Buying a home is a significant part of the American dream.
Many people work toward saving a down payment to purchase a home.
In the current volatile housing market, many people may wonder whether they should keep renting and hold onto their down payment or purchase a home.
There are many pros and cons for renting vs. owning; ultimately, the decision will depend on your unique goals and financial situation.
Taking time to evaluate your lifestyle, financial health, and personal goals can help you make a decision that benefits you and your family.
Advantages of Owning a Home
A Home as an Investment
Many people assume that owning a home always helps you build wealth in the future.
While this is true in many cases, it’s not always true.
As we saw in the 2008 recession and home market crash, you'll not always be guaranteed to build equity through home ownership.
Generally, homeownership does operate similarly to a forced savings account, however.
Although you’ll pay your mortgage lender every month, cash will ultimately come back to you in the form of equity as the value of your home appreciates over time.
When you have a fixed-rate mortgage, you’ll know the exact amount of your payments, offering you financial stability.
Rent prices can increase year over year, adding unpredictability to your budget.
Owning a Home Can Be Cheaper Than Renting
Depending on your location, owning a home could be cheaper than renting an apartment.
However, you’ll need to consider all the extra costs associated with owning a home that you’ll not have to pay as a renter to determine which option is cheaper for you.
If you live in a low-cost city like St. Louis, Cleveland, or Detroit, you could afford a median-priced home even on a medium to low salary.
Additionally, you may be able to purchase a home outside of the city while still earning a higher salary by commuting to work in the city.
Tax Benefits
Homeowners benefit from specific types of tax benefits.
For example, you can use the mortgage interest deduction as a homeowner.
This deduction will reduce out-of-pocket expenses during your home loan's early life as long as you itemize your deductions.
Renters do not get a mortgage tax deduction but can still take the standard deduction available to all taxpayers.
Disadvantages of Owning a Home
Paying for Home Maintenance
This is one of the most significant downsides of owning your home.
As a homeowner, you are financially responsible for home maintenance and regular upkeep, which can be very costly.
If you live in a community with a homeowners association, they may take some expenses off your plate, but they will usually cost a few hundred dollars a month or a quarter.
As a renter, you can call the landlord to take care of repairs and maintenance, although they may not be done as thoroughly or quickly as you would like them to be done.
When deciding whether to rent or buy, make sure you consider all of the following expenses associated with owning a home, such as:
- Homeowners’ insurance
- Pool cleaning or yard work
- Tree trimming
- Pest control
- Water and sewer service
- Trash pickup
- Earthquake and flood insurance may be required in some areas
- Roof repair and replaces
- The cost of replacing large home appliances
Paying for a Down Payment
As the cost of homes has increased over the last few years, so has the amount of a down payment that is required.
Down payments can be as little as 3%, but they can also rise to 20% or higher.
Before applying for a loan, you must come up with the down payment funds.
After you purchase the home, you’ll no longer be able to access the money you paid for the down payment, so you are hoping that your large investment in real estate will increase in value over time.
If you are thinking about buying, checkout Down Payment Assistance Programs in your area.
Property Taxes
You’ll have to pay property taxes when you own your own property.
Expect to pay several thousand dollars in property taxes yearly, which many municipalities make up most of their revenue.
The average property tax bill in the New York metropolitan area can be $10,000 a year.
Your property tax bill will be based on your home's assessed value, and you may not always agree with the assessed value.
Even if you do not agree with that, you still have to pay property taxes.
Advantages of Renting
Renting Makes it Easier to Move
Many workers today end up moving multiple times during their careers.
When you purchase a home, moving can become more complex. When you rent, moving makes it much easier to accept a job offer in another city.
If you want to travel or leave your town for a few months, you may be able to sublease your apartment.
When you purchase a home, moving will usually involve selling your home, which can be a lengthy process.
Renting Can Be Cheaper
Depending on your location, renting may be significantly cheaper than buying a home.
In low-cost cities, For example, if you're in a high-cost city, purchasing a modest home could be significantly more expensive than paying for an apartment with a similar number of rooms, square footage, and bathrooms.
For example, many employees in San Francisco cannot afford homes worth over $1 million, even if they are making a salary significantly higher than the average median salary in the United States. Renting may be your only affordable option.
Find the Fair Market Rent of Your Home Here
No Property Taxes, HOA Fees, or Maintenance Costs
You will not have to pay HOA fees and property taxes as a renter.
If you have a high-demand career and do not have time to pay for and manage repairs to your home, renting can be a better lifestyle choice.
You can call your landlord and ask them to take care of any repairs that need to happen.
Renting can also free you from yard work and other types of routine maintenance that can take a significant amount of time.
You also will not be required to pay property taxes.
Disadvantages of Renting
Not Building Equity
As stated above, your monthly rent might cost less than a mortgage, but those payments aren’t going towards anything but your landlord’s pocket.
And it never ends.
In fact, each time you renew your lease, the rent will probably increase to help pay not only your landlord but also community repairs and amenities you might not even use.
At least with mortgage payments, you’re building equity or the amount of your home that you actually own.
Later, that equity can be used to refinance your mortgage or sell your house.
No Tax Breaks
Did you know that owning a home makes you eligible for certain write-offs? Renting doesn’t offer that.
Though you may not qualify for all of them, the most common tax benefits for homeowners include:
- Mortgage interest
- Property taxes
- Home office deduction
- Discount points.
No Control
When you’re living in someone else’s rental unit, you’re limited in what you can do to make it yours.
Expensive pet policies, limited decorating options, and community rules can all make renting a hassle.
Fortunately, when you own your own home you have the freedom to choose the community and neighborhood that best fits your family’s needs.
Though you may have an HOA, you still have more options than renting.
