Buying vs. Renting a Home: Which Choice is Right for You?

It’s no secret that buying a home is often one of the top priorities among adults.

Yet, despite the allure of homeownership, renters occupy roughly 36% of U.S. households.

With such a high percentage of renters, it begs the question — is renting or buying better for you?

Deciding whether to stick with renting or take the leap into homeownership is a big moment in any person’s life that requires careful planning. Both renting and buying come with advantages and disadvantages that are crucial to consider before making any commitments.

In this article, we are discussing the difference between renting and buying a home to help you decide which option is best for you.

Keep reading to find out the pros and cons of both renting and buying!

The Pros & Cons of Buying a Home

Having a home of your own can be advantageous for many reasons, from financial benefits to simply owning a space that is all yours to customize how you want. However, like all things, buying a home can come with a variety of disadvantages as well.

Let’s take a look a the pros and cons of buying a home:

Pros of Buying a Home

• Financial Benefits: One of the biggest perks of owning a home is the many financial perks that come with it. For example, when you sign a mortgage, you agree to a fixed rate. As a result, your monthly payments are completely stabilized, compared to the uncertainty of rent prices that can potentially increase after every leasing period.

• Investment Value: Owning property gives you more than just a reliable place to live — it can be an excellent and profitable long-term investment. Houses generally tend to gain value over time, especially if the home is in a desirable location or neighborhood. For first-time buyers, renovating older homes and then selling them for a higher value a few years down the line can be a great entry into property investment and buying homes in competitive markets.

• Greater Control: When you rent a home, you are subject to any rules the landlord may have regarding what you can and cannot do to the home. Meanwhile, homeowners can customize their homes in whatever ways they like without any third-party interference (except for homes in neighborhoods with Home Owners’ Associations (HOAs) that can dictate certain rules about a home’s exterior appearance).

Cons of Buying a Home

• High Upfront Costs: Buying a home does not come at a small cost. To purchase a home, you will likely need tens of thousands of dollars saved up just to make a down payment, as well as a reliable income to pay your mortgage every month. We discuss the specific costs of buying a home later on in this article, so stay tuned.

• Maintenance Responsibilities: As a homeowner, you bear the responsibility of your home’s maintenance which can include but is not limited to yardwork, landscaping, roof maintenance, HVAC servicing, plumbing repairs, pressure-washing — you name it, and a homeowner is responsible for it. If you are not prepared for all the maintenance responsibilities that come with homeownership, you may want to read up on annual home maintenance first.

• Property Taxes: Though homeownership does come with some tax benefits — such as mortgage-related deductions — you will need to pay property taxes each and every year. However, you can lower your property tax bill in a number of ways, such as by making energy-efficient improvements to your home. Working with a professional accountant is a great way to ensure you are getting as many tax breaks as possible.

The Pros & Cons of Renting a Home

As you may have guessed, the pros and cons of renting a home are basically the mirror-image of buying a home — the disadvantages of buying become the advantages of renting, while the privileges of being a homeowner are not awarded to renters.

With this in mind, let’s look at the pros and cons of renting a home instead of buying:

Pros of Renting a Home

• Lower Financial Burden: When you rent a home, the only financial responsibility you bear is the price of rent and utilities for the home. All other costs, such as property taxes and annual maintenance tasks, fall on the shoulders of the landlord.

• Maintenance Management: Like property taxes, the responsibility of home maintenance belongs to the landlord rather than the renter. However, you should always read your leasing agreement thoroughly, as monthly tasks like yardwork are sometimes assigned to the renter.

• Lower Upfront Costs: Compared to buying a home, you need significantly less money to begin renting an apartment. This is the main advantage of renting, as it takes most people several years to hit their savings goals before they are able to buy a home of their own.

Cons of Renting a Home

• Limited Financial Benefits: Aside from lower upfront costs and no property tax burden, renting a home does not come with many additional tax benefits. Although these days you can report your rent payments to credit bureaus to help build your credit, renting does not inherently build credit on its own and provides severely limited tax breaks, with one of the few available to renters being the home office deduction for those who work remotely.

• No Compounding Value: Since renting a property is not an investment, your rent payments are not going toward building your home equity or any other kind of compounding value. Once you decide to leave a rental home, the most financial return you can get is the return of your security deposit, which is often a fraction of the total money spent on rent during your lease.

• Less Control: By choosing to rent a home rather than buy, you are at the mercy of your landlord when it comes to what you can do with the property. Everything from painting the walls to starting a garden or even getting a pet has to first be approved by your landlord.

3 Key Tips for Deciding Between Renting or Buying a Home

Tip 1: Know Your Credit Score & Assess Your Budget

It is incredibly rare for first-time homebuyers to be able to buy a home outright for its listing price.

Instead, most first-time buyers save enough money for a substantial down payment and then apply for the remaining funds via a bank loan or home mortgage.

When it comes to home much money you need to have saved for a down payment, the general rule of thumb is between 3% to 10% of the total home value.

The lower end of this spectrum is generally reserved for buyers with high credit scores, while the higher end of the spectrum represents those with mid-range credit scores. To get a home loan, you will need a credit score of at least 620, though higher scores can land you smaller down payments.

In addition to the down payment, you will likely also need between 1% to 2% of the total home value to cover the closing costs that go toward paying the realtors. The only instance where you may not encounter closing fees is when you are buying directly from a homeowner without a realtor’s involvement.

The median price for a home in the U.S. as of 2022 was $428,700. Considering the above percentages, this means that purchasing an average U.S. home requires you to have between $12,861 to $42,870 saved for a down payment, and between $4,287 to $8,574 saved to cover closing costs.

Talking to your local bank or mortgage company is the best way to get a more realistic and personal budget for how much you need to save to buy a home.

As for budgeting for a rental property, the upfront investment is much lower but can still be a significant amount of money to spend depending on your financial situation.

To rent an apartment or home, you will typically need to pay the first and last month’s rent, as well as a refundable security deposit that is returned to you after your lease ends.

Rent in the U.S. can vary depending on a variety of factors, with the median price of rent in 2022 ranging from $1,640 to a peak of $2,053. To pay the first and last month’s rent required per a rental agreement, this means you will need at least $3,280 to $4,106 saved, as well as between $100 to $500 for a deposit.

Of course, cheaper rentals with less strict leasing requirements are available. These cheaper options are a good alternative if you need a place to stay but do not have enough money saved for a pricier rental.

Tip 2: Research Property in Your Local Area

If you are planning on buying a home where you currently live, research the property market in your local town or city. Doing so can help you gain a better understanding of what fair market value looks like in your local neighborhoods and whether or not this is truly the location for you.

As you research your local property market, it is worth your while to consider other locations as well.

For example, let’s say you currently live in California but have decided to check out the property market in Tennessee due to the lower property taxes in the southern state. In your research, you can discover many interesting and affordable cities that you may have never previously considered, such as Knoxville.

Researching both your own local property market and property markets in other states can help you decide whether now is the time to buy or if you would rather plan a larger relocation.

Tip 3: Consider Your Timeframe

Last but not least, it is crucial to have a clear timeframe in mind before deciding whether to rent or buy.

Depending on the timeframe you are working with, you may not have enough time to carry out the homebuying process. For instance, if you are in need of a place to stay immediately but are not yet prepared to buy a home, then renting may be the better option given the immediacy of your timeframe.

Comparatively, if you are only halfway through your current rental lease and want to purchase a home once your lease is up, this gives you much more time to research the current markets in your area.

In a case where you are ready to buy a home but want more time to look at different properties and neighborhoods, signing a short-term rental lease can give you greater timeframe flexibility as well.

Final Thoughts: Finding the Ideal Home That Fits Your Needs and Budget

Regardless of if you choose to rent or buy a home, the key is to find a place that suits your needs best.

Of course, there is a third option as well — building a house. Building your own house with the help of a professional contractor is the best way to get your dream home, as you get to set the exact specifications for the design and construction materials.

Like renting and buying, choosing to build a home is a big decision that takes careful planning and budgeting. If you do plan on building, renting during the construction phase can be a good temporary option until your forever home is complete.

Whether it’s tomorrow or ten years from now — we wish you luck on your journey to homeownership!