Should You Rent or Buy Your Next Home?
Deciding whether to rent or buy a home is an important decision. Which option is best depends on several factors.
- Can you afford all the costs associated with home ownership?
- How long do you plan to live in the home?
- What are your long-term goals?
Deciding whether to rent or buy a home is a personal choice that requires you to think carefully about the pros and cons. Both renting and buying have their own advantages.
Advantages of Renting
Here are several benefits of renting a home instead of buying.
When you rent, it’s relatively easy to leave your home if you need to. There’s no need to hunt for a real estate agent or stage the house for sale. All you need to do is pack your belongings and move. If you don’t plan to stay in an area long-term, renting is a better choice than buying.
Lower Upfront Costs
The upfront costs of renting a home are often significantly lower than the costs of buying. While renters usually need to pay a security deposit of one to two months’ rent, buyers must shell out a sizeable down payment for a home. The typical down payment is about 20% of a home’s value. If you don’t have enough savings for a down payment, you’re probably better off choosing to rent.
When you rent a home, your landlord is the one responsible for any repairs or maintenance needed. If an appliance breaks down or the plumbing backs up, all you need to do is call your landlord and they will send out a local contractor. If you own your home, you’ll be the one to spend time and money on repairs. It’s important to factor the costs of repairs into your budget.
Property values and the housing market have a big impact on homeowners. A home’s value affects a homeowner’s mortgage payment, their property taxes, and their net worth. If the housing market goes down, it does not have an adverse effect on those who rent.
Fixed Rent Payment
While a landlord may increase rent at the end of a lease term, as long as proper notice is given, rent payments are fixed for the term of the lease. In contrast, a mortgage payment can increase if property taxes rise or if the mortgage has an adjustable interest rate. Renting makes budgeting easier, since the amount of rent you’ll pay does not change during the lease term.
Advantages of Buying
Home ownership offers a number of benefits. The advantages of owning a home include:
Build Home Equity
When you buy a home instead of rent, you’re building equity with every mortgage payment. Equity is the difference between the amount of your mortgage and the value of your home. When you’ve build equity for several years, you may be able to qualify for a home equity line of credit or a home equity loan. Home equity loans and lines of credit usually have lower interest than other personal loans.
Most homeowners are able to deduct mortgage interest on their tax returns. Beginning in 2018, married homeowners filing jointly may deduct mortgage interest on home loans up to $750,000. Homeowners may also deduct interest on home equity loans, as long as the loan was used for home improvements. Ask an accountant or a tax advisor for help with tax deductions.
Your home is likely to appreciate in value over time. Home values depend on the local real estate market, as well as any improvements or upgrades made to the property. Your home equity will increase as your home gains value.
Freedom to Customize and Personalize
When you rent, you’re not permitted to make any changes to the property without seeking permission from your landlord. If your needs change, you’ll often need to move to another rental home.
Home ownership gives you the freedom to make whatever changes to your home you desire. You can remodel and redecorate to suit your needs and tastes any time you like. Pride of ownership is one of the main benefits of buying instead of renting.
Whether buying or renting a home is best for you depends on your individual circumstances. As with any major financial decision, think carefully about each option and decide what’s most important to you.