The pros and cons of buying vs. renting a home
Wondering if you should rent or buy? Understanding all the costs that go into renting or buying a home will set you up to make the right decisions for you. Learn about the benefits and drawbacks of each option as well as other financial factors to consider when making your choice.
[Visual of a hand drawing, “IS BUYING A HOME RIGHT FOR YOU?”]
Is buying a home right for you?
[Visual of a drawing: a man and woman holding “For Sale” and “For Rent” signs. Question mark in a bubble above their heads.]
Should I rent or buy a home? It’s not an easy question to answer, and there’s a lot to take into account when weighing such a big decision.
[Visual of the words “PROS” and “CONS” separated by an arrow.]
Regardless of your financial situation, renting and buying each come with a set of benefits and drawbacks.
A monthly rent check covers most of your housing expenses in one payment. When you buy, not only do you have a monthly mortgage, but you also have other costs that go along with owning—like maintenance, homeowners insurance, and repairs. And, if renting is less expensive, it could help you free up some money to save for other things. Renting also gives you the flexibility to easily move when your lease is up.
As with anything else, renting has its downsides. For starters, you have less control over your living environment. If you rent, you’d have to get your landlord’s approval for some changes, like painting your kitchen. Financially, there are cons, too. Namely, your rent can go up or your landlord may not offer you a new lease, which could lead to moving costs.
Of course, buying has its pros, too. You can pretty much do whatever you’d like with your space—if you want to recreate the ’70s, there's nothing stopping you.
[Visual of a drawing of a lava lamp]
Plus, there are many financial benefits of buying, both in the short term and in the years to come, offering you a chance to make a significant investment in your future.
For instance, depending where you live, you might find it’s actually more affordable to buy a home than rent. And,if you have good credit, you may get a low interest rate, which could help make for a more affordable monthly mortgage payment. Another big plus is the ability to potentially deduct mortgage interest paid to lower your taxes. A tax expert can help you see how much you might be able to save. With each payment, you chip away at the loan’s balance, helping to build equity in your home.
Equity is the difference in the appraised value of your home compared to what you owe on your mortgage. You may also build equity if the value of your home increases. One of the benefits of building up equity is that, down the road, you may be eligible for a home equity line of credit—which can be used for a lot of things like paying for unexpected expenses, renovation, education, or consolidating and paying off higher-interest-rate loans.
But there are cons to buying, too.
What happens if your water heater goes kaput? Well, if you own, that usually means having to lay out a good chunk of change. Or, let’s say you’ve been offered your dream job three states away. You’d likely have to sell or rent your place before you move.
Now, consider that you'll need to be prepared with a down payment and some extra funds for closing costs.
For the down payment, ideally, you’d put down at least 20% of the cost of the home you’re buying. That can get you a better interest rate and spare you from paying for private mortgage insurance—an added expense lenders typically require to protect themselves, in case you default.
However, if saving 20% for a down payment seems daunting, you may have other options, including government-sponsored loans.
On top of a down payment, you’ll also need cash on hand to cover closing costs and unanticipated expenses. Your mortgage lender will provide you with an estimate of your closing costs.
[Visual of a drawing of a USA map with flags planted across different regions reading “RENT…BUY?”]
In addition to all those considerations, costs for both renting and buying can vary wildly depending on what real estate market you’re looking into. So, start by asking yourself the following questions, and be honest.
Do you feel you need to save more for a down payment? Could changing conditions affect your job security? Is home maintenance something you want to avoid? Would a mortgage prevent you from saving for other things? Do you need to build or rebuild your credit? Are you planning to move in the near future?
[Visual of a drawing of “Renting” with a couple sitting on top of it.]
Now, if you answered yes to any of those questions, renting should be a serious consideration, at least for now, because buying isn’t always the right fit for everyone.
[Visual of a man and a woman coming out of a moving box shaped like a house. A “SOLD” sign is beside them.]
In the end, deciding to buy a home is a personal decision, and only you can choose when and if it’s right. Since it’s a very expensive and important purchase, you owe it to yourself to consider all of your options. Once you do, your answer to the question, “To own or not to own?” will become a lot clearer.
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