Many things can influence our desire to move into a different home. Maybe you need more space. Maybe you’re looking to access a better school system. Maybe you’re just looking for a change of scenery. Whatever the reason behind a decision to move, you may have asked yourself, “Should I buy or rent?”
Here are some pros and cons to help you evaluate your options:
Pros of Renting a Home
- You’ll have more flexibility if you want to move down the road. When you rent your home, it’s a lot easier to relocate. Typically a lease term is one year at most. So if the mood strikes you to move to a warmer climate, or accept a job in another state, you won’t have to wait too long to pick up and settle elsewhere.
- You won’t be stuck with maintenance and repair bills. If you’re renting, it typically is the landlord’s responsibility to keep the home in a habitable condition. So, if a water pipe bursts or your oven stops working, your landlord will likely have to make the repairs and pay for any related expenses.
- Less upfront costs. In a typical rental agreement, you’ll be responsible for paying first month’s rent (and sometimes last month’s rent), plus you’ll need to put down a security deposit to cover any damages you may make to the property while living there. If there is little or no damage to the property when you move out, you’ll receive your security deposit back (in part or in full, depending on how much damage you caused). In contrast, when you’re buying a home, you’ll usually need to make a down payment as well as pay for various closing costs which can include things like application fees, appraisals, home inspections, and attorney fees.
- There are furnished homes available. If you don’t have existing furniture for your home it could be a significant expense to furnish it from scratch. If you’re renting however, you can focus your search on furnished apartments or furnished houses. This can be a major plus for people who don’t have the money to furnish every room.
Cons of Renting a Home
- You’re at the mercy of your landlord at lease renewal time. Unless there are rent control laws in place where you live, you could face a hike in your monthly rent when it’s time to renew your lease. There’s also the possibility that you could be forced out of your home at the end of your lease term if your landlord decides to sell the building or simply refuses to renew your lease.
- You’re not building up any equity with your rental payments. When you own a home and sell it, you can retain the non-interest portion of the money that you’ve put into your mortgage (that is, as long as the value of your home hasn’t decreased since you purchased it). But when you rent, your monthly rental payments go into a kind of “black hole”. The only money you’re likely to get back when you move out of your rental is your security deposit.
- You can’t make changes “at will” to the property. Say you want to paint a bedroom, install a wine fridge, or do some landscaping out front. If you’re renting, you may have to get permission from your landlord before you start your project. And there’s a chance you won’t be able to make any modifications to the property at all. Most leases have specific clauses regarding what a tenant can and can’t do to the home. Renting can be frustrating if you don’t have the flexibility to do what you want with your living space.
Pros of Buying a House
- There are tax benefits. When you own your home, you can deduct some of the expenses associated with it from your taxable income. Examples of homeowner tax deductions can include mortgage interest and property taxes. If you’re considering purchasing a home, it’s always a good idea to consult a qualified tax professional who can give you a clear idea of the tax benefits you may be eligible for.
- You can change things up. If you buy a house, you have the freedom to alter it (as long as you don’t break any building codes or violate homeowner association regulations). For instance, you can ditch the deck for a patio, or tear down a wall or two to expand the kitchen. These liberties don’t exist when you’re renting a property.
- You can build up equity. When you’re paying your monthly mortgage bill, a portion of that payment goes toward the loan’s principal. If you sell the home down the road and its value hasn’t taken a nosedive, you can get the principal portion of your payments back in the sale. And, if you stay in your home for the long term and pay off your mortgage in its entirety, you’ll own your home outright and won’t have to make mortgage payments any longer (you will however, still have to pay your property taxes and homeowners insurance). Plus, you’ll own the equity you’ve built up in your home, and you can tap into that equity when needed by taking out a home equity loan or a home equity line of credit.
Cons of Buying a House
- You’ll be footing the bill for uninsured repairs and upkeep. If the house needs a new coat of paint or a roof, you’ll have to foot the bill. And unless you have an appliance insurance policy, plan on paying for a new furnace or water heater at some point down the road.
- There are significant upfront costs. Depending on what type of mortgage you choose, you may need a lot of money on hand at closing time. Most mortgages require a down payment, which is typically 20% of the purchase price on a Conventional mortgage. However there are low-down payment and no-down payment loan options available for qualified borrowers. You’ll also be responsible for various other closing costs, such as appraisal, inspection, and attorney fees.
- Your home’s value could depreciate over time. A home buyer’s worst nightmare is to buy a house at top dollar, only to have its value plummet shortly after the sale is finalized. Timing the housing market can be tricky, and it’s possible for a recession and declining home values to put a big dent in your wallet if you end up buying at the wrong time.
- You’ll need to furnish your house once you move in. From bedrooms to living rooms to family rooms, it’s on you to pay for the furniture. If you currently own your home and are looking to move, chances are you already have some furniture handy. But, if you’re moving out of a tiny apartment, it could be overwhelming having to furnish a home from the ground up.
There’s no clear winner when it comes to renting versus buying a home. The truth is that what’s right for one person might not be right for another. When it comes down to it, the choice to buy or rent a home will depend on your own unique preferences, needs, and finances. And if you do think that purchasing a home is the right choice for you, contact a qualified mortgage professional who can help guide you toward the right mortgage product.