There is no simple answer to the question of whether to rent or buy. It depends on so many factors: your age, your finances, your area, your plans for the future and the current real estate market, just to name a few.
Renting can be the right move for people in the right circumstances — for example, those who don’t plan to stay where they are for too long, or those who live in an expensive city where housing prices are simply out of reach.
Buying a house, on the other hand, is great for those who plan to settle down for the long haul, who don’t want to be subject to the whims of a landlord and don’t mind standard renovations.
It’s easy to look at a mortgage payment on Zillow and think, “Oh my god, buying it would be a lot cheaper!” And in the long run, this may be the case. But in the short term, fees, taxes, and mortgage interest must be factored in.
Factors to consider before buying or renting
If you’re looking for a quick and easy way to compare buying and renting, try our Buying vs. Renting Calculator.
It will show you how long you need to stay in your home to pay off versus how long you need to stay before you buy it, that would be the best option.
But let’s break down all factors (costs and beyond) that must be considered in the lease versus purchase debate.
Total cost (advantage: tie)
There was a time when people rented almost indefinitely because it was always cheaper than buying.
God, how times have changed.
Today, the median rent for a two-bedroom apartment nationwide is $2,054. But looking at our simple mortgage calculator, you can see that if you could get a 5% mortgage on a $300,000 house, your monthly payment plus private mortgage insurance (PMI) would be only $1,949.42.
Beyond the cost of the down payment, buying is more affordable than renting in about two-thirds of the housing markets.
The downside of buying, of course, is that you will have to make a significant down payment to win an offer in a competitive market. Plus, you’ll be on the hook for all your own maintenance.
But the advantage is that you will build capital. That $30,000 down payment doesn’t just disappear into some banker’s coffers—it’s your own investment in your home, which is a valuable asset.
So when it comes to monthly payments, buying and renting essentially go hand in hand. That’s why you must consider other factors to find the solution that best suits your finances. as well as your lifestyle.
Maintenance (advantage: rental)
Maintenance is one of the biggest advantages tenants have over buyers.
Simply put, tenants are required to set aside approximately $0 per year for repairs and maintenance. This is because landlords, not tenants, are legally responsible for keeping the property in good condition.
Of course, tenants may still have to pay for maintenance if:
- Have you or your guests caused property damage?
- You are damaging your own things (curtains, household appliances, etc.)
- Your landlord is refusing or delaying repairs
In case no. 3, some states, such as Georgia, have laws that allow maintenance costs to be deducted from rent. I would recommend reading up on tenant rights in your state so you know what to do if a difficult situation arises.
But in general, tenants should not worry about ongoing maintenance costs.
However, if you buy, 100% of all regular maintenance is your responsibility. Even your mortgage lender doesn’t care if your oven or air conditioner breaks down. In general, new homeowners must set aside at least $1 per square foot for normal annual maintenance.
You can save a few thousand and even add value to your home by learning to DIY, but the bottom line is this:
If you are buying a house, you will pay at least a couple grand a year for regular maintenance. So, if you prefer the peace of mind of letting someone else pay the bills, continuing the lease might be the way to go.
Stability and a sense of confidence (advantage: purchase)
Homeownership can be expensive, but it still has one invaluable advantage: as long as you pay your mortgage on time, no one can ever kick you out. Your home belongs to you. Heck, you don’t even have to let anyone inside if you don’t want to (unless they have a warrant).
In contrast, tenants are not guaranteed that their accommodation will be available next year. Even if you’re a model tenant who always pays your rent on time, your landlord may just want to get his property back next year to sell or personally occupy it.
So, if you like the idea of planting your roots, hammering something into a wall, and never moving involuntarily again, buying takes over.
Flexibility (advantage: rent)
On the other hand, maybe you consider having a permanent address a disadvantage.
If you’re renting, you can always terminate your lease, sell 90% of your belongings, and travel the world at minimal cost.
However, if you buy, you will be more attached. You can still travel if you want, but you still have to pay monthly mortgage and maintenance while you own the house.
Apart from travel plans, owning a home is also more difficult if you don’t have a permanent job. Crap, purchase the house is harder, as your lender will want to see a regular, steady income. And even if you do, the purchase may still not be ideal if you’re not sure you like your job/city.
So renting is best while you are still in the “exploration” stage of life.
Fixed payments (advantage: purchase)
Another benefit of buying a home with a traditional fixed rate mortgage is that your monthly payments are fixed. You will have the same mortgage payment every month for 30 years. You will pay $1846.17 in March 2023 and March 2053.
Come to think of it, your monthly fixed-rate mortgage payments are actually sink with time. The number itself will not decrease, but the payments will become easier due to inflation and your income growth.
Unfortunately, tenants around the world know only too well that rents don’t stay the same. On the contrary, this year, rental prices in most major cities have risen by 30% or more. In Austin, Texas, the median price of a one-bedroom apartment rose 108.2%.
So, if you like the idea of a fixed, inflation-proof house rent, buying is definitely the way to go, especially when rent inflation is so high.
Required capital (advantage: rent)
Perhaps the biggest downside to buying is that you have to pay the bulk of the down payment.
Stavros Halkias jokes that the life of the older generation was so easy that “then you could just win a house at the carnival.” Back in 2000, the median home price was $119,600, three times the median national income of $42,418.
Today, the median home value is $348,079 and median income hasn’t changed.
Luckily, specialty mortgages like the Federal Housing Administration (FHA) loan allow first-time homebuyers to deposit as little as 3.5% if they have a decent credit score in the 600s. If the FHA loan is approved, you also don’t have to pay PMI, which is nice.
But two things:
- 5% off a $300,000 home is still $10,500 in cash.
- Offers with FHA credits are not as attractive to some sellers
Do not misunderstand me; If our housing affordability calculator shows that you can afford the home you want, a home is a great investment that will pay off in the long run and save you big money on rent increases.
But you still have to invest in a used car to make this happen!
Mental health (advantage: up to you)
Finally, when choosing between renting or buying, it’s important that your brain has its say. Because even if one option does more financial meaning, you can’t appreciate the joy, low stress and peace of mind.
For example, maybe the purchase makes sense on paper, but you just don’t have the space in your mind to find a good REALTOR and view homes right now. Or maybe you’re just not sure what you’ll be doing – or where – next year.
Of course, the right choice between renting and buying is, first of all, saving money. But saving money is about living a higher quality of life. So if one option costs a bit more but provides a better quality of life, this is the best option.
When is the best time to rent?
When you’re still saving up for a big down payment
Even FHA loans require a minimum down payment of 3.5%, which for a median-priced home is $12,250.
So if you’re still saving up for a down payment, your best bet might be to continue renting and save as much as possible.
When you’re not sure what you’ll be doing next year (or where)
One of the advantages of leasing is that it is a maximum of one year. Once the lease expires, you can rent anywhere or nowhere at all, and just keep exploring jobs, careers, and even other countries.
When is the best time to buy?
When can you afford the down payment on the home you like?
Once you’ve saved up enough money to afford a nice house in a safe part of town, it’s time to pull the trigger. After all, homes value assets, and with every mortgage payment you make, you’ll earn back the capital.
When you’re tired of rent
In addition to financial readiness, you may also feel emotionally Ready to buy a house. After all, renting can be both expensive and stressful. Once you buy a home and sign mortgages, you’ll never have to worry about landlords or rent increases again.
When you start to feel “settled” in other aspects of life
Finally, if you’re feeling relaxed and content with your job, city, and/or relationships, it might be time to make a change in your housing situation.
Do not misunderstand me; buying a home can be quite stressful for at least seven months (three months of searching, one month of closing, three months of unboxing).
But once the last box is unpacked and your favorite paintings start to appear on the walls, your shoulders relax like never before.
bottom line
When deciding whether to rent or buy, the first thing you should do is ignore other people’s advice, no matter how strong or well-meaning. There was a time in recent history when buying a home was the benchmark for financial success. But as we’ve learned, an expensive home can be an albatross around the neck of some owners during difficult times.
At the same time, many people have benefited from the long-term appreciation of real estate values. From their point of view, their house was a great investment, so anyone else would be foolish not to follow suit. But remember that past results do not guarantee future results.
And whoever tells you to buy or not to buy is not you.