Before you decide to buy or rent your next home, consider the pros and cons of each.
Buying a home is part of the American dream and something that most of us aspire to do. However, it’s sometimes not the best choice depending on the stage of life you’re in, what your finances look like, and whether or not you plan on staying in one place for half a decade or more.
Are you planning to relocate or just wondering if it’s time to replace your rental with a home all your own? Here are the pros and cons of both renting and buying a home so you can choose the option that’s best for you.
Pros of Renting
Plenty of people spend years renting an apartment, townhome, or condo before they buy — and some never buy at all. Here are the top pros of renting your home instead of buying it.
- You’ll save money if you plan on staying in your home for three years or less. Nerd wallet estimates a renter will save around $200 per month and $7,388 in total over three years if they rent instead of buy. If you plan to relocate or upgrade in the next three to five years, you should probably stick with renting.
- You don’t need to come up with a hefty down payment. Though there are options to buy a home with little to no down payment, you’ll pay extra on your monthly mortgage for mortgage insurance. When you rent, you’ll likely have to put down a deposit, but this is generally only one to two month’s rent.
- It’s easier to rent than to buy if you don’t have solid credit. If you have a low credit score, a high debt-to-income ratio, or have not been at your current place of employment long enough, you may not be able to qualify for a mortgage, or the interest rate could be prohibitive. If this is your situation, it’s likely better to rent for a year or two and build your credit back up before looking at houses for sale.
- You can more easily deal with lifestyle changes if you rent. That two-bedroom, one-bathroom home that was so perfect for your little family won’t seem so perfect when you find out you’re having another baby or your mother-in-law decides to move in. If your life is still full of changes, renting might be a better idea until it settles down.
Pros of Buying
There’s nothing like owning your own home. If you’re planning to put down roots and can afford it, buying a home is often ideal. Here are the pros of buying.
- Buying a home is an investment. In most cases, the value of your home will go up. This means that if you plan to stay in your home for at least five years, your home will appreciate enough to sell for a profit.
- You get a tax break. Those who have a mortgage on a home can deduct their mortgage interest on their taxes each year. You can deduct up to $1,000,000 of interest paid on first and second mortgages if single or married filing jointly.
- You can make any improvements you want. If you rent, you can’t make major improvements or upgrades to your home. Even if you could, you wouldn’t want to sink money into a home you don’t own. When you own a home, you can plan projects and make changes without checking in with a landlord and know these projects will likely increase the home’s value.
Cons of Renting
Before you put that deposit down for your new apartment or condo, consider the following cons of renting:
- You’re at the mercy of a landlord. When you rent, someone else makes the major decisions about the property you live in. You may have to put up with building renovations, disruptive neighbors, or rent hikes, and you won’t be able to make major improvements on your property.
- You may be limited when it comes to pets (or have to pay extra to have them in your home). If having a home full of dogs, cats, or other animals is important to you, you may find your renting options limited.
- You aren’t building equity. Some equate renting with throwing money away. When you own a home, each mortgage payment goes toward paying off a home you will someday own outright. When you rent, you will never recoup the money you spend each month.
Cons of Buying
Buying a home isn’t always best for everyone. If you’re looking at homes to buy, make sure you keep these cons in mind:
- You have to pay for extra expenses. When you buy a home, there are several added expenses such as possible mortgage insurance, closing costs, down payments, and homeowners insurance. Those expenses don’t end, either. There’s also the cost of repairs and upkeep, most of which are taken care of by a landlord when you rent. Make sure you consider these extra expenses when you’re looking for a home. Experts suggest budgeting 1% of the value of your home a year to cover the cost of routine maintenance.
- Selling and moving can be an enormous pain. If you decide you want to move, it’s pretty easy to pack up an apartment and give notice to your landlord. The process isn’t so simple when you own. Preparing your home for sale, finding a realtor to work with, holding open houses, and dealing with offers is frustrating and time-consuming.
- Your equity takes a while to grow. Though you will build equity in your home, it takes a few years. In the beginning, most of your mortgage payment will go toward interest. Just one more reason why buying a home only really makes sense if you’re in it for the long haul.
Where you live has a huge impact on your happiness. If you’re looking for your next home, it’s important to know what’s important to you and what your future will hold. Whether you decide to rent or buy is a personal decision, and there is no right or wrong answer. Consider the pros and cons of each and make the choice that works for you and your family.