Renting versus buying: The pros and cons of homeownership

As rents continue to rise, you may weigh the pros and cons of renting vs. buying. For some people, the flexibility and generally lower costs of renting are absolute necessities; for others, investing in a place that's yours and gives you equity is what you need. It all boils down to where you are in your financial life and what your goals are.

Let's take a deep dive into some of the main upsides and drawbacks of either renting or buying a house to help you decide which suits you better.

Renting a house

Renting gives you flexibility — you could move without having to deal with putting a house on the market. But renting also tends to come with less stability since your landlord may decide when your lease is up to hike your rent or not allow you to renew your lease.

Here's a look at the pros and cons of renting a house:

Advantages

• Low upfront costs. Typically, when you rent, all you need to put down is a security deposit, plus your first and last month's rent.
• Flexibility. Leases are often for one year, but some are month to month, giving you the ability to move if you're not thrilled with your space.
• No maintenance. Your landlord is typically responsible for keeping the house in good working order. If the stove or heater breaks, you call the landlord, who arranges and pays for repairs.
• Lets you shop around. Renting allows you to try different housing options and neighborhoods so you can find out what you like before you commit.
• Can help you save. If your rent costs less than a mortgage payment, you can set aside those extra savings for a future down payment or other goals.
• No property taxes. As a renter, you’re typically not responsible for paying taxes on the property.

Drawbacks

• You're not building equity. When you rent, your money goes to the landlord rather than into your own home.
• Your rent can go up. Depending on the market and the landlord's expenses, they may increase your rent at the end of each lease term.
• Your landlord may not be responsive. Some landlords are better than others. Yours may take a while to call in repairs or address concerns.
• You have limited decorating options. Your landlord may be strict about what you can and can't do in the home. Some don't allow painting, for instance.
• Having pets can be complicated. Not all rentals allow you to keep animals, and those that do often charge an extra fee or require a pet deposit.
• You're at the mercy of the landlord. If your landlord decides to sell, you may find yourself moving sooner than expected. Or they may decide not to renew your lease when you were hoping to stay for a while.

Owning a home

Buying a home also has its ups and downs. For many people, being a homeowner is a dream that comes with the freedom to do what you want to your place and settle into something that can build some equity. But those privileges can come with a list of home maintenance expenses that go beyond your mortgage payment.

Advantages

• It's a place you can truly call your own. You can renovate to your heart's content, own pets, plant a garden or do whatever else makes you happy.
• It's an investment that could grow over time. As you pay down your mortgage and if home values rise, you can build equity. When you sell your home, you may walk away with more than you paid for it.
• It can give you a tax break. You may be able to deduct the interest you pay on your mortgage from your taxable income. Your property taxes may be deductible, too. Consult a tax advisor to learn more.
• Your principal and interest payments will stay the same. If you have a fixed-rate mortgage, the principal and interest portions of your mortgage payment will remain constant for the life of the loan.
• Your mortgage payment may be less than rent in your area. Depending on interest rates, the price of your home and how much you put down, your mortgage may cost less than you'd pay in rent for a comparable home.

Drawbacks

• The upfront cost. What's initially needed to buy a home can be a big hurdle to jump over. Along with having a down payment, you'll need enough to cover closing costs, which can be anywhere from 2% to 6% of the home's purchase price.
• Being responsible for maintenance. If something breaks in your new home, you're responsible for arranging and paying for the repair. You're also responsible for all the maintenance tasks, such as scheduling an exterminator, hiring a landscaper or paying for trash and recycling service.  
• Less flexibility. Once you own a home, you usually expect to live there for a while. If you need to move suddenly for a job or to be closer to family, you'll need to make arrangements for your home, either by renting it out or selling it.
• Property taxes can increase. While your mortgage principal and interest will stay the same with a fixed-rate loan, your municipality may decide to increase your property taxes, which will mean a bigger monthly payment.

Main considerations when deciding to rent vs. buy

Deciding on your living arrangements involves more than just listing pros and cons. Some key differences between renting and buying to dig into before landing on what's going to work best for your situation are the financial commitment, who's responsible for handling taxes and home repairs and what kind of stability you need.

Financial commitment

Renting is much less of a financial commitment than buying. Generally with renting, the most available cash you need to have on hand is three months of rent upfront. Often, you end up getting much of that back when you move out and your security deposit is returned. Sometimes utility costs are folded into the rent, so you don't need to worry about bills going up and down, and property taxes typically aren’t your responsibility.

However, buying a house is a financial investment. A 20% down payment may be traditional, but it's not mandatory. There are programs that require a down payment as low as 3%. Plus, you'll likely have to pay for mortgage insurance, too. On top of that, you'll be responsible not just for your utility costs, but also the expenses of maintaining and occasionally replacing major home appliances. If you live in a state that has property taxes, you'll also have those to pay annually too.

Responsibilities

When you rent, your responsibilities and those of the landlord should be distinctly listed on the lease. You'll know upfront whether you have to call a plumber if a pipe bursts or fix the water heater when it goes out. Your agreement should also spell out things like who's going to mow the lawn or shovel snow, whether you can paint walls or replace flooring and if appliances and furnishings are included or not.

As a homeowner, you’ll be responsible for managing any repairs. Home repair costs can catch you by surprise, and maintenance tasks can be demanding with a schedule of to-dos. On the upside, all the decor and fixtures are your choice entirely and depend only on the time and money you have for making your home your personal space in the world.

Permanence

Homeownership is often a commitment to stick around in a place. Many people choose to buy a house if they know they're going to remain in the area for five years or more. Since you arrange your own mortgage terms, you'll have a predictable monthly payment, and you may even gain equity you can leverage for credit if needed.

Renting can be stable, too. However, there's always the chance your landlord will ask you to move out for one reason or another, which can leave you searching for a place to live again. It's also typical for landlords to increase rent year over year. Not only does that give you a sense of unpredictability, but you could even be priced out of your home if the rent increases too much over time. But for many people, renting is ideal if they know they won't be staying in the area long-term or are biding time until they find a house for the right price and in the neighborhood they want.

Renting vs. buying: It's up to you

There's no single answer to whether renting or buying is better. To decide for yourself, consider your finances, how much you enjoy home maintenance and projects, where you want to live and how long you plan to stay in an area.

Renting is often the better pick if you don't plan on staying somewhere for more than a year or two. Or, if you're new to an area, it may be best to rent first until you're more familiar with the surroundings, and then buy.

The right decision depends on your savings and other circumstances, so take the time to thoroughly evaluate your situation before you make your decision.

Starting the homebuying process? Learn more about your home loan options with Citizens.