The traditional debate on renting a home vs. buying a home often comes down to favoring the more cost-effective option. However, the choice between renting vs. buying can also depend on other factors, such as how you handle big financial decisions based on your lifestyle choices. Ultimately, the question of renting vs. buying requires a nuanced response and approach.

For example, it’s helpful to consider the pros and cons of renting vs. buying, which encourages a more balanced perspective on the challenges of homeownership. Many renters struggle with the catch-22 of affording their current rent but not qualifying for a mortgage of equivalent value. When you’re overwhelmed by the numbers and can’t seem to find a way to make it work, getting better informed about your financial decisions can help you achieve your homeownership goals. 

Renting

Most Americans rent an apartment, condo, or townhome after moving out of their parent’s house or college dorm. Yet, making the leap from a temporary rental to first-time homeownership has become increasingly complicated within the last few years. Although continuing to rent may not necessarily be the first choice for these prospective homebuyers, it does offer several advantages (albeit with a few disadvantages). 

Renting offers flexibility, lower upfront costs, and fewer obligations than homeownership. A 12- to 15-month lease lets renters move to another apartment complex, city, state, or even country with ease, should they need to for personal or occupational reasons. Renting also remains a more achievable goal to save up (i.e., for a security deposit, application fee, and pet fee or deposit) vs. saving the funds necessary for a down payment on a home, closing costs, and property taxes, and later, monthly mortgage payments. Because landlords shoulder many of the cost burdens of homeownership, renters are also shielded from expenses like maintenance and repair bills. Renters may also pay less for utilities in a smaller apartment than they would owning a home of similar or larger size. Unlike homeowners insurance, renter’s insurance is also encouraged — but not always required — as part of most rental agreements. 

Pros of renting.

• Flexibility
• Minimal upfront costs
• Lack of responsibility for maintenance and repairs 
• Utilities and additional fees are often included in the rent 
• Renter’s insurance costs less than homeowners insurance 

Cons of renting.

• Pet restrictions
• You don’t benefit from any updates 
• Doesn’t improve credit score (with exceptions)
• No tax benefits
• No equity 
• Rent is liable to increase 

Buying

Homeownership represents a long-term commitment and significant investment, even if you only stay in your current home for a year or two before selling it. Owning a home can offer several advantages, especially, if you qualify for and obtain a fixed-rate mortgage. However, like renting, homeownership also has its own share of disadvantages that can make it challenging. 

For many homeowners, the sense of security, stability, and pride in owning a home represents a significant yet often overlooked benefit. Having somewhere to call your own can improve your quality of life and boost your confidence in achieving other financial goals.

The ability to make a house your home often excites prospective homeowners. Aside from obtaining the proper permits for any home modifications you desire, you can tailor your home to your style, priorities, and needs.

The freedom of homeownership also comes with several financial benefits. You can deduct mortgage interest payments and property taxes from your federal — and sometimes your state — income taxes. In addition to building your credit with each monthly mortgage payment, you can also use your home as an appreciable asset to simplify the purchasing process for another home. 

On the other hand, the costs of homeownership can include homeowners insurance, private mortgage insurance, HOA fees, and home maintenance and repairs (in addition to monthly mortgage payments). Buying a home also requires due diligence and multiple steps; however, several classes, workshops, and resources are available to help you navigate these challenges.  

Pros of buying.

• Appreciable and equity-building (generational wealth-growing) asset 
• Helps build credit
• Represents a life achievement for many  
• Property taxes and mortgage interest payments are tax deductible 
• Use equity built up in your current home to simplify purchase for another 
• Freedom and flexibility to customize your home to meet your needs
• Ability to rent out part of your home for additional income 
• Several first-time homebuyer assistance programs to help with down payment, closing costs, and overall affordability 

Cons of buying.

• Takes time to build equity 
• Your lender may require private mortgage insurance (PMI), an additional cost 
• Costs can include down payment, property taxes, mortgage insurance, homeowners insurance, and home repairs 
• You’re responsible for general upkeep and unexpected expenses 
• Home values can decrease and minimize or eliminate profit 
• The homebuying process can be complex

Should you rent or buy a home? 

There’s no one-size-fits-all solution to the debate on renting versus buying. Instead, it’s up to you to do the financial calculations, compare your options, and make your own list of pros and cons. A home lending officer can help you determine the best solution based on your short- and long-term goals. 

Factors to consider.

If you’re contemplating homeownership, the costs associated with purchasing a home may be at the top of your mind. However, it’s vital to balance the costs of homeownership with your age, lifestyle, and desired location. Additional factors may include the current health of the economy, the competitiveness of the housing market in your desired location, and the trajectory of current interest rates. Learn more about additional factors to consider with our homeownership checklist.

When to rent.

On the surface, renting may not appear to get you closer to your homeownership goals in the immediate future. However, there are circumstances in which renting can help prepare you for homeownership. For example, it may allow you to ride out a life season until more favorable economic conditions return. The following are multiple scenarios in which renting may be the best option—for now:

• You’re not ready for the responsibilities of homeownership 
• You’re unsure where you want to settle down 
• You need more time to put your credit and finances in order
• You want the flexibility to move around based on personal preference or your job 

As a renter, you can always review your situation and reevaluate your prospects for homeownership at any point. Stay connected with a trusted home loan officer to track your progress and determine when it’s time to start looking for your future home. It may be sooner than you think. 

When to buy.

Homeownership can be rewarding and offer you the freedom to create a space you can call your own. But buying a home can be a big financial step and determining whether it’s the best move can prove challenging without a deep look into your finances. Still, you may be ready to get on the path toward homeownership if some of these conditions apply: 

• You have a high credit score and reliable income 
• You plan on staying in the home for three to five years (or more) 
• You want to invest in an appreciating asset and build equity
• Your emergency fund enables you to address unexpected expenses without overextending your finances

Discuss your options with a Home Lending Officer.

Deciding between renting and buying a home requires looking beyond day-to-day concerns to gain a broader perspective on your financial health. But once you’re able to do so, and pursue the necessary steps, a far-off goal like homeownership can be reached.   Start your journey towards homeownership with a Popular Bank Home Lending Officer, who can help you navigate the homebuying process and turn your dream into a reality.