who is willing to do this, and that can be a problem for people who live paycheck to paycheck.
You should also find out how much you need to qualify for a mortgage to buy a house. If you’re purchasing a home with a down payment or cash-out refinance, you’ll need a certain amount of money to put down.
Familiarity: If you live in an area that you’ve never lived in before, you may want to buy. Being familiar with the neighbourhood will help you stay on top of maintenance and repairs, and know what’s happening in your neighbourhood. But if you’re in a new city with a whole new group of people to get to know, renting may be the better choice.
Financing: If you don’t have a large amount of cash to get a mortgage, renting might be a better choice. Once you get into the rhythm of owning, a mortgage may become a bigger burden. And even if you have a steady income, financing a mortgage can be tricky in a low-interest-rate environment, where the monthly payments can grow steadily with the loan.
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Consider Your Financial Situation
One thing to think about as you evaluate renting versus buying is your current financial situation. Is your current budget prepared to handle a large purchase? How long can you realistically wait to buy or rent before you have to sell or buy? A slower-moving market may be a good thing if you think it will take a few years to save up for a down payment.
If the market is already hot, you may not want to risk buying a home and not being able to sell fast enough if the market cools. The mortgage industry is full of jargon. To save you time, we have a little primer of the terms you'll hear if you're searching for a home. A mortgage is not like a bank loan, and it isn't an investment.
Consider factors such as: How much debt do you have? If you have it, will it be less than what you’re renting? How much income do you have? How much are you willing to pay per month for rent or mortgage payments? How much are you willing to pay to live in a new area? If you’re buying, will you move often and will you have the space to store your things? If you’re renting, how much will you want to spend on maintenance each month?
Financial stability is the key to maximizing your retirement savings.
- Can you comfortably cover your current monthly expenses?
- Or do you already have to add money to your monthly budget to cover large unexpected expenses?
- Are you paying interest on credit cards?
- Consider your debt and other financial obligations like insurance.
- Does owning your home require a substantial monthly mortgage payment?
- Or are you only on a home loan?
- Can you afford the upfront costs of homeownership, including a down payment, property taxes, maintenance, and insurance?
Evaluate how much you would be required to contribute each month to your home mortgage, and also your outstanding debt.
Buying a home is a huge decision, so try not to make it without weighing all your options. If renting isn’t working out for you, consider renting for a while and then buying. Consider how you could save money by renting for a while, for example, and then get a better sense of your options.
There are pros and cons to each option, so it’s important to weigh the costs and benefits to make the right decision. Make sure to consult with a mortgage professional before committing to one or the other.
I trust you enjoyed this article on Renting vs Buying A House – What You Should Choose. Would you please stay tuned for more articles to come? Take care!
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