There are many factors to consider when deciding whether to rent or buy. Both options have their own set of pros and cons that need to be considered before deciding. For example, renting is great for people who like to move around or are just starting their career. On the other hand, buying a home can be a great long-term investment if you plan on living in the same place for several years.
While there is no one answer on whether you should buy or rent, there are set factors you should consider before making that decision. Let’s uncover the pros and cons of buying or renting a home and how other factors might impact your choice.
Factors to consider for renting vs. buying a home
Choosing to rent or buy a home is a big financial decision that shouldn’t be taken lightly. Both have their own set of pros and cons that you need to consider before moving forward. However, there are some trustworthy indicators to consider when deciding which option is right for you.
Things to consider for renting versus buying a home include:
- Check your finances first. Make sure you are in a stable financial situation before deciding to buy a home or doing a lot of research. When reviewing your finances, you will want to ensure you have enough reserves to fund up-front costs of a home purchase. These costs include your mortgage down payment and closing costs, to name a few.
- Job security is important for securing a home loan and paying your mortgage. It ensures you have a stable income to cover your monthly payments. The lender will review your last two years of employment and determine the probability of the income continuing. If you are a recent graduate, the lender will most likely request transcripts to show you are new to the workforce.
- Consider your five-year plan. Those who like to move around or travel a lot might find renting a better option, while those wanting to create roots in a single location will find buying a better choice.
- Think about investing in a property. Buying a home can help you gain value and build equity by making home improvements. People who hold onto their homes for a long time usually make money when they sell, as long as the market keeps improving. Building equity in a property is one of the most popular ways to grow a little bit of wealth.
- Consider the time and money needed to maintain a home. If you rent and something breaks, you can contact your landlord to fix it. But when you buy a home, you have to keep up with the maintenance of the entire property. If something breaks, you will need to pay to get it fixed and spend time fixing it. It is important to have extra money for potential repairs when buying a home.
- How much flexibility you need:When you own a home, you can do whatever you want, from adding a room to changing the paint! However, you have minimal freedom or flexibility to change aspects of your living space when you rent. However, renting gives you the freedom to move around and not be stuck in one place, even within your city or town.
Make sure you’ve carefully weighed all the external factors of renting vs. buying a home before deciding. Big investments, like buying a home, need to be the right fit for your needs.
When to buy a home
Buying a home can be a big commitment, but it can be rewarding. You feel pride when you own your own home, and you can profit financially from growing equity in your home. Here are some other pros and cons of buying a home to consider.
The pros of buying a home include:
- Build equity:Owning can build equity over time and help grow your overall wealth. Many consider it a wise financial decision.
- Control: You can have more control over where you live, like not moving often, painting your walls, or even having pets.
- Consistent payments: A fixed-rate mortgage provides steady monthly payments that won’t unexpectedly rise with market changes. You can budget precisely what you’ll pay a year from now without worrying about how the market might change before your next lease.
- Tax benefits:You might receive tax benefits from buying or selling a home, depending on your personal financial situation.
- Stability: Buying a home can bring stability to your family and the community you’re nurturing. As long as you can pay your mortgage, you can stay in your home and contribute to the neighborhood.
The cons of buying a home include:
- Responsibility:Buying means you have to pay for all maintenance yourself and find a way to get it done as well.
- Large financial investment:Typically, you’ll have to provide a large down payment upfront. You could spend this money on other investments that have the potential to out-earn what your home investment might one day provide.
- No flexibility:It becomes more challenging to move across town or to a new geographic location.
- Property taxes:You’ll have to pay property taxes on your home every year.
Buying a home is typically best if you have stable employment and plan on remaining in the same home for several years.
When to Rent a Home
Renting a home provides flexibility. However, it can also result in higher costs as housing prices rise. This is because many leases are short-term, typically lasting 12 months or less. Let’s unpack some additional pros and cons of renting a home.
The pros of renting a home include:
- Short-term savings: Renting is cheaper than buying in the short term because you don’t need a big down payment or lump sum to buy a house.
- Moving flexibility:You have much more flexibility with changing your home and moving around. This is great for individuals not set on living in the same place for years to come.
- Building credit: Renting can help build your credit if you can’t buy yet, or give credit references if you’re a good renter and need them.
- Less responsibility:When you rent, you aren’t responsible for maintenance. Instead, you can call your landlord and have them fix any issues that pop up.
- No property taxes:You won’t have to pay property taxes if you’re renting.
The cons of renting a home include:
- Inconsistent costs:Your monthly housing costs aren’t stable from year to year. When your lease ends, your landlord may raise the rent. If you choose to move, you may have difficulty finding affordable options in a competitive market.
- No equity:You don’t get to build equity with each rent payment. Instead, your landlord gets all the equity out of the home no matter how well you take care of it.
- Competition in housing markets can make it difficult to find a new home. This is especially true when you are trying to keep your children in the same school district when moving.
- Uncertainty: You may need to move suddenly if your landlord sells the property or doesn’t renew your lease.
- Lack of control: You may find it difficult to make changes in your home, and there’s no guarantee that your requests will be approved.
Renting a home is ideal if you want flexibility and don’t plan to stay in one place for a long time.
Costs of Buying vs. Renting a Home
Paying off a mortgage over 30 years is usually cheaper than renting, but it may not be the best choice for everyone. Many factors in different markets affect affordability, making it difficult to determine which option is cheaper for you.
Whether it’s better for you to rent or buy depends on your specific circ*mstances. If you have a stable job and income and don’t mind staying in one place for several years, buying a home could be the right choice. In contrast, if you’re not ready to settle down or want the flexibility to move at a moment’s notice, renting might be the better option.
Additionally, various factors like your age, current financial situation, job security, how long you plan to stay in the same area, and more all come into play. Deciding to purchase a home is a personal choice that you should review with a mortgage specialist to help answer your questions and guide your decision.
