Should you rent or buy a house?

Are you renting and thinking about buying a home but aren’t sure if it’s the right financial decision for you? There's really no wrong time to buy a house. But market trends, interest rates and life events could all create more favorable homebuying conditions.  

But if you’re just starting life as an adult, renting likely will be your most reasonable option. After all, you need time to , save money for a down payment and get serious about making . 

Pros and cons of renting 

Pros 

A security deposit and first month’s rent to get you started in your newly rented residence is cheaper than a down payment on a home. In fact, rents generally have been  for the past year and a half or so, making renting even more affordable. 

You’ll likely have to pass credit check to apply for a rental, but unlike applying for a mortgage, a lower credit score won’t affect how much it will cost you. 

You aren’t locked in for a long period of time as a tenant either. Depending on the terms of your rental agreement, if you decide to move after a short period of time, you can leave and go somewhere else since you don’t have an investment tying you to the property. 

You also won’t have ongoing expenses like taxes and upkeep. Your landlord will pay for repairs, insurance and other related maintenance expenses.  

Cons 

You’ve paid for a place to live and have no other financial commitment there, but once you move out of your rental property, you won’t have any assets to show for the money you’ve spent.  

There also are tax breaks and deductions for interest payments and other expenses for owning a property that you won’t get when you are a tenant.

Pros and cons of buying 

Pros 

Property values in most parts of the country generally go up, so your investment will make you money over time. Every monthly payment you make increases your stake in the home. 

You also will be eligible for certain tax breaks and deductions for interest payments and expenses, which can help recover some of the money you’ve spent. 

If you decide to move at some point, your home is a valuable asset you can take profit from to help purchase another home or use for other expenses, investments or savings. 

Cons 

A home is a major investment, and it can lock you into a location for a certain amount of time by tying up your money. If you’re someone who likes to move around or if you have an occupation that requires frequent relocation, purchasing a home could be a financial burden.  

There are also significant upfront costs in purchasing a home in most cases, including down payment, closing costs and other fees, inspection costs and insurance.  

Monthly mortgage payments also generally are higher than rent, so you’ll need adequate income to keep up with the payments. 

You also will be responsible for ongoing expenses such as taxes, repairs, and upgrades. 

Renting vs. buying: key differences 

Renting a place and owning a home each have their advantages. What will matter most are your financial goals and lifestyle. 

• Buying means you will have an asset, something to show for the money you have spent.
• Renting gives you more flexibility to move when you want to or need to, and renting generally costs less than purchasing and owning a home.
• Taxes can be a concern as well, as a certain portion of mortgage interest payments is tax-deductible and can lower your tax burden,* an advantage you won’t get as a tenant.

Factors to consider before renting or buying 

Deciding to rent or buy a home will depend largely on what you can afford, your financial goals and lifestyle. 

• Are you relatively young and just starting out on your own? Renting for several reasons might be the better option. It’s generally cheaper, especially upfront, and you might not have the credit score you need to qualify for a mortgage.
• When considering whether to buy a home, you’ll want to consider how long you want to live in the area. If you plan to or need to move frequently, buying a home might not be a good financial decision for you.
• If you have long-term savings goals, it could make more sense to rent in an area that’s less expensive and put away what you can while you can.

Here are some more factors to consider that could help determine whether you rent or purchase a home. 

• Do I have enough saved up for a down payment? If not, have I explored any down payment assistance options that could be available to me?
• Do I have additional funds to cover closing costs and unforeseen repairs that may be needed after buying a house?
• Can I pay the extra recurring costs that come with homeownership, like routine maintenance, insurance and property taxes?
• Will I have enough money left over to cover unexpected expenses like car repairs bills, childcare and medical bills?

Are you ready to explore your options now that you have an idea what homeownership could be like? A Rate loan expert can walk you through the process and help you find the best options.