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2020-02-11
Home Mortgage
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Should You Rent or Buy A New Home?

a small house toy sitting next to a real house key
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You know the saying: Home is where the heart is. But does that mean you should rent or buy a home?

For many people, the idea of home reflects a truth. Home is where we feel comfortable, safe and in control. It’s where we live — perhaps with family, friends or pets. It’s where we rest our heads at night. And it’s where we spend the majority of our time.

Our homes are important to us. So, when it comes time to decide where to live, you want to make sure you get it right. You’ve probably asked yourself: Should I rent or buy a house?

It’s more than just a matter of comfort or independence. Renting vs. buying is a decision that needs to be made with careful consideration of your current finances and life situation, along with anticipation of your future.

When deciding whether to rent or buy a house, keep this information in mind.

Buying a home

If you’re at a certain stage of life, and you’re planning to stay in the same place for the long term, it might be time to consider buying a home. CNBC and others cite the “five-year” rule — don’t consider buying unless you plan to live there for at least five years. However, there’s one important area that also needs to be addressed: your finances.

Ask yourself whether you are financially stable enough for homeownership. Not only is it about applying for a loan, taking on monthly mortgage payments, and covering renovation or repair costs — it’s also making sure you have no major debts and have money set aside for emergencies in a “peace of mind” fund.

Even if finances aren’t a problem, be sure to weigh the advantages and disadvantages of owning a home before you make your decision.

Advantages of buying a home

It may build equity and credit: Building equity is one of the best advantages of buying a home. Equity is an asset which you can build by increasing your home's value and decreasing debt. Similarly, paying your mortgage consistently can help improve your credit score in the long run.

Tax implications: To encourage homeownership, the IRS provides several tax breaks for owning a home. Home mortgage interest and property taxes are tax deductible in most cases. There are limits on the deduction, however, so be sure to consult with your tax advisor.

Freedom to renovate: Your house, your rules. As the homeowner, you’re free to renovate and remodel to your heart’s desire — as long as you can afford it.

Disadvantages of buying

Required level of financial stability: Buying a home comes with plenty of expenses beyond the mortgage. Deposits, home inspections and closing costs are just a few of the hidden costs of buying a home.

More responsibility: If you’ve rented before, you may remember the days of calling the landlord when the dishwasher stopped working. Or when a lawn-care service came to cut the grass every week. But now, you’re the landlord, and the lawn-care service, and everything in between. Don’t forget: You’re now the one who’s responsible for paying these expenses!

Less flexibility: While you may hope to be settled for the time being, life is unpredictable. You never know when your company is going to offer you a paid transfer to the London branch of the office, or when you need to move closer to family. Being rooted in one place could be limiting.

Renting a home

You may have heard the idea that renting is just “throwing money away.” But that couldn’t be further from the truth. While you may not be actively investing monetarily in your rental property, having a place to live is important to your health and happiness. Paying your monthly rent is money well spent toward building your home — whether it’s permanent or not.

In fact, according to Pew Research, more households are currently renting than any period in the past 50 years. So just because it seems like all your friends are buying houses, or you feel like you should buy a house, it doesn’t mean you actually should.

While keeping your financial situation in mind, consider these advantages and disadvantages of renting.

Advantages of renting

Fewer costs and less paperwork: After signing the rental contract, your paperwork is basically done. Of course, you’ll have your monthly utility bills and renter’s insurance, and you’ll most likely pay a security deposit. But that’s usually as far as it goes when it comes to rental start-up costs. And you’ll get your security deposit back when you move out.

Furthermore, some people take the monthly savings in renting in lieu of owning and invest the difference.

Freedom of mobility: Want to quit your job and travel the world for a year? Or start a brand-new life in a new city? It’s way easier if you’re renting.

Less responsibility: You don’t have to deal with maintenance or repairs. You also don’t need to worry about potentially decreasing property values.

Disadvantages of renting

Increasing rent costs: The cost of rent frequently increases from year to year. Your landlord can raise the price, and there’s not really anything you can do about it. You either pay it, or you go through the hassle of moving out.

Less stability: Many people look at rental properties as a stepping stone before buying a house or settling down somewhere more permanently. If that’s the case for you, you may not feel fully at home while you’re renting.

More restrictions: In a rental unit, you likely won’t have as much freedom to live exactly how you might like. Common rules include: no renovations, no big parties, no pets.

Buy or rent: The bottom line

Deciding to buy or rent a home has huge financial implications, so you want to get it right. Be sure to consider your current life stage and goals, as well as the future life you’re envisioning for yourself.

No one knows your situation better than you do. But with all this in mind, you can take the steps to make the right decision as you look toward your next home -- whether you’re buying or renting.

And if you decide to buy, know there are many home loan options.

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