Rent Vs Buy—When To Choose Homeownership
7 minute read
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June 24, 2022

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Conventional wisdom says owning a home is better than the cost of renting over the long run. 

But that doesn’t fit everyone’s personal or financial situation. 

Especially after the country-wide effects of the pandemic and supply chain issues, many Americans are questioning if this is the right time to become a first-time homebuyer or not.

Many factors can come into play when making this decision, including:

  • rising home prices,
  • personal finances and credit score,
  • rising monthly rent,
  • private mortgage insurance rates,
  • changes in interest rates,
  • closing costs and home maintenance costs, to name a few.

We want to offer a clear, simple breakdown of the pros of renting versus homeowning. If you apply your criteria to this guide, we hope you can choose the best option for your and your family’s future.

Let’s take a look.

The pros of homeownership

The benefits of owning a home look different to everyone. But there are a few universal pros to home ownership that everyone can likely agree on. 

Reliable monthly payments

Financing a home purchase with a fixed-rate mortgage gives you a steady monthly payment schedule that you can easily predict for the long run.

Many mortgage terms last for 30 years—your mortgage payments won’t alter during that time. 

Homeowners’ insurance premiums, property taxes, and homeowners association dues can vary, but the principal and interest costs will remain the same.

Compared to renting, monthly rental payments can suddenly increase based on your landlord or the volatility of the rental market.

A home is an investment

This concept is the most common reason people choose to own a home. Rent money lines someone else’s pocket, not yours.

While the housing market has its downturns, like the crash of 2008, your home’s value (home equity) will likely be a good investment over the decades. 

You can take advantage of that inherent value for your retirement or other investment plans in later years.

Your mortgage is like having a forced savings account—you have to pay for your financial future—which is almost always a good thing.

Tax benefits

The U.S. government prefers homeowners to renters. 

The government encouraged homeownership through a mortgage interest deduction and the ability to deduct property taxes; both, unfortunately, ended with the Federal tax reform of 2017.

However, other tax deductions and benefits remain. For example, you pay no capital gains tax when you sell your home (limit of $250,000 or $500,00 for single taxpayers or married filers, respectively).

The benefits of responsibility

Yes, you are solely responsible for the upkeep and payments for your home. But you also can renovate your home into something that nourishes you best.

Whether you want to adopt a pet or knock down a wall, the choice is up to you. 

There is no landlord’s opinion or rental agreement to consider. Instead, your options can be based entirely on your budget and preferences.

(Note: condominiums have certain restrictions and local building codes, but there is generally much greater leeway for homeowners’ drastic home changes compared to  renters.)

Family stability

Children in homes their parents own tend to perform better in school and are healthier than kids in rental homes.

One of the main counterarguments to this is that families that can afford a home, in general, will have healthier and better-educated kids. 

However, owning a home will frequently motivate Americans to create the physical and financial stability that enables kids to thrive.

Cost savings

Is it cheaper to buy a house or rent an apartment? 

The five-year mark is typically when homeowners cross over into saving more money than if they had rented for the same period. 

In some major urban centers, owning a home can be as much as 50% cheaper than renting after seven years. Depending on some rent increases, owning a home can become cheaper after just three years.

On average, across America, homeownership is 35% cheaper than renting.

The pros of renting

Alternatively, it makes sense to continue renting in some situations. Let’s look at some of the biggest reasons why people choose to rent vs. own. 

Maintenance issues are your landlord’s problem

Appliances break, windows need replacing, or plumbing gets clogged.

Any of these problems are your problems alone when you own your home. This is one of the biggest disadvantages to owning a home, especially if you’ve gotten accustomed to having a building manager or landlord in the past. 

No building manager can come to your rescue in your own house. The responsibilities of homeownership can be a headache some days.

Possible decreasing property values

No investment is without risk. Depending on the economic trajectory of your state or the local area, your home’s value can go up or down.

The downpayment

Buying a home comes with a steep upfront cost. Downpayments can be for as little as three percent of the purchase price but can be as much as 20%, depending on your situation and loan type.

Placing a large amount of money on a single purchase equals a fair amount of commitment. If you end up selling quickly, it will cost you.

Freedom vs roots

Many people look at renting as the freedom to move whenever you want. However, homeowners create roots. If you want to stay put, homeownership makes more sense. If you want to move around a lot, renting might be better.

Property taxes

Property taxes may be several thousand dollars a year, depending on your location. However, it’s the way many municipalities fund their budgets.

There is an argument that the money you’re paying out is helping improve your neighborhood and, thereby, your quality of life. 

But that doesn’t mean the tax bill won’t hurt when you get it. Renting avoids that tax bill altogether.

The biggest bonus from renting

If your career requires you to relocate frequently, renting might be a better choice.

The natural volatility of rental housing means you could be moving much more frequently than if you owned your home. 

However, if your career demands that you uproot yourself on a semi-regular basis, renting naturally fits that model.

There is a high transaction cost associated with purchasing in the real estate market. 

Some companies offer generous relocation packages to offset the cost of moving—but these are the exception, not the rule.

The biggest bonuses from homeownership

You’re putting money towards your future rather than your landlord’s—this is the most significant factor for most people becoming homeowners. 

You and every one of your neighbors who own their home has a vested interest in the growing economy of your hometown.

This vested interest adds to the second major bonus—pride of ownership.

Although more difficult to define or measure, having residents who are willing to put a long-term investment into their neighborhoods improves everyone’s lives.

The bottom line

Whether you want to live in New York, San Francisco, or on a farm in Kansas, buying a property or renting one is a financial decision that will rely heavily on your wants and means.

If you think your job or life will stay relatively stable for the next several years, you should seriously consider buying a home. However, if significant aspects of your life are going to change soon, renting might be better for the short term.

If you decide that the time is right for homeownership, there will be many other questions needing answering. 

Before you contact a real estate agent, AAA Banking is a mortgage lender that can help you find the right path to achieve your home buying goals.

Contact us today and see how we can help. Our application is fast, easy, and will cost you nothing. And it may be your best path to a new home.

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