Updated post: 3/8/24
Original post: 6/15/22
Click the image above for access to the USA Facts county by county interactive of rent increases
Buying or renting a house is one of the biggest decisions anyone makes in life. It is typical for newly married couples to purchase their first home. Purchasing a home is a great way to build financial wealth and set yourself up for the future. However, buying a home is a huge financial endeavor, and right now, the housing market is very expensive.
Renting is a great alternative option due to its flexibility. If you move around a lot for a job, renting could be the way to go. Often, renters feel their money is going to waste and could be going towards equity in a house. That is not necessarily true, and it sometimes can be the better decision.
Which is the best option for you? Both buying and renting have benefits and drawbacks. In this article, we will discuss some key factors to consider and hopefully provide some clarity.
Buying or Renting: Timing
Before deciding on whether to buy or rent, consider your current life. Do you see yourself living in the same location for a long time? Are you planning or currently have kids? Do you have a stable job in that location?
Stability in life is key before buying a home because it is such a big commitment. Most mortgages last 15 to 30 years, and selling a home after a few years can be risky.
Society pressures young couples to buy a home immediately. However, renting for a few years and moving somewhere else until you find the right spot is no problem.
Renting is okay if you are moving for a job or if you are unsure if the new location is where you want to be.
Another factor is the housing market. In 2023, the market was hot, and homes were overpriced. This problem persisted in early 2024.
There is a shortage of homes for sale, and we are in a buyer’s market due to the historically low rates (although they are now on the rise).
You want to avoid burdening yourself financially by paying for a home outside your price range.
Everyone has a list of what they want in a home. Do not settle for a home that does not fit your needs just to own a house. Renting allows you to get everything on that list and save money initially.
Renting until the housing market is affordable can be a wise choice. It also gives you more time to save up for a down payment and closing costs and improve your credit score.
If you want to buy a home, you should be there for a while. Take your time buying a home. First, make sure your priorities are in line, and then the timing is right.
Related reading: Where Should We Live? – 15 Factors with Resources to Help Newlyweds Decide Where to Live
Buying or Renting: Financial Costs
A crucial step financially is knowing your price range. Figuring out what you can afford can make the decision to buy or rent much simpler.
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One of the worst scenarios to be in is overcommitting financially when you buy a home or sign a long term rental agreement. Spending all your savings on the upfront costs leaves you very vulnerable financially.
When saving up for a home, keep in mind that a large chunk of the cost is front-loaded. The down payment and closing costs are very expensive. The same is true for renting. It is common for one or two month’s rent required as a deposit.
After the hefty initial costs, you should be able to afford a monthly mortgage payment, taxes, insurance, and utilities.
Homeowners' insurance is costly compared to renters' insurance. Some homes have HOA fees, and property taxes must be considered. All these extra expenses add up and can seriously impact one's budget.
Buying a home is an illiquid purchase, meaning that when the economy tanks, it is tough to sell your home when you need the money because everyone else is trying to.
If you cannot afford the upfront costs or mortgage payments, renting a home is cheaper.
The security deposit is way less than a down payment. Renter's insurance is a fraction of the price of home insurance. Utilities still need to be paid, but there are no maintenance costs.
Renting is good while you save up money to buy a home. However, if you rent for an extended period, you may spend more than the cost of purchasing a home.
Both can be great options; it all depends on your financial situation and goals in life.
Buying or Renting: More than a home
While the appearance of a home is an important factor in making a home-buying decision, the location is just as important for some. Do you want to live in the city, the suburbs, or somewhere rural? Is having a backyard enticing?
Before purchasing or renting a home, check out the community life. See what restaurants, stores, or attractions are nearby. How safe is the neighborhood?
You can love the appearance all you want, but if the location is wrong, you may eventually need to move.
How long do you want to be in the car if you commute to work? How important are the schools?
Schools are essential for home buying for families with kids or couples planning on becoming parents. The quality of the school is often dictated by the school district in which you live.
Do your research to uncover the quality of the schools. The school comes with the purchase of a home.
Buying or Renting: Pros and Cons
Buying
Pros
Investment: Your house will become equity once you pay off your mortgage and the property value increases.
Tax benefits: Property taxes and interest on your mortgage are deductible.
Full ownership: Finally, the house is completely yours, and you can do whatever you want. Unlike renters, you have the power to renovate your home.
Cons
Responsibility: If something breaks or goes wrong in the house, you are responsible for fixing that issue. There is no landlord to take care of repairs.
Commitment: Moving is a hassle, and selling a home is not easy. Once you purchase, flexibility goes out the window.
Renting
Pros
Flexibility: You are not committed long term, and there is no house to sell before you move.
Lower Expenses: No property taxes, cheaper insurance, and fewer additional fees.
Maintenance: The landlord is responsible for any repairs or issues in the home.
Cons
Rent can increase: The rent is up to the landlord, and you are still determining what rent in the future will look like.
Lack of Equity: The money you pay goes into something other than your home. Instead, it is going straight to the landlord.
Interactive and Calculator: Is it Better to Rent or Buy?
Final Verdict
Deciding whether to buy or rent a house can be stressful. There is no “right” answer; it all depends on your situation. If you have saved enough money and can see yourself staying in one spot for a while, buying a home might be for you.
If you like to move around a lot, have a job requiring travel, or cannot afford it, renting is a viable option.
Be smart about your money and know what you want in life.
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