The Rent Vs. Buy Debate: Which Is Right For You?

Renting Vs. Buying A House: What’s The Big Deal?

Renting vs. buying a home is a common debate. But one isn’t always better than the other. Instead, the best option depends on what type of home situation matches your goals.

Renting is a short-term commitment, and many renters value easily moving. But while homeowners build equity when paying off a mortgage, renters don’t. There are perks and drawbacks for either choice, and you’ll make the best decision by assessing your needs and what suits your situation.

Renting A House

Renting a home can be a shorter process than buying. After finding a space you want to rent, you’ll fill out a rental application for the landlord. This includes financial information so the landlord can determine if you’re a good fit, and then you’ll sign your lease if it’s approved.

Renting is ideal for those who value flexibility because it’s easier to move in the future. Renting also has lower upfront costs, so it can be a good starting place while working toward financial goals.   

Pros And Cons Of Renting

If you’re stuck between renting or buying a home, here are some of the factors that may help your decision:

Buying A House

Buying a home can be a much longer journey than renting. However, it can be extremely rewarding when you eventually gain ownership of your home. There are a few steps to the home buying process.

A mortgage preapproval is one of the first steps to buying a home. This helps lenders determined how much you can comfortably afford based on your financial and personal information. Other variable factors, such as mortgage rates, will also have a large impact on what homes fit your budget.

Near the end of the home buying process, you’ll get a home inspection to make sure everything is in good condition, and if it’s not, the inspector will evaluate the damages. If your offer is approved and it passes inspection, you’ll sign the final documents and pay your down payment.

Pros And Cons Of Buying

While home buying has a lot of benefits, it still has some drawbacks. Keep these in mind when deciding between buying versus renting:

Key Differences Between Renting And Buying

When considering renting versus buying a home, these key differences may help you make your decision.

Home Equity

Home equity is what makes homeownership so appealing, especially compared to renting. When you’re paying off your mortgage, home equity is the difference between the amount you owe and the value of your home. For example, if your home is worth $500,000, and you have $200,000 left to pay on your mortgage, you have $300,000 in home equity.

Owning a home means that you can sell it if you decide to move, and the proceeds can go toward a down payment on your next home. If you need cash for a renovation or large expense, you can get a home equity loan or a home equity line of credit to access your equity.

When renting a home, you don’t have ownership of it. The landlord still owns the home, so your payments don’t create equity.

Tax Benefits

Some tax benefits are only accessible to homeowners. One option is a mortgage interest deduction, which allows homeowners to subtract the money they pay toward their mortgage interest from their taxable income, decreasing their total income taxes.

Since renters don’t have home equity, don’t pay property taxes and have different types of insurance, they can’t get these benefits.

Housing Costs

Though renting has lower upfront costs, there are other necessary payments before moving in, such as a security deposit. Renters are also typically expected to pay the first and last month’s rent.

Upfront costs for buying a home include inspection fees, appraisal fees, the down payment and closing costs. Closing costs include things like the origination fees and title insurance, which can amount to 3% – 6% of the value of your home. After closing, mortgage payments can be costly as well.

Home Maintenance And Repairs

While owning a home provides you with a valuable asset, you’re also responsible for managing maintenance and repairs.

Renters, on the other hand, can alert a landlord or property manager to any issues, which are usually fixed at no added cost to the renter.

How To Decide Whether To Rent Or Buy A Home

There are many factors that can influence whether you should rent or buy a home. If you’re still not sure what’s right for you, here are some other factors that can narrow down your options.

Determine Where You Want To Live

A big factor of whether you can afford buying versus renting a home is the location. Depending on the housing market, what’s available in urban areas is vastly different from what’s available in the countryside. Home prices are highly dependent on location.

Similarly, rent prices and job availability (which can influence your budget) can vary widely based on location.

Reflect On Your Financials

When considering whether to rent or buy a home, another factor is your financials. Make sure you’re aware of your debts, spending habits and savings. Before buying a home, being financially stable is a good indicator of whether you’re ready or not. Keep in mind other variable factors, like interest rates, that may make moving more or less costly.

If you’re unsure of where you are financially, creating a budget can help you assess your situation.

Think About How Long You Plan To Live There

The length of your stay is also a good way to determine if you’re ready to buy a home. If you plan to move around as often as every few years, renting may be a better choice.

Unless you’re staying somewhere long term, renting allows more flexibility, especially if you aren’t sure where you want to live in the future.

Consider The Importance Of Creativity

Making a house feel like home often means customizing the space and being creative, whether that be with paint, remodeling or furniture choices.

Keep in mind that renting provides fewer opportunities to customize. Depending on your lease and your landlord, there may be different limits for how creative you can be with your space.

FAQs: Buying Vs. Renting A House

While final decisions depend on your personal goals and situation, here are some common concerns when it comes to buying a house versus renting one.

Is it worth buying instead of renting?

If you are in the financial position to afford buying, it can be worth it over renting. But it depends on your plans and finances.

When should I rent vs. buy a house?

If you plan to stay in a home for at least five years and are in a financially stable position, strongly consider buying over renting. If you plan to move locations in the very near future and have a tighter budget, renting may suit your needs better.

Is buying a house a good investment?

Buying a house is a good investment as long as the home buyer can afford it. This is because homes typically go up in value over time. Though home buying is a big decision with many upfront costs, homeownership can be valuable in the long term.

Is renting cheaper than buying?

For upfront costs, renting can be cheaper than buying. However, costs, such as monthly rent, can add up without building equity. Meanwhile, homeowners may pay more upfront but earn in home equity over time.

The Bottom Line

When considering renting vs. buying a home, there are a lot of factors that may influence your decision. Keep in mind your goals and finances as you make this decision.

If you decide homeownership is right for you, start the approval process with Rocket Mortgage^® today.