Is It Better to Rent or Buy a House?
There’s no one-size-fits-all answer to the question of whether it’s better to rent or buy a house — it largely depends on your individual circumstances. Your financial situation, lifestyle preferences and ultimate goals all play a role, as do broader considerations like the local real estate market and interest rates. Below, we’ll break down the reasons for and against each option to help you make an informed decision.
- The decision of renting or buying comes down to your finances and the lifestyle you prefer.
- Buying a house generally requires a stable job history, good credit and cash for a down payment and closing costs.
- If you’re unsure of where you want to live, renting a home might be a better option for you.
Should I rent or buy a house?
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Pros and cons of renting
Pros
- Easier approval process: It’s typically easier to get approved for a rental than it is to qualify for a mortgage. Many people choose to rent if they’re not financially ready for homeownership — for example, if their credit score needs some work or they don’t have a stable employment history.
- Lower upfront expenses: Unlike buying a home, renting doesn’t require a down payment, which can be tens of thousands of dollars, depending on your mortgage type. You’ll likely have some move-in expenses, such as your first month’s rent, a security deposit and a broker fee — though these costs are typically lower than what you’d pay to buy a home.
- Little to no maintenance costs: One of the main perks of renting is that maintenance and repairs are generally the landlord’s responsibility. This not only saves you money but also the time and hassle of hiring a plumber or electrician if something breaks.
- More freedom of movement: Renting provides more flexibility than homeownership when it comes to mobility. Whether you need to relocate for a new job or a family emergency, moving is easy once your lease ends. You could even break your lease early, but this may involve fees or finding a replacement tenant.
Cons
- You’re not building equity: Since you don’t own the home, you won’t build home equity with your monthly rent payments. Instead, it goes into the landlord’s pockets.
- Limited ability to customize the property: Renting often comes with restrictions on what you can change in the space. Everything from painting walls to swapping lighting fixtures may require landlord approval, and not all changes are allowed.
- Pet restrictions: If you have pets or plan to get one, finding a rental apartment that allows them can be challenging. Many landlords don’t allow pets, and those that do often impose breed or weight restrictions. In addition, landlords often charge extra fees or a larger security deposit for tenants with pets.
- Potential rent increases: Rent payments typically increase year to year, though it varies by location and landlord. In some cases, you can negotiate a smaller rent increase (or none at all), but it’s not guaranteed.
- Few (if any) tax benefits: There are generally few to no tax advantages to being a renter, though some states do offer tax breaks for renters. It’s best to check your local tax laws or consult a tax professional to see if you qualify for any relief.
I decided to rent instead of buy because …
Financially, I reached the point where I could buy a home in 2022, but it no longer made sense to do so, given the rapid run-up in home prices and the sharply rising interest rates at that time. In the intervening years, I’ve decided to rent because the cost of homeownership in my area exceeds the likely returns I can get from renting and investing the money I’m saving in the stock market instead.
Pros and cons of buying
Pros
- You can build equity over time: Home equity is the difference between your home’s value and what you still owe on the mortgage. With each monthly mortgage payment, you’re chipping away at your loan balance and potentially narrowing the gap between the part of your home that you own and the part that you owe. For example, if you own a home that’s worth $300,000 and your mortgage balance is $180,000, your home equity is $120,000 ($300,000 – $180,000).
- More control over your living space: When you’re a homeowner, you have the freedom to customize your home however you like. You don’t have to ask a landlord for permission to paint the walls or adopt a pet. (Keep in mind, however, that if you live in an HOA community, you may be subject to certain rules that can limit the control you have over your home.)
- Tax advantages: Owning a home comes with certain tax benefits, including the mortgage interest tax deduction. This allows homeowners who itemize their taxes to deduct the interest paid on their mortgage loan during the year.
- Stable mortgage payment: If you have a fixed-rate mortgage, your principal and interest payments will remain stable over the life of the loan. Keep in mind that other costs, like property taxes and homeowners insurance, can fluctuate and may impact your monthly payment.
- Opportunity to earn rental income: If you move but decide to keep your property, you have the option to rent it out and generate income. In addition, if you buy a multifamily home, you can live in one of the units and rent out the rest.
Cons
- Upfront costs: Buying a home involves hefty upfront expenses, including the down payment and closing costs. Down payment costs can vary depending on the loan type: For example, there’s a 3% minimum for conventional loans, while VA loans don’t require a down payment.
- It can be difficult to qualify for a mortgage: Unless you’re buying a home with cash, you’ll need to meet specific mortgage requirements to finance a home, like having good credit and sufficient income to afford the monthly payments.
- Ongoing maintenance and upkeep costs: Owning a home means you’re responsible for fixing leaky faucets, replacing broken appliances and staying on top of landscaping.
- You’ll need to buy homeowners insurance: If you bought a home with a mortgage, the lender will require you to purchase homeowners insurance to protect their investment. Further, depending on your area, you may also need to purchase flood insurance.
- Your home’s value could go down: Your home isn’t guaranteed to grow in value — and in a market downturn, it can actually lose value. This is how many people ended up with underwater mortgages during the 2008 housing crisis.
- Not as easy to relocate: Selling a home can take longer than breaking a lease or finding someone to take over your lease, since you’ll need to find a buyer and go through the closing process. And, if repairs are needed before the home is ready for sale, it can take even longer.
We were tired of feeling like we were throwing money away renting …
My husband and I decided to buy our first home after renting for many years. We were hoping for interest rates to decrease before buying, but decided it was worth it for us to buy and refinance later. We built in a brand-new neighborhood with a lot of development coming, so we figured it was a good investment. We were also tired of feeling like we were throwing money away every month renting.
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Is it cheaper to rent or buy a house?
Due to rising housing costs and high mortgage rates, the decision between renting and buying isn’t as straightforward as it once was. Renting is cheaper than owning for those with a mortgage in the 100 largest U.S. metro areas, according to a LendingTree study. The dollar difference between renting and owning a home with a mortgage is widest in San Francisco, New York and Bridgeport, Conn., and smallest in Phoenix, Orlando, Fla. and Palm Bay, Fla.
Before making the decision to rent or buy, consider both the financial aspect and what makes the most sense for your lifestyle needs and goals.
A rent or buy calculator can help you determine the best option for your situation. You’ll need your ZIP code, estimated home price and rent payment, as well as the number of years you plan to live in the home. Once you’ve entered this information, you’ll receive a buy or rent recommendation based on what makes more financial sense.
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