Choosing to rent or buy a house is a big decision that affects your lifestyle, financial health, and personal goals. Whether you choose the former or the latter option depends on your financial situation, age, desired location, and lifestyle. Both options require a stable income stream to afford the expenses and relative costs and also need the effort to maintain. However, multiple key differences make renting and buying a house distinctly different.
Purchasing a house gives you an investment, but it has a lot of associated costs. While renting a home gives you flexibility and doesn't come with responsibilities like to homeowners. But renting is not always so simple, and owning is not always a good option than renting a house. Therefore, it is crucial to know the key differences between the two and the advantages and disadvantages of buying vs renting a house. In this article, we'll take a closer look at renting vs buying a house and discuss its pros and cons. Let's dive into the details!
Renting a house
First and foremost, renting doesn't mean you are throwing your money away each month. It is the biggest myth that isn't true at all. Renting doesn't come up with payments and expenses that are with homeownership. When you rent a house, you know your housing costs every month. This amount is shown on your lease. In a few cases, the landlord may include other expenses along with monthly rent, such as storage, utilities, and HOA fees if you live in a condo. Below are unavoidable costs associated with renting a house:
Unpredictability: Your landlord can increase the rent at the renewal of the lease. Besides, the landlord could sell the property or rent it to someone else, which means you have to move on short notice.
No inflation protection: The rent of the house will increase over the long term (unlike fixed mortgage payments). As a renter, you will always have to pay it off, which can be complicated during inflation.
Broker's Fees: These are normal in some cities. They're as high as 10% on the annual rent.
Benefits of renting a home
There are some benefits to renting a house instead of buying, especially if you plan to relocate in the following few years.
Financial flexibility: Renting gives you financial flexibility because you're not responsible for repairing and maintaining the building. In addition, you won't have to pay property taxes and a hefty down payment. Hence, you can keep your funds in retirement savings and investments.
Mobility: Renting doesn't tie you down. You have the freedom to be mobile and move with ease over short notice.
No real estate risk: If home value declines, you don't have to worry because the landlord takes a financial hit.
Buying a house
Buying a house means owning a home to do with what you like. You can remodel and refresh your home. Also, you will feel a sense of ownership and stability. The cost of buying a house is higher than renting a property, even if the mortgage payment is less than the rent. Moreover, owning a home requires more commitment in terms of time, labor, and finances. It's an investment that can rise or decline in value.
Here are some costs associated with homeownership that you don't have to pay as a renter.
Down payment and closing fees: When you buy a house, you have to pay a 20% down payment and a 1.5-6% closing cost.
Maintenance costs: Maintaining and repairing the house will be up to you. It can include anything from fixing a damaged driveway to replacing a roof and anything in the home. You will also have to keep an emergency fund for any unexpected situation.
Real estate taxes: As a homeowner, you have to pay property taxes to the authority. Taxes vary depending on the state and city.
Mortgage payments: Mortgage payments vary depending on the property price, interest rates, and mortgage length.
Despite these costs, owning a home is still a good financial offer for many people.
Benefits of buying a house
Let's take a look at the benefits of buying a house:
Personalization: Buying your own house allows you to renovate and upgrade your home to your preferences and tastes.
Tax deductions: Homeowners get certain tax benefits. You can deduct home mortgage interest payments on your taxes as a homeowner. On the other hand, if you rent a house, you get no mortgage interest deduction.
Home equity: When you own the house, any property value appreciation is yours. You can sell the house when you want and cash that value as a profit. It would help you save for your retirement.
The Bottom Line
The decision to rent or buy a house is a big financial decision that depends entirely on your lifestyle and financial situation. Both come with advantages and disadvantages. But you'll have to make a decision according to your personal situation. You should weigh out the perks and costs of each option based on your savings, monthly budget, and income. Also, you need to evaluate the housing market in your area.
Do you plan to relocate in the future or test new locations? Do you want the flexibility to move or stability? Can you afford maintenance costs? What are your family and financial goals? Ask yourself these questions to consider whether you should rent or buy the house. Their answers will help you steer in one direction.
