Moving Forward with Confidence
The Basics
Whether you’re a first-time homebuyer or a renter evaluating your next step, deciding whether to buy or rent requires careful consideration.
Buying a house gives you ownership, privacy and home equity, but the expensive repairs, taxes, interest and insurance can really get you. Whereas renting a home or apartment is lower maintenance and gives you more flexibility to move. But you may have to deal with rent increases, loud neighbors or a bad landlord.
Before You Buy
Before you buy a home, you need to make sure your finances are in order. That starts with minimizing debt and having an emergency savings fund (read more about these in our Basics of Personal Finances blog). You will also need money for a down payment and monthly mortgage payment. A good rule of thumb is to keep your mortgage payment around 25% or less of your take-home pay. And finally, make sure your income is stable to cover these and other on-going expenses.
Owning a home can be a wonderful thing but the associated costs can add up quickly. Make sure you also consider your mortgage principal and interest, property taxes, homeowner’s insurance, Private Mortgage Insurance (PMI) and potential homeowners association (HOA) fees. Use this calculator to see what your costs could be. It’s easy to get in over your head by buying a home that exceeds your financial comfort zone, which may make renting a better choice.
The Pros and Cons of Buying vs Renting
Buying
The Benefits
Ownership – Each payment you make goes towards owning your home. Once it's paid off, it's yours!
Appreciation – Your home will likely increase in value over time depending on the market and how well you take care of it.
Tax Advantages – Many costs of owning a home like property taxes and mortgage interest are tax deductible.
Freedom – You can decorate how you like, inside and out.
Privacy – Having your own house means not hearing the neighbors upstairs or through the apartment walls.
The Drawbacks
Challenges Traveling or Relocating – You’ll have to rent out, sell your house, or make arrangements for it to stay vacant for a long time.
Repair Responsibility – Some repairs, such as roofs, may have you dipping into your emergency fund to fix, depending on the price.
More Expenses – Homeowner’s insurance is more expensive. Then there are property taxes, possible HOA fees, and typically, higher utility bills.
Saving Money for a Down Payment and Closing Costs – You’ll typically need to have 10-20% of the home’s purchase price for a down payment plus an additional 2-5% in closing costs.
Renting
The Benefits
Flexibility – You don’t have to stay in the same location. Plus, it’s typically easier to get out of a lease.
Less Maintenance Costs – One of the biggest perks of renting is not worrying about surprise repair costs – call the landlord!
Short Term Savings – Renter’s insurance is significantly cheaper. Also, your starting costs are lower since you only pay a small security deposit.
Access to Amenities – Many apartment complexes come with a pool, community club house, fitness center, and more. These benefits are included in your rent and don’t cost extra.
The Drawbacks
Rent Increases – No matter how affordable things are when you first move in, inflation, competition and rising property values can cause your rent to go up year after year.
No Freedom to Renovate – New flooring would look great, but your landlord may not approve. You may even have to ask for permission for simple changes, like paint colors.
No Financial Incentives – No tax deductions. No equity. No rising property value. However, renting is not a waste of money; you’re paying for a place to live!
Additional Things to Think About
Maintenance
With home ownership you’ll need to keep up with the maintenance of the entire property: yard care, mowing the grass, replacing air filters, major and minor repairs, etc. Decide if these are things you’ll do yourself or hire someone to do for you. When you rent many maintenance issues are taken care of by the landlord.
Location
Do you need to live in an area with good schools? How long do you want your commute to work to be? The price of a home may vary by location, so consider what you can afford when making a decision. However, if you don’t want to compromise on these, renting may be a more affordable option than buying.
Longevity
If you plan on moving in a few years, it may not make sense to buy. If you’re in the military or your job requires you to move around, it could be smarter to rent. In most places, you’ll need to stay in a house for two to three years to make buying worth the upfront costs.
Additional Resources
Home Loans
Whether you’re a first-time homebuyer or looking to refinance, get clear information that helps you move forward.
Mortgage Calculator
Use our mortgage calculator to help determine how much home you can afford, and get your personal rate quote.
Understanding Credit Scores
Your credit score can affect your home buying ability. Learn how to manage and pay down your debt for a smoother experience.