Have you been wondering lately, “Is it better to rent or buy a house?” For many people, buying a home vs. renting is one of life’s biggest decisions. The choice certainly isn’t one size fits all. While some appreciate the equity-building and nesting opportunities inherent in homeownership, others prefer the flexibility and reduced responsibilities that come with renting a home.
As with any decision, there are both benefits and downsides to buying a house. We’re here to uncover them to help make the decision a little easier for you. Here are the pros and cons of buying vs. renting a home.
Buying a Home: Pros
Building Equity. Experts usually consider buying a house a good investment since home values typically appreciate over time. Home equity, or the current market value of your home subtracted by what you own, allows you to aggregate wealth over the years and apply for home equity loans to help pay for certain projects. Many people use home equity as a long-term strategy for building personal wealth, viewing this as preferable to the notion that, as a renter, they’re helping pay off someone else’s mortgage.
Credit Improvement. Forgetting to pay off that one credit card charge back in your college years can come back to haunt you. A bad credit score can negatively impact you in many ways. However, you can counter a low credit score by buying a home and regularly paying off your mortgage debt. This will gradually increase your credit score and prove to future lenders that you can be trusted, which may allow you to qualify for other loans. Learn more about the credit score needed to buy a house.
Living Cost Stability. If you buy a house using a fixed-rate mortgage loan, your mortgage payment will stay the same throughout the loan term (although home insurance premiums and property taxes might vary). An unchanging housing payment may be quite desirable compared to the exponentially increased rent prices in most of the United States over the past few years—as much as a 40 percent hike in some cities. Although many states and cities have passed renter-friendly rent restriction laws in recent years, that still doesn’t prevent your landlord from increasing your rent as much as they’re legally allowed. When comparing renting vs. buying a house, remember that the common rule of thumb is to pay no more than 30 percent of your gross monthly income on housing costs; knowing that your mortgage payment will be the same every month, no matter your income, can provide great peace of mind.
Tax Deductions. When you buy a house, you may be eligible for tax deductions. As a renter, you don’t get those benefits.
Personalization. If you’ve ever heard the expression “my house, my rules,” then you know that owning your home makes you king or queen of your domain. As a homeowner, you don’t have to report to a landlord. You can customize your home to your heart’s content—as long as it abides by any homeowners association policies, if your community has them. If you want the freedom to be able to paint your walls on a whim or add a retro light fixture (just to name a few), buying a house vs. renting might be the right choice for you.
Buying a Home: Cons
Increased Responsibility. Becoming a homeowner is in many ways like becoming an adult: Things that used to be someone else’s problem suddenly weigh heavy on your shoulders. As a homeowner, you are responsible for all home maintenance, repairs, and replacements. Instead of simply giving your landlord a call when your toilet stops working, it’s up to you to pull out the plunger and see what can be done to remedy the situation.
Upfront Costs. The initial investment needed to buy a home is nothing to scoff at. After closing costs, moving expenses, and the down payment, you might be wondering, “Is buying a house worth it?” Though there are ways to reduce closing costs, you’ll still have to fork over quite a bit of cash to buy a house.
Moving Restrictions. When it comes to renting vs. buying a house, some people cite the need for freedom as a reason to rent. As a renter, you can pack up and move out when your lease ends. If you consider yourself a nomad at heart, brimming with the spirit of wanderlust, homeownership can feel like a ball and chain. While you can always sell your home, the process requires more than just submitting a move-out notice to a landlord and collecting your deposit.
Risk. Although most homes gradually increase in value over time, there is no guarantee they will do so. House appreciation depends on supply and demand, the economy, your neighborhood comps, and more.
How Do I Weigh Renting vs. Buying a Home Pros and Cons?
The first thing you should ask yourself is: “Is buying a home a good investment for me?” The answer will likely vary depending on your lifestyle and budget/financial trajectory. What might be a minor downside to buying a house for one person could be a major con for another.
Lifestyle. When asking yourself, “Is it better to buy or rent a house?” reflect on whether your chosen career path will require you to move regularly. If you need to relocate often, renting may make more sense than buying. Consider if you would like to live in a specific location for a few years; if so, it might benefit you to put down roots by purchasing a house. Finally, you may buy a home to become a landlord yourself—meaning that you’ll be able to have a steady income and may not even need to live in the same area as the house.
Budget/Financial Trajectory. As always, when making any significant investment decision, consider your current financial situation and expected future income and expenses. Something to research specific to house buying is the long-term economic development in your desired area. Look into home prices in your preferred neighborhood; if they are too high for your budget, consider buying a less expensive home elsewhere or renting until you have saved enough for a down payment.
If you have chosen to buy a home, first read through our tips for buyers and reference this checklist for homebuyers to ensure that you’re prepared for the process.
Then, make sure to sign up for a home warranty plan to ensure that your budget is shielded from certain expenses. Home warranty coverage helps offset the costs of repairing or replacing parts of your home systems and appliances when they experience breakdowns due to wear and tear. A home warranty plan from American Home Shield® offers comprehensive coverage and flexible pricing and plans so you can feel confident that your new investment is protected. You can even purchase a home warranty for rental properties if you’re renting out your home.
Renting vs. buying a house is not an easy decision to make—especially during a time when both rental and home prices are increasing. Consider your lifestyle, finances, and overall preferences because what works for one person may not work for another. If you can afford to buy a house right now or in the near future, it could be a great investment that will continue to pay off.