Renting v.s. Buying: Which Is Better?

While buying a home has long been part of the American dream, renting a home has become a common occurrence all over the U.S. Both renting and buying come with a unique set of advantages and disadvantages, and making the right choice depends on your individual circumstances, financial situation, and personal preferences. Here's a look at the pros and cons of each to help you make an informed decision:

Renting

Renting a home has become common over the years; roughly 40 percent of people in the U.S. are renters. While owning a home is an important life goal for many, renting is often the first step on that long road. If you want to learn more about renting, here's a list of pros and cons:

Pros of Renting:

Lower Upfront Costs: Renting typically requires a security deposit and first month's rent, which are significantly less than the down payment and closing costs associated with buying a home. It shortens the timetable considerably, as you won't have to save as much money for a rented home as a down payment for a bought one, and getting approved for a rental typically takes less time than getting approved for a mortgage.

Fewer Financial Compromises: Since it's generally less expensive than owning a home, renting may allow you to allocate funds to other financial goals, such as investments or paying off debt. If you're looking to travel frequently or belong to recreational clubs or organizations, renting can help you put aside some money to better afford them.

No or Low Maintenance Costs: Renting means you'll likely have a landlord, and landlords are generally responsible for repairs and maintenance. This significantly cuts costs down for the renter, and allows them to save both time and money on appliance and system repairs. For example, if your HVAC fails or you have a plumbing problem, just contact your landlord and they’ll foot the bill for repairs.

Predictable Monthly Payments: Rent payments are typically fixed for the lease term, making it easier to budget. Rent is typically due on the first of the month, so it's usually easy to plan around the payment, but speak with your landlord to ensure you know when it's due. Rent, like mortgage payments, does have the potential to increase once your lease is up, so communicate with your landlord about their plans for rent.

Access to Amenities: Some rental properties offer amenities like swimming pools, gyms, or community rooms without additional costs. It largely depends on the neighborhood; speak with your landlord and HOA to see what recreational perks you have access to.

Cons of Renting:

No Equity Building: Rent payments do not contribute to building equity or wealth. Since landlords aren't required to report rent payments to credit bureaus, they may not contribute to your credit score.

Limited Customization: Renters typically have restrictions on decorating or modifying the property. It depends on your landlord, but if you're someone who likes to customize, renting a home may not be for you.

Lack of Stability: Lease terms are temporary, and landlords can change the terms or decide not to renew. Communicate with your landlord to see what their plan for the property is. Additionally, rent never stops being paid, meaning you’ll always have that payment due at the first of the month.

Rent Increases: Rent can increase when the lease is up for renewal, impacting your budget. Landlords are required to provide notice for a rent increase, but that changes from state to state and even city to city.

No Tax Benefits: Renters do not receive the tax deductions available to homeowners. This can make saving money and budgeting a bit of a challenge, depending on financial circumstances.

Buying

Buying a home is a common life goal for individuals and families all over the U.S., and around 60 percent of people in the U.S. own their homes. In a volatile market, however, one might hesitate to take that step. Here's a list of some benefits and drawbacks to owning a home if you're new to the process:

Pros of Buying:

Building Equity: Mortgage payments help build equity in your home, which can be a valuable asset. They contribute to your credit score, and a good credit score comes with a number of advantages, including better loan options and reduced certain payments, like car payments and insurance.

Stable Monthly Payments: With a fixed-rate mortgage, your payments remain relatively stable over the life of the loan. Mortgage payments, unlike rent, are typically reported and contribute to your equity, and you won't have to worry about a landlord increasing your rent once the lease is up. Property taxes and insurance rates can affect your mortgage payment, however, so if you have an ARM, or Adjustable Mortgage Rate, keep an eye on your taxes and insurance.

Potential Tax Benefits: Homeowners can deduct mortgage interest and property taxes, reducing their overall tax liability. There are a number of tax incentives for owning a home, such as property tax reductions, certain home improvements such as home offices, landscaping, and certain eco-friendly upgrades, among others.

Freedom and Privacy: Owning a home allows for more freedom to customize and make it your own. If you're a fan of home improvement and projects, owning a home gives you a remarkable amount of freedom to really turn it into yours.

Long-Term Stability: Owning a home provides a sense of stability and security. You won't have to worry about communicating with a landlord, and your payments are typically very stable, making it easy to budget and plan. Eventually, you’ll pay down your home, meaning that down the line you’ll truly own the home.

Cons of Buying:

High Upfront Costs: Buying a home requires a significant down payment, closing costs, and other initial expenses. It can take some time to save up for a home, and loans are often part of the process.

Ongoing Maintenance Costs: Homeowners are responsible for all repairs and maintenance, which can be expensive and unpredictable. New homes are less likely to need maintenance early in their life, but all homes need repairs eventually.[JG6] You’ll be on the hook for all repair and replacement costs, landscaping and general maintenance, as well as appliances like dishwashers and water heaters.

Property Taxes and Insurance: These add to the monthly housing costs and can increase over time. It's important to see if you qualify for some homeowner tax benefits, as they can help reduce monthly costs.

Less Flexibility: Moving can be more difficult and costly for homeowners. While most houses appreciate in value, rather than depreciate, selling and moving is a costly, time-consuming process.

Market Fluctuations: Housing market conditions can impact the value of your investment. The market is volatile, and it's important to watch it, especially if you're looking to buy or sell.

Ultimately, the decision to rent or buy depends on individual circumstances, but buying a home, while expensive in the short term, has the potential for long-term returns that you wouldn't see from renting. To learn more about buying a home, visit newhomesource.com/learn.