Should I Buy or Rent?

The biggest question those considering homeownership need to answer is simple: Should I buy or rent my home? Here is a look at the pros and cons of each.

Buying

Pros:

• Your monthly payment builds equity, or ownership, of the actual physical property. After years of paying your mortgage, you will own your home free and clear. If you make improvements or your neighborhood improves, you enjoy the benefits of your home’s increased value.
• With a fixed-rate mortgage, your monthly payment will remain the same for the duration of your loan, less small adjustments for changes in taxes or insurance.
• The interest that you pay on your mortgage is tax-deductible. There may be other tax benefits in your individual situation.

Cons:

• Most lenders require that you have a down payment, anywhere between 3.5% and 20%. There are some circumstances that do not require a down payment, but you will need to meet other criteria. Putting down a smaller down payment will mean that your monthly mortgage costs are higher.
• You are responsible for all maintenance and repairs, as well as property upkeep. Depending on the age, condition, and size of your home, these costs can add up quickly.
• If you want or need to move, you will need to decide what to do with your home. You can rent it out to someone else or sell it. Either way, it will take time and attention beyond just packing up your moving boxes.

Renting

Pros:

• You do not need a sizeable down payment to move in. Most security deposits are around one or two months of rent.
• Someone else is responsible for maintenance and repair costs beyond small things. These will be specified in your lease agreement.
• If you want or need to move, all you need to do is wait for your lease to expire or break your lease (which may come with financial penalties).

Cons:

• Your monthly rent payment goes to someone else who owns the property. At the end of your lease, you do not own any stake in the physical property.
• Your rent can go up over time, based on the fair market rent in your area and any improvements that have been done to the property.
• Rent is not tax deductible like mortgage interest. Few, if any, renter’s expenses come with tax benefits.

You will need to consider your individual situation to decide which path is right for you. If you are moving to a new area but want time to find just the right home, renting for a short time may free up some money and time to assist in your home search. You can also gain insider knowledge to the local housing market. If your ultimate goal is homeownership, buying now or renting now can both be good options on your path.