Should You Rent or Buy a Home? Weighing the Pros and Cons of Each Option
When you are looking for a new home, there are seemingly endless factors to consider: what is your price range? What type of neighborhood is right for you? How much space do you need? One of the most fundamental decisions you’ll face is whether to buy or rent a home.
While home ownership is often glamorized and renting is sometimes thought to be preferable only for those who cannot afford a down payment, both options carry advantages and disadvantages that warrant careful consideration. Whether you’re a renter thinking about making the transition to home ownership or a homeowner drawn to the idea of renting, it’s important to remember that this is a deeply personal decision that should take into account your lifestyle, goals, and financial situation.
Here are a few of the pros and cons of each option:
- Pro: The chance to build equity. When you own a home and make your monthly mortgage payments, you will gradually build equity by paying down the principal on the loan. Aside from the sense of fulfillment that comes from having an ownership interest in the property, you may eventually be able to obtain a home equity loan, which can be used to meet various financial needs.
- Pro: The possibility of profiting from your investment. Most homes appreciate in value over time. If you have the flexibility to wait to sell your home until it is worth more than you paid, you may easily walk away with a profit.
- Pro: The freedom to customize the property. As a homeowner, you typically do not need permission to decorate, paint, and renovate your home to suit your unique style and needs. Such improvements will enhance your enjoyment of the property and may boost resale value.
- Con: Substantially higher upfront costs. Many lenders require a down payment of 20 percent of the home’s sale price—which can amount to a hefty sum, even for inexpensive properties. In addition, you must be ready to pay for the appraisal, inspection, and closing costs.
- Con: The risk of losing money. Market conditions are hard to predict. Even if buying a home seems like a good investment, you run the risk that it will not be worth as much as you paid when you are ready to sell.
- Pro: Greater mobility. When you are renting, it is easier to move when your circumstances change. Even if you have to break your lease, it is less time-consuming and stressful than selling a home.
- Pro: No risk of losing money on your investment. When you are renting, you are insulated from declines in the market.
- Pro: No responsibility for maintenance and repairs. When something breaks at a rental property, the landlord is usually responsible for fixing it. For tenants, this means less expense and less hassle than homeowners face in similar situations.
- Con: Continually increasing rent. Although renters do not have to pay many upfront costs when moving into a property, many landlords raise the rent each year.
- Con: Unable to renovate the property. As a renter, if you want to change a paint color or replace the kitchen cabinets to suit your style, you cannot do so without approval from the landlord—if at all.