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Renting Versus Buying a Home

Renting Versus Buying a Home

  • Should You Rent or Buy?
  • 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.

  • CalculatorUse our BUY VERSUS RENT COMPARISON CALCULATOR to evaluate the financial trade-offs between buying and 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. 

  • CalculatorUse our Rent Payment Mortgage Affordability Calculator to learn what size mortgage you can afford based on your rent
  • 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
    • Limited financial obligation – you do not have to pay back a mortgage
    • Build equity and realize any increase in property value
    • Requires deposit but no down payment
    • Mortgage interest income tax deduction
    • Reduces the chance you will mess up your credit score
    • Do not have to deal with landlord
    • Shorter time commitment and potentially more financial flexibility
    • Potentially fixed mortgage payment for 30 years
    • Limited responsibility for maintenance and repair
    • Free to decorate the property as you wish
    • Less concerned about changes in property value
    • Pay off your mortgage and then start paying yourself

    cons

    • Typically requires down payment
    • No opportunity to build equity
    • Potential loss of equity / down payment in the event of foreclosure or a decline in property value
    • No mortgage interest income tax deduction
    • Potential long-term responsibility to make mortgage payment
    • Rent Increases
    • You are responsible for repairs or maintenance
    • Dealing with landlords
    • Costs not associated with renting such as property tax, homeowners insurance and potentially homeowners association fees and other housing expenses
    • 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.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of December 11, 2018
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    • APR
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information 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

  • Great Mortgage IdeaRelated FREEandCLEAR Resources
  • Sources

    Buy or Rent?: https://www.consumerfinance.gov/about-us/blog/making-decision-rent-or-buy/

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. More about Harry

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