Pros and Cons of Buying and Renting a Home


Confused about whether you should rent or buy a home? Both have their pros and cons. In the end, the answer relies upon several factors, and these include your long-term goals, your available finances, and the situation of the real estate market in your desired area. Below are five things to consider when you are deciding to buy or rent a home:

  • How much can you afford and the amount of savings you currently have
  • How long do you intend to remain in the house
  • Do you need flexibility or stability to move around
  • Can you perform the responsibility of maintenance and repairs of the property
  • What are your goals for your family and career

Calculating the Cost of Renting or Buying a Home

The first thing to think about in the buy vs. rent decision is how much each can cost you. Your monthly expenses will generally be fixed when you rent a home during the period of a rental agreement. Your monthly rent might or might not consist of utilities like gas, electric, internet, or cable tv. Almost all rental agreements require first month’s rent, a security deposit equal to one month’s rent, and last month’s rent in advance.  For a rental house that costs $2000 per month, the landlord will usually require $6,000 to be paid in advance. Remember, however, that landlords have the right in most places to increase the rent as much as they please when the rental agreement ends or sell the house you’re currently renting, so you might have to move a few times. The good thing is that when you’re renting, generally it’s your landlord’s duty to fix any issues related to the house, whether it’s a cranky furnace, a burst pipe, or a leaky roof.

What Price of Home Can I Easily Afford?

When you’re purchasing a home, almost every mortgage lender will ask for a down payment between 3% and 20% of the house’s purchase price. A few loans might have a lower threshold, however down payments under 20% will force you to have private mortgage insurance (PMI), which will be added to your monthly expenses. You’ll also be paying closing costs, which might be between 2-4% of the house’s price.

You can get a rough estimate of your monthly loan payments with mortgage calculators. You can also calculate your principal and interest payments and other expenses like homeowner’s insurance, property taxes and, homeowner’s association (HOA) fees in some cases. If you want to calculate what max price of a house you can afford, you can use a housing affordability calculator. However, your financial obligation doesn’t end with your monthly loan payment. You will also be required to pay utility bills and maintenance, whether it’s a few dollars to fix a damaged cable or thousands of dollars to replace a roof. 

Below is what to consider when you are deciding on buying or renting:

  • Buying


  • No landlord
  • May build credit and equity
  • Possible benefits in taxes
  • Higher stability (particularly with schools)
  • Freedom to improve or enhance home according to your liking


  • Needs a significant amount of money
  • Lots of paperwork upfront
  • Might lose money if property’s value decreases
  • Additional expenses other than mortgage payments
  • The responsibility for repairing and renovations
  • Low inventory and rising house prices in many markets
  • Renting


  • Lower upfront money requirement
  • Less paperwork
  • No responsibility for maintenance
  • Freedom to move out when needed
  • No stress related to falling property values
  • May build credit (If the landlord reports rental payments to the credit bureaus)
  • Free from property tax bills


  • The landlord can sell the property or raise the rent
  • Options might be limited dependent on vacancies
  • Doesn’t build equity
  • Might have to change houses multiple times
  • No tax benefits

Reasons for renting a house

Although having your own home can provide you with a sense of security, it also has its drawbacks.  Remember the replacement of the roof? Terminating a rental agreement is also much more straightforward than selling your home, so in case you’re not sure where you will be spending your next year, renting a house can save you from some costly pains. A few signs that renting might be the right decision for you:

  • You have no idea about how long you will remain in the house because of the nature of your work, changing your family’s state of affairs or any other reasons.
  • It’s not easy for you to afford the maintenance of the house or you don’t want to bother with it.
  • Your income is variable or is expected to change soon, thus making it hard for you to keep up with your mortgage payments.

Do you require flexibility? Then go for rent

You can move quickly when you are renting as you can do it at the end of the rental agreement. Purchasing a house involves lots of upfront costs, from the down payment to assessments to loan fees. While renting carries fewer upfront costs.

Equity is precious when you build it

Alternatively, renting has an important disadvantage: You don’t build equity.

What is equity? You’re building equity when your home’s value is rising, and your mortgage debt is falling as you’re repaying it.

Equity = Home’s value – Mortgage debt

“History shows that homeownership is a pretty good investment,” says Malcolm Hollensteiner, Mid-Atlantic director of the mortgage at United Banking Glen Burnie, Maryland. On the other hand, if property values decrease or you are facing trouble in paying back your loan, you will lose money. Your credit and finances might take critical hits if you fail to pay back your mortgage.

Match property’s appreciation with the rent

It will be a good thing If you are trying to balance home-value appreciation with the upfront costs of purchasing. According to Richard Green, a professor at the University of Southern California, Los Angeles, “If house values have to go up about 3 percent a year over rent for you to break even, then, depending on your living in a place for five years, buying is a better bet than renting. If you have to get 5 to 6 percent appreciation every single year, then you are better off renting from a purely financial standpoint.”

Think about schools

If you have school-age children, having a house lets you lock in your cost of housing so you can provide the children with the stability of staying in one school district for an extended period.

Get tax benefits

Another thing to consider is whether you will be able to deduct the mortgage interest expense. Tax laws permit those who itemize their taxes to write off their loan payment of interest, and that means you will be paying less for your mortgage. However, not every person is eligible to list deductions, and the changes made in 2018’s tax laws will mean that more individuals will not be able to deduct property taxes and mortgage interest.

Try not to make it your primary investment

If you are more focused on the investment potential of possessing a property rather than the home’s characteristics of security and stability, then you will better be renting. “The idea that possessing a home doesn’t carry many risks with it is wrong,” says Green, the USC professor. “If you have an interest in mutual funds, with long-term investment, the investment will probably grow faster than real estate values. Housing can be more unpredictable than you think (depending on your location).”

By Lendova