Renting vs. Buying a Home: Pros, Cons and Common Questions

The decision to buy or rent is not always clear-cut. If you have a steady job and are ready to settle down in one place for an extended period, buying a home might be a sound choice. However, if you want the freedom to pick up and move, or have not found the right place to settle down, you could be better off renting. 

Depending on your lifestyle and financial situation, deciding to rent a home may be the right move. You may prefer renting a home because it comes with significantly fewer responsibilities than owning one. When you rent, your landlord is responsible for maintenance and repairs, payment of property taxes, and ensuring that the home meets building and housing codes. 

When you rent, you typically have the option to move more easily than a homeowner. You can negotiate the length of your lease and usually have the option to break the lease for a fee. Renting also has far lower upfront costs compared with home buying. In most cases, all that is required is a security deposit, your first month's rent and an application fee. 

Renters know how much they'll pay in rent every month, as outlined in the lease agreement. Still, there may be additional fees, such as utilities, that are not part of the rent payment.

A landlord can raise the cost of your rent when the lease expires. If you plan to rent for more than 12 months, consider asking for a longer lease to prevent a sudden increase. Higher mortgage rates, rising home prices and dwindling home inventories are all factors that can prompt landlords to raise the rent. 

It's typical to pay a deposit equal to one month's rent before moving in. When your lease is up, the total amount of your security deposit may be returned if the house has remained in good condition. Some state laws ensure that landlords can only require a security deposit of one month's rent, while others allow security deposits of up to two or three month's rent. In some states, such as Florida and Georgia, there's no limit on how much a landlord can require for a security deposit.  

Application fees are also required for renters and are typically between $25 and $75 per applicant. Depending on the landlord's policy, these fees might be non-refundable. This means that your money may not be returned if the application is rejected or if you decide to rent elsewhere.

Renting a home means paying the same monthly amount, which translates to a stable and predictable housing budget. Rent can be subject to change when a lease agreement is terminated, but landlords are typically required to give tenants notice at least a month before the change takes effect. Some landlords may also offer the option of month-to-month renting. 

Renters are free to move when the lease is up and never have to deal with selling their home. They may also pay a fee to break the lease before it ends, allowing them to relocate to another place on short notice. There’s also the benefit of having a monthly rent that doesn't change for the duration of the lease. Additionally, landlords are responsible for repairs, maintenance, and the safety of the home. If a major appliance breaks, like the air conditioning, a washing machine or dishwasher, the cost of replacing them falls on the landlord, not the renter. 

Buying a home can be a significant life event that requires major financial investment. However, it provides many people with a sense of community and belonging. There's also the added incentive of building equity as you pay down your mortgage and the value of your home increases. For many buyers, the initial upfront cost, including the down payment and closing costs, are often the steepest hurdle. 

Securing a mortgage to purchase a home also has tax benefits. You can deduct your mortgage interest and private mortgage insurance (PMI), if applicable. 

Homeownership is a long-term financial investment that requires upfront costs and routine monthly payments over many years. The tradeoff is that homebuyers benefit from building equity in the house over time. If the value of your home goes up, you will also be able to sell it for more than you paid for it. 

A myriad of factors can impact a home's value, including the home's location and the local housing market. Catherine Morphis of Compass Realty is a real estate agent based in Richmond, Virginia, where housing prices have been on the rise. "If you stand on any street in Central Virginia and point to any piece of property, I can tell you it has almost certainly gained value over the last decade," Morphis says. "The downside of buying rather than renting, of course, is that it's a financial and location commitment." 

Buying a home typically costs more than renting one. In some cases, your monthly mortgage payment might be lower than what you were paying in rent. Still, other costs are associated with buying a home, including closing costs, a down payment, homeowners insurance, annual property taxes, utilities and home upkeep, such as landscaping. When you own a home, you are on the hook for major repairs and improvements, which can be costly. 

Mortgages are loans used to buy a home or land. A homeowner pays the lender in monthly payments after meeting the requirements to secure a loan. Your mortgage interest rate (the interest charged on the loan) can initially make up the bulk of your monthly mortgage payments as you begin to pay down the balance of your home loan. 

Property taxes and insurance premiums are typically included in the mortgage payment. Both are subject to change, so your mortgage payment may go up or down based on changes to the local tax rate or the cost of insurance. 

When you own a home, you must pay property taxes, which are annual or semiannual taxes paid to the local government. Your property tax amount is a percentage of the property's assessed value. Tax rates vary widely by locality, with some local governments charging more or less than others. The property taxes that you pay help fund essential services in your area, such as fire departments, police departments, schools, libraries, road construction and sewer and water departments. 

Homeowners are not mandated to have homeowners insurance under state and federal law. However, lenders require insurance and may also need other types of coverage for natural disasters and weather events, such as fires, flooding and earthquakes. These premiums can be costly in coastal areas with frequent flooding and hurricanes or areas with a high risk of wildfires. 

As a homeowner, you must pay for the repairs, maintenance and improvements you make to your house. Some repairs can be expensive, such as replacing an HVAC system or upgrading appliances. 

There are considerable differences between renting and owning. Renters have lower upfront costs and far less responsibility than homeowners. They don't have to worry about replacing a major appliance, repairing damages from an extreme weather event or paying certain fees and taxes. Buying a house is a long-term responsibility that is typically more costly upfront but may provide stability, equity and profit from the investment.

When you rent, you know exactly how much you'll need to pay every month. However, some consumers consider paying rent to be a less financially sound decision than purchasing a home. That's because buying a home means you will build equity — the difference between what a homebuyer owes on a mortgage and how much the house is worth – as you pay down your home loan. Your equity increases as you make more payments. 

Owning a home may be the American Dream, but whether it's a sound investment depends on factors that range from local land use issues to national economic currents. The real estate market in the United States has seen home values increase over time, with the average annual return on real estate resting at 10.6%, according to the S&P 500 Index. As you build equity, your home can also be an asset you can borrow against. For example, you can tap into your home's value to take out a line of credit.  

Purchasing a home allows you to build equity in a property, but it also comes with more significant upfront costs and maintenance expenses. 

You must evaluate your current financial situation and lifestyle to help inform your decision. These are the top three factors that impact if you should buy a home:

• You can afford the upfront costs, including your down payment and closing costs.
• You are able to budget for maintenance and repairs.
• You plan to stay in the area.  

Renting might be a better choice if one of these scenarios applies to you:

• You cannot yet afford to buy in the area where you want to live.
• You want to avoid the costs associated with owning a home.
• You may need to relocate for work.