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Should You Rent or Buy a Home?
Financial Comparison of Renting Versus Buying a Home
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Should You Rent or Buy a Home?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Prospective home buyers are frequently weighing the option of renting versus owning.  The chart below weighs the pros and cons of renting versus buying a home.  The main advantages to owning a home are the opportunity to build equity over time, you benefit from any increase in property value, not having to deal with a landlord, the mortgage and property tax deduction benefit (although this is less than it used to be), the certainty of a fixed monthly mortgage payment and the possibility of eventually paying off your mortgage and eliminating your housing expense. Owning a home also eliminates the risk that your rent payment increases or that you could be evicted.  There are also emotional considerations to buying a home such as pride of ownership and some people just feel good when they own their home.

The main disadvantage to owning a home are the required down payment and closing costs when you buy a property, the added expense of property tax and homeowners insurance, the cost of property maintenance, upkeep and repairs, the long-term financial commitment of having a mortgage and the potential loss of money in the event your property value declines or even worse, if you lose your home to foreclosure.  In short, buying a home certainly involves more risk and responsibility than renting.

The key benefits to renting a home are limited financial commitment, greater housing flexibility, you are not responsible for property repairs and maintenance costs, lower total monthly housing expense, at least initially, because you do not pay property tax and homeowners insurance plus you are not exposed to financial loss if the property value declines.  Your credit score is also at less risk if you have an issue paying the rent as compared to not paying your mortgage.  Renting provides greater housing mobility and also enables you to invest the extra money that you save by not owning.  Depending on the return on your investment, renting may actually be more financially rewarding than owning a home.  Additionally, you are less impacted by fluctuations in property value because you do not own the home.  

The negatives of renting a home include no opportunity to build equity, no mortgage tax deduction benefit, possible future rent increases and potential eviction.  By renting you minimize some of your risk but lose significant control over your housing situation as well as the possibility for financial upside.  In contrast to renting, if you own a home no one can tell you to move out or increase your rent payment  significantly.  Additionally, you are not reliant on someone else to do maintenance or household repairs.  Plus, if you are renting you may be limited in how you decorate or change the property, so it may feel like less of a home to you.  So if you decide to rent, you need to determine if the increased housing flexibility and lower initial costs outweigh the control you sacrifice. 

Renting Versus Buying Pros and Cons

Use the table below to understand the key trade-offs between renting and buying so you can decide what option meets your financial objectives and priorities.  Ultimately, the decision to rent versus buy a home comes is highly personal and depends on your specific individual goals.  You job stability, family situation and lifestyle also play very important roles in influencing what matters most to you when it comes to housing options.

If you value flexibility over financial upside, then renting may be the right choice for you. If you prioritize stability and long-term financial security, then buying a home is usually the better option. Read the table below to understand the positives and negatives of both renting and buying a home so you can make an informed decision that best addresses your near and long term housing goals.

Buy
Rent
Pros
Pride of ownership
Build equity and realize any increase in property value
Mortgage interest income tax deduction
Do not have to deal with landlord
Potentially fixed mortgage payment for 30 years
Free to decorate the property as you wish
Pay off your mortgage and then start paying yourself
Limited financial obligation – you do not have to pay back a mortgage
Requires deposit but no down payment
Reduces the chance you will mess up your credit score
Shorter time commitment and potentially more financial flexibility
Limited responsibility for maintenance and repair
Less concerned about changes in property value
Cons
Typically requires down payment
Potential loss of equity / down payment in the event of foreclosure or a decline in property value
Potential long-term responsibility to make mortgage payment
You are responsible for repairs or maintenance
Costs not associated with renting such as property tax, homeowners insurance and potentially homeowners association fees and other housing expenses
No opportunity to build equity
No mortgage interest income tax deduction
Rent Increases
Dealing with landlords
Restrictions on decorating or changing property
Risk of eviction
You do not benefit if property values increase

The table below compares mortgage rates and closing costs for leading lenders.  If you are considering buying a home, we recommend that you contact multiple lenders to compare loan proposals.  Shopping for your mortgage and comparing lenders enables you to find the best loan terms including the lowest interest rate and fees.

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Current Mortgage Rates in San Diego1, California1 as of October 31, 2020
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Data provided by Brown Bag Marketing, Inc. Payments do not include amounts for taxes and insurance premiums. Read through our lender table disclaimer for more on rates and product details.

Watch our instructional video to understand if renting or buying is right for you.

FREEandCLEAR Mortgage Instructional Video

Should I Rent or Buy? Instructional Video

Related FREEandCLEAR Resources

Sources

Shea, Nicole.  “Making the decision to rent or buy.”  CFPB.  Consumer Financial Protection Bureau, May 2 2017.  Web.

About the author
Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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