The Pros and Cons of Renting vs. Buying a Home

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    The Pros and Cons of Renting vs. Buying a Home

    Finding a new place to live can be exciting but stressful. A major decision will be whether to sign a lease or a mortgage. Consider the pros and cons of renting vs. buying a home.

    Stability vs. Flexibility

    Owning a home has many advantages if your plan is to stay put for five or more years. Within five years, there may be swings in the real estate market, but you’ll have a better chance of seeing appreciation in your home’s value over time. You’ll also know exactly what your monthly house payment will be for the fixed term of your mortgage.

    Renting, on the other hand, provides more flexibility. You only commit to staying where you are for a year, and then you can decide if you want to sign a new lease or move. Renting is less predictable, however: landlords tend to raise rents annually, and they sometimes refuse to renew leases for a variety of reasons.

    Maintenance Costs and Property Taxes

    When you own your home, you’ll have to pay property taxes and maintain your property yourself, which adds extra costs to homeownership. When you rent, you don’t have to pay property taxes (although landlords do, and they build that cost into the rent they charge). As a renter, you’re also usually not responsible for major repairs or maintenance. You just keep the place clean, take out the garbage, and report when repairs are needed. Saving on maintenance costs and property taxes makes it possible for you to save for other things, such as vacations and education.

    Down Payments vs. Security Deposits

    On average, it takes people somewhere between 10 and 12 years to save for a down payment on a house, an amount that’s usually in the five-figure range. A security deposit is much easier to come up with, as it’s usually equal to just one month’s rent. Renter’s insurance is also cheaper than homeowner’s insurance, and there’s no private mortgage insurance to pay.

    Equity vs. Downside Risk

    When you own a home, you build equity with every payment that goes toward the principal of your mortgage loan. This can pay off over time if your home increases in value. The more you pay off your mortgage, the more of the sale price of your home goes into your pocket instead of back to the bank. However, you also accept the risk of declining home prices in a down market.

    When you rent, you don’t acquire an asset and you don’t build equity. You can’t borrow against a home someone else owns. You also usually can’t make alterations to a rented home. Owning a home means you can decorate it, alter it, and remodel it in any way your zoning laws allow.

    There are many pros and cons to both renting and buying a home. Ultimately, your decision comes down to costs and whether you need the flexibility to pick up and move or want to put down roots and build a solid credit history paying down your mortgage.