Making the leap from renting to buying is a big decision that depends on factors like your long-term goals, finances, and lifestyle. Whether you’re moving to a new city or your lease is coming to an end, you may be wondering if you should rent or buy a house.
In this Redfin article, we’ll help you determine if it’s better to rent or buy a house with your lifestyle and finances in mind. If you’re moving to San Diego, CA, or looking at homes for sale in Richmond, VA, here’s what to consider when renting vs buying a home this year.
Key takeaways
- Renting vs buying depends on your finances, long-term goals, and lifestyle.
- Buying a home helps build equity, has tax benefits, and gives you pride of ownership.
- Renting gives you flexibility to move, stable monthly payments, and no repair costs.
Renting vs. buying: pros and cons
As you decide whether you should rent or buy a house, consider the pros and cons of each.
5 pros of renting a house
1. Home repairs: If something breaks in a home you’re renting, it’s typically the landlord’s responsibility to fix it. So when the air conditioning unit stops working in the middle of summer, you don’t have to spend thousands of dollars to fix it.
2. Monthly housing expenses: For the most part, when renting a house or apartment, your monthly housing costs will stay the same, aside from minor fluctuations in utility costs. Your base rent doesn’t change month to month after you’ve signed a lease, and you likely won’t need to budget for any emergency repairs, maintenance costs, or property taxes.
3. Flexibility: You can move out when your lease is finished or relocate to another city without having to worry about selling your home. Renting a house also allows you to see which home styles you like, which floor plans you don’t like, and if a neighborhood is the right fit, before buying a home.
4. Investment opportunities: Renting can free up some of your income, since you won’t be spending it on repairs or upgrades. You may have extra funds, also called disposable income, to invest in building your finances or saving for a down payment.
5. Time to improve credit: Renting also gives you the opportunity to pay off debts and help improve your credit score. A better credit score can give you better loan terms, so doing this can help you in the long run.
5 cons of renting a house
1. Temporary: The biggest pro of renting is also the biggest con. If you’re planning to live in a city for years to come, renting may not be the best option. Most leases last for only a year.
2. Uncertainty: There’s no telling when the property’s owner may decide they don’t want the responsibility of being a landlord anymore. They may decide to sell the property, which means you’ll need to relocate. Similarly, when your lease is up, your rental may not offer you the option to renew your lease.
3. Possible rent increases: As a renter, it’s possible that your rent will increase every time you renew your lease. Depending on whether you negotiate rent, the new cost may be out of your budget. In that case, you’ll likely need to find a new rental.
4. No home equity: As a renter, you don’t build any equity. Home equity is the percentage of the home’s value you’ve paid for, rather than what your lender still owns. When you pay your rent each month, you’re helping someone else build equity.
5. As-is home: You usually don’t have the option of modifying a rental to suit your needs. Some landlords may allow you to make small changes like painting the walls in your living space, but you’ll probably have to paint them back to the original color when you move out.
5 pros of buying a house
1. Building equity: Homeownership helps you build equity and potentially increase your home’s value over time. More equity can mean greater profits when selling and the ability to borrow for major expenses.
2. Customizable: Buying a home means it’s yours. You can paint it, remodel it, and customize the space to your liking without having to follow a landlord’s rules.
3. Stability: You won’t have to worry about a landlord who may decide to sell the home once your lease is up. You have the freedom to decide how long you want to stay in the home, and ultimately, if or when you want to sell.
4. Mortgage payments: When you own a home, you’ll have stable mortgage payments each month, as long as you have a fixed-interest mortgage. This stays consistent over time, and you won’t have to worry about a landlord raising your rent each year.
5. Tax benefits: There are several tax benefits of owning a home. Some homeowners qualify for tax breaks, which are reductions in federal or state taxes. Many first-time buyers can receive tax deductions, such as on their mortgage interest, which can save money at tax time.
5 cons of buying a house
1. Closing costs: Buying a home comes with closing costs, like inspections, title insurance, lender fees, and other costs, typically 2%–5% of the home’s purchase price. There are downpayment assistance programs that may help you cover these costs.
2. Home value: Ideally, your home’s value will increase between the time you buy and the time you sell, but it doesn’t always. Events outside of your control, such as a change in the economy, can potentially reduce your home’s value.
3. Home maintenance expenses: With owning a home comes the responsibility of home maintenance. If there’s a leak in the roof, it’s up to you to deal with and pay for repairs. You’ll also need to be prepared for emergency repairs, such as a burst pipe or broken heater.
4. Investment limitations: Buying a home ties up most of your money in one asset, leaving fewer funds for other investments. However, some home improvements can add value and pay off when you sell.
5. Property taxes: As a homeowner, another important cost to factor in is property taxes, which can be substantial depending on where you live. If you’re renting an apartment, you won’t pay property taxes (however, they may be factored into your rent).
Should I rent or buy a house? 4 questions to ask yourself
Everyone has a unique lifestyle, financial situation, and set of long-term goals that impact their decision whether to rent or buy a house. Consider the following four questions to help you decide:
1. Does renting or buying work with your timeline? If you’ve recently moved to a city, expect to change jobs soon, or want to relocate in a few years, it may make more sense to rent. On the other hand, if you’ve found a community where you’d like to put down roots, buying may be the better option.
2. Where do you see yourself in 5 years? Do you want to move to a new city or state? Do you want to take a year off and travel? Or are you looking to stay in your city for the foreseeable future? Is your career based in the city you live in? Answering these questions can help you determine whether to stay renting or consider buying.
3. How much can you afford? The costs of renting and buying vary, and your budget plays a big role in deciding which is right for you.
- Buying a home requires upfront costs like a down payment and closing costs, which depend on your loan, lender, and housing market. You’ll need to budget for mortgage payments, maintenance, utilities, and homeowners’ insurance.
- Renting typically has lower upfront costs, like an application fee, security deposit, and first and last month’s rent. You’ll need to budget for rent payments, utilities, and renters’ insurance.
4. Will renting or buying a home fit your lifestyle? Beyond finances, renting vs. buying is also a lifestyle choice.
- Buying a home is a long-term commitment that allows you to build wealth over time. You can customize your space, whether that’s remodeling, painting, or making upgrades. If you want stability and to put down roots, homeownership may be the right move.
- Renting offers flexibility and fewer responsibilities. You don’t have to worry about maintenance or unexpected repair costs. It can be beneficial if you move frequently or have a busy lifestyle.
Is it better to rent or buy a house?
Whether you make the decision to rent or buy a house, it’s a personal decision and one that means taking a look at different aspects of your life. From your finances to lifestyle, job situation, and long-term goals, many factors influence whether you should rent or buy a house. If you’re still unsure, calculate the cost of both options and speak with a mortgage lender or real estate agent who can help you understand what’s realistic for your budget and goals.