Rent vs buy — it’s a tough decision with a lot on the line. After all, buying a home is likely to be your largest financial investment. Not to worry. Our guide will help you ask the right questions, understand the pros and cons of both options, and evaluate different scenarios using our rent vs buy calculator to make sure the timing is right.
Rent vs Buy Calculator
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Should You Rent or Buy?
Before you answer, “Should I buy or rent a house?” here are four questions to ask yourself — and why they’re so important.
How Long Will You Be Staying?
Experts generally agree that you shouldn’t buy a home if you plan to stay less than five years. With the down payment and closing costs, you’re paying a lot upfront. The longer you own the home, the more likely you are to recoup these expenses. Plus, as more time passes, the house will appreciate in value. This increases the odds you’ll be able to sell for a profit.
Have You Started Saving for a Down Payment?
Even though a 20% down payment isn’t always required, that doesn’t mean you shouldn’t try to put down as much as you can. The less money you have for a down payment, the larger your mortgage will be. And depending on your credit score, the lender’s interest rate might make your mortgage payments higher than your budget will realistically allow — even if you’re approved.
What’s the Real Estate Market Like?
The housing industry is constantly changing. It’s influenced by consumer confidence, interest rates, mortgage availability, and the supply of properties in your desired area. For example, if there are very few homes on the market, multiple bidders drive up the prices. Be sure to consult with a trusted real estate agent or lender to assess whether it’s a good time to buy.
Are You Ready for the Responsibility?
If you’ve been renting for a while, you may be accustomed to calling maintenance when the dishwasher breaks or having someone else shovel your sidewalks. All these responsibilities (and costs) shift to your shoulders when you own a home. It’s critical to assess whether this is the lifestyle you want — and be ready to budget for unexpected repairs.
Rent vs Buy Comparison
Now let’s take a look at a rent vs buy comparison. Take some time to carefully weigh these benefits and drawbacks in light of your finances, long-term goals, and desired lifestyle.
Advantages of Buying
- Building home equity – As you’re making mortgage payments, you’re also saving. Your equity can provide a line of credit for other financial needs. Your home will also appreciate in value over time.
- Tax deductions – To save money on taxes, you can itemize your mortgage interest if you don’t opt for the standard deduction.
- Stable payments – Although your property taxes and insurance can vary over time, the bulk of your housing expenses will remain consistent if you choose a fixed-rate mortgage.
- Freedom with renovations – You have complete control over your property, so you can make it your own.
Disadvantages of Buying
- Property taxes can increase – Your taxes can go up when you make major home improvements or the local government does a reassessment.
- Less flexibility – You’ll have to plan well ahead to relocate since there’s no way to know how quickly your home will sell.
- Unplanned expenses – You’ll need to set aside an emergency fund to accommodate any unexpected repairs.
- Maintenance responsibility – Taking care of a home and its surrounding property can be a lot of work depending on its size.
Advantages of Renting
- Mobility – Most leases are for one year, so it’s not a major commitment.
- Fewer upfront costs – You can move into a rental with just a security deposit (often equal to the rent in advance).
- Landlord handles repairs – You have the advantage of maintenance-free living, with the costs of all repairs included in the rent.
- Financial flexibility – If your income changes drastically, you can downsize at the end of your lease without the expenses associated with selling a home.
Disadvantages of Renting
- Increasing rent prices – Your monthly rent will increase annually — often faster than the cost of living.
- Less freedom for renovations – Most rentals have strict rules about what you can and cannot do to the interior and exterior of your unit.
- No equity – Your monthly rent payments are not an investment. You’ll simply receive a place to live, not a property that you can eventually own outright.
- Less control over improvements – If your landlord is lax about making your shared spaces (such as a lobby or walkway) look attractive, your only option is to move.
Is it Better to Rent or Buy?
As you can see, the question “Is it better to rent or buy?” is different for everyone (and the answer could change over time). After thinking through the pros and cons, be sure to consult with experts before making a decision.
Find a real estate agent to identify homes within your budget. Check with a lender to learn about your financing options. That way, you can do your own rent vs buy comparison using real numbers based on the current housing market.