Should I buy a home, or should I rent?

For many people, renting a home vs. buying comes down to a few simple factors, including lifestyle preferences, monthly costs, and lifetime costs. In this article, we’ll look at the pros and cons of renting and buying, and which is right option for you.

“Investing” in a home?

One of the primary reasons to buy a home instead of renting is to build equity. Put simply, equity is how much of your home you’ve paid off. Each monthly mortgage payment increases your ownership stake in your home, and by the end of the loan period, you’ll own your home outright.  

The equity you’ve built in your home can be very useful. Should you decide to sell your home, the equity you’ve built can be used to purchase a different home, or even put towards retirement or savings.

Equity can also be accessed in other ways. A Home Equity Line of Credit (HELOC) can help you tap into your home’s equity to access a loan, typically at a lower interest rate than traditional loans. A HELOC can be used for home improvements and renovations, paying medical bills, and even consolidating high-interest student loans.

Historically, the housing market has boasted stable, reliable growth year over year. As your home increases in value, the amount of equity you’ve built grows as well. For example, if you purchased and paid off a $150,000  home, and the housing market grows at a rate of 1.5% annually, your home will be worth $217,500 after 30 years.

When you rent, your monthly rent payment doesn’t build equity or increase your ownership stake in the apartment complex. And if you decide to terminate your lease, you’re not entitled to any of the money you’ve paid.

Is a home cheaper?

How could owning a $250,000 home possibly be cheaper than renting? If you’re thinking long-term, the answer might surprise you.

In many parts of the United States, especially rural areas, monthly rent payments often exceed mortgage payments. Combined with the sunk costs of monthly rent and the lack of equity, renting quickly becomes the more expensive option.

When your home is paid off, the difference in price becomes even more obvious. While expenses like home maintenance, insurance, and property taxes will remain, they are often a fraction of the cost of renting. Plus, some homeowners may get access to tax incentives each year, lowering their overall costs.

However, there’s a big exception to this rule. If you’re only planning to live in one place for a short time, renting is almost always a better option. The costs associated with buying a home and selling that home shortly thereafter dwarfs the initial security deposit cost and monthly rent payments. Consider renting the best option for the short-term and buying the best option for the long-term.

Our rental calculator can help you decide on the most cost effective option for your situation.

Mortgage payment vs rental payments

When it comes to stability of monthly payments, homeowners typically have the edge over renters. A fixed-rate home loan will remain the same over the life of the loan, which means a consistent monthly mortgage payment. At the beginning of each month, you know what your mortgage payment will be, and can plan accordingly.

When you rent, you’re subject to rental fee increases based on market conditions. Should rental demand increase unexpectedly, a 5-15% increase in monthly rent can lead to some unwelcome surprises and difficult conversations when your lease is up.

Staying in control

When you own a home, you’re in control. You can paint the walls bright green, hang that gaudy chandelier in the entryway, and renovate your space until your heart’s content.

But that independence comes with an expensive downside—maintenance. In an apartment, when a pipe bursts or the furnace conks out, the building supervisor schedules the repairs, pays the bill, and you can go on with your life. It’s a minor inconvenience at worst.

Should the same thing happen in your home, you’re on the financial hook. It’s your responsibility to arrange the repair, pay the costs out-of-pocket, and even suffer home insurance premium increases. Being unprepared for an emergency can lead to significant financial strain. 

The same is true for small, everyday maintenance. Renters don’t have to shovel snow, mow the lawn, or worry about the neighbor’s grandchildren stomping through newly planted petunias. Homeowners on the other hand, must brave sub-zero temperatures and icy walkways on a regular basis and contend with yardwork.

We can help you decide

If you’re considering buying your first home, we’ve prepared a first-time homebuyers guide (PDF) to walk you through the process. If you’re ready to make the leap, one of our experienced loan officers can help you land your dream home.