Renting vs. buying a house: What is the difference?
To rent or buy a house is an individual decision but understanding the pros and cons of each can help. Buying a home's biggest advantage is building wealth over the long term. However, homeownership comes with sometimes unexpected expenses and more responsibility. On the other hand, renting comes with more flexibility, allowing you to move frequently and explore different types of housing and new neighborhoods.
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Renting vs. buying a house pros and cons
Buying a home can be one of the most common ways to build wealth. But there's more to buying a home than you may think. Here are some pros and cons to help you decide whether buying or renting is right for you.
Pros to buying a home
Builds equity
Buying a home remains one of the most common ways for people to build equity. Equity is what you have when your home is worth more than you owe, which can happen over time as the home's value increases and as you pay the mortgage principal down.
Tax benefits
Interest paid on a home mortgage is typically tax-deductible, as are property tax payments. Be sure to speak with an accountant or financial advisor to understand the implications.
Establish community
If you purchase a home, typically you have longer term plans to stay in the community. Owning a home helps you establish yourself in a community and grants you more flexibility to customize your home to fit your needs and tastes.
Considerations to buying a home
Big investment
Buying a home is a significant investment and can sap your savings. Even if you get a mortgage, you'll still need to make a sizeable down payment and pay closing costs. According to Fidelity, you should consider your income, cash available for a down payment, credit score and other debts very carefully, as well as consider how much you can afford.
Moving costs
Moving can also be a challenge. If you buy a home and decide to move later, you'll incur the costs of moving and selling your property.
Pros to renting a home
Maintenance is covered
You're typically not responsible for repairing or maintaining your property when you rent. When something breaks, all you need to do is alert your landlord.
Flexibility on location
Renting allows you to try different types and sizes of homes, condos, and apartments. Renting also allows you to “try out” neighborhoods to see what you like, which could be especially helpful before buying.
Flexibility if you expect to move for a job
Renting can be helpful if you have a job that requires you to move around, or if you think you’ll move again in a short period of time. According to Fortune, most experts agree if you plan to move again in 3 years, renting may be the best option for you for now.
Considerations to renting a home
Cost of rent may change
The amount you pay in rent can change every 12 months or less if you’re on a shorter lease. Plus, the rental market tends to ebb and flow, meaning what was once an affordable rental market when you moved the first time may not be so affordable in the event you decide to move.
Stability isn’t guaranteed
When your lease is up, your landlord might not renew it, and then you'll have to move.
Home improvement decisions are generally in the hands of the landlord
While costs to repair usually fall on the landlord, the decision to make improvements or renovations also lie with the landlord or property owner. This may be a consideration if you have an interest in DIY or home improvement, or if you want the ability to make those decisions yourself over time.
Is it better to buy or rent a house?
To rent or buy is a big decision that comes with a lot of responsibility. Homeownership is still a dream for many, but before you leap, make sure it’s the right time and for the right reason for your lifestyle. Consider how long you think you’ll remain in your next residence, your current finances, interest rates, and the housing market where you’re looking to stay. Of course, it’s important to also consider your commitment to certain expenses that come with homeownership. Purchasing homeowners insurance or renters insurance is a reliable way to help protect yourself and your assets, and knowing what each covers can help you decide what you’re willing to commit to. For more resources to aid your decision, you can learn more about buying a home for the first time.
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