By Grant Edrington – Updated June 12, 2023

Are you torn between renting and buying a home? Well, you’re not alone. Many Americans still continue to rent either because it makes the most sense for their present situation, or are weighing their options in the current hectic market before making a more fully-informed leap into homeownership. 

The past few years have witnessed a frenzy of homebuying fueled by record-low mortgage rates and intense competition. However, despite the market cooling down and mortgage rates rising, housing prices remain at a near-high, leaving many unable to afford homes of their own. To compound this problem, rental prices are also skyrocketing nationwide. 

So, what’s the best course of action? In this ever-evolving housing market, the decision to rent or buy can be pretty confusing. Factors like remote work, fluctuating mortgage rates, rising rents, and changing lifestyles all play roles in this life-changing decision. ^{1, 2, 3}

Before you make up your mind, you’ll want to weigh both the advantages and disadvantages of renting and buying. To help you make a decision that’s right for you, we’ve broken down some of the factors involved, including:

• What to Expect When Renting a Home
• Pros of Renting
• Cons of Renting
• What to Expect When Buying a Home
• Pros of Buying
• Cons of Buying
• Is it Better to Rent or Buy a House?
• Is a Mortgage Usually Cheaper Than Rent?
• What Is the 5% Rule When Comparing Renting vs. Buying?
• What Is the Best Age to Buy a House?
• Consider Renting-to-Own With Divvy

What to Expect When Renting a Home

Renting a home has its advantages and disadvantages. In this section, we’ll explore what you can expect when renting a home, outlining the pros and cons of this housing option. Whether you’re seeking flexibility or you’re concerned about maintenance responsibilities, understanding the key aspects of renting will help you make a more informed decision.

Pros of Renting

There are several advantages worth considering when it comes to renting a home: ^{1, 2, 3}

You pay less upfront

Renting typically requires less cash expenditure upfront than the hefty down payment required for buying a home.

There is less paperwork

Renting involves less complex paperwork, making the process generally quicker and more straightforward.

You’re not committed long-term

Renting provides flexibility, allowing you to easily move to a different house or location without the burden of selling a property.

You’re not responsible for habitability-related maintenance costs or responsibilities

Among the perks of renting is that your landlord is responsible for most major maintenance and repair costs, saving you time, effort, and money.

You know your housing fees ahead of time

Rent payments are usually fixed for the duration of the lease, providing you with a predictable monthly expense.

Rent payments could help you build credit

If your landlord reports on rental payments, consistently paying rent on time can contribute positively to your credit history, potentially strengthening your credit score over time.

Renting often has fewer qualifications and a lighter approval process

Unlike a mortgage, renting a home does not require as in-depth of an underwriting process. And although prospective landlords may require a credit check, it’s often less stringent than the requirements that must be met in order to obtain a mortgage. 

Renting does not require property taxes or homeowners insurance

Although some renters elect to carry renters insurance or even pet insurance, it’s generally less costly than homeowners insurance. Additionally, owning a home involves paying property taxes, which can increase over time based on property assessments. 

Cons of Renting

While renting offers many advantages, it also has its downsides: ^{1, 2, 3}

Rent payments can go up upon lease renewal

When your lease expires, landlords have the right to increase your rent, potentially impacting your monthly expenses.

You’re not building equity

Unlike homeownership, renting does not allow you to build equity in a property. Your monthly payments go toward your landlord’s investment rather than building your own assets.

You can’t make major renovations

Renters often face limitations on making significant modifications or renovations to the property, limiting their ability to personalize their living space.

Landlord could sell the property

As a renter, you may face the risk of the landlord selling the property, which could result in having to move and find a new place to live.

There aren’t tax benefits

Unlike homeowners, who can benefit from tax deductions on mortgage interest and property taxes, renters generally do not receive similar tax advantages.

What to Expect When Buying a Home

When it comes to buying a home, there’s a lot to consider. Let’s explore the upsides and downsides of homeownership, so you have an idea of what to expect when you take the leap into buying a property.

Pros of Buying

Purchasing a home offers several appealing benefits: ^{1, 2, 3}

You can build equity

Each mortgage payment you make contributes to building equity (the market value of the home minus what you owe), allowing you to potentially benefit from property appreciation over time. Additionally, building equity allows you access to home equity loans that can be used to help you make repairs or remodel your home. 

There are tax benefits

Homeowners often enjoy more tax advantages than renters, like deductions for mortgage interest and property taxes, which can result in potential tax savings and reduced overall tax liability. Read more about the tax benefits of homeownership here.

You can make renovations

As a homeowner, you have the freedom to personalize and enhance your living space. Whether it’s a kitchen remodel or adding an extra room, you have the autonomy to make modifications to suit your preferences and needs.

There is more stability

Owning a home provides a sense of stability and security. You’re not subject to the uncertainties of rent increases or lease expirations, offering a more predictable and secure living situation.

You don’t have a landlord

With homeownership, you are free from the restrictions and obligations of having a landlord. You have the authority to make decisions regarding your property without the need for landlord approval.

You can choose your own contractors

As a homeowner, you have the flexibility to select contractors and professionals of your choosing for maintenance, repairs, or renovations, ensuring the work is done according to your standards and preferences.

You have more predictable monthly payments

When you purchase a home, your monthly mortgage payments are often predictable and mostly fixed, barring a sporadic need for repairs. 

On-time payments have a positive impact on your credit score

Your lender can report your timely mortgage payments to credit bureaus. Typically, they will report monthly on your statement balance and payment history.⁷

Cons of Buying

While buying a home has its advantages, there are some drawbacks to consider: ^{1, 2, 3}

You have to pay more upfront

Unlike renting, buying a home requires a substantial upfront payment, including a down payment, closing costs, and other associated fees.

Buying a home can be an intense process

Homeownership is a rewarding experience, however, it’s a lot of work to buy a home – especially if you’re not ready to deal with such an involved process. Buying a home involves getting approved by a lender, working with a realtor to find a home in your price range that meets your needs, as well as going through the closing process. 

You have more expenses

Homeownership comes with additional expenses such as property taxes, homeowner’s insurance, and, potentially, homeowners association (HOA) fees, which can significantly impact your monthly budget. On top of your monthly expenses, you’ll also want to keep some cash in reserve in case you need to make repairs on your property – such as tending to a leaky roof, cracked steps, or replacing a water heater. 

You don’t have the freedom to easily pick up and move

Owning a home ties you to a specific location, making it more challenging to relocate or take advantage of onsite job opportunities in different areas.

You are in charge of paying for and handling maintenance issues

As a homeowner, you are responsible for the costs and upkeep of maintenance and repairs. This includes everything from leaky roofs to malfunctioning appliances, which can be both time-consuming and costly.

You have to consider the housing market

The housing market’s fluctuations can impact the value of your property and influence your ability to sell in the future. It’s important to consider market conditions and trends before making a purchase.

If you’re a first-time homebuyer, it’s worth exploring our Guide to First-Time Homebuyer Programs and Grants for insights, tips, and information on programs that can assist with homeownership costs. While homeownership may involve financial considerations, there are numerous programs available to help alleviate the burden and make the dream of owning a home more attainable.

Interested in homeownership, but struggling with credit? Learn how to buy a house with bad credit.

Is It Better to Rent or Buy a House?

When it comes to making a decision on whether to rent or buy a house, it depends on what’s going on in your life. 

For instance, if you’re looking to settle in one location, you may be ready to purchase a home. You’d just need to be sure your finances are in good shape to support monthly payments, property taxes, and tend to any unexpected expenses (such as repairs or maintenance) that pop up with homeownership. 

On the flip side, if you’re switching jobs and your credit score is lower, it may be difficult to get approved by a lender. In some instances, even if you do get lender approval, you may not get the best terms on your loan, possibly locking you into a higher rate. In this instance, it may be a wise move to continue renting and improving your financial stability and credit score before making the leap to homeownership. 

In other instances, life events – such as having recently started a family or recovering from an illness – can put a dent in your savings. You may still have a good credit score, but you may not have the finances in reserve to make a smooth glide into homeownership. In this type of scenario, it may be best to continue renting while building your savings, unless you may be willing to offer up a lower downpayment on a home.

Before purchasing a home, think about things like how much money you have, what your long-term goals are, what the housing market is like, and even the kind of lifestyle you prefer. Take time to weigh the pros and cons, crunch the numbers, and imagine where you want to be down the road. ^{1, 2, 3}

Is a Mortgage Cheaper Than Rent?

Typically, renting tends to have lower monthly payments compared to a mortgage. However, that’s not universally the case. There are some parts of the country where it’s actually more expensive to rent than to buy a home. ^5,6

Bear in mind that the actual cost comparison between renting vs. buying a home can vary quite a bit based on different factors. Details such as your desired location, the type of property you’re considering, the interest rates, how much you can put down as a down payment, the property taxes, insurance, and even the maintenance expenses all play a role in determining the overall affordability.

So, to figure out which option is more cost-effective for you, it’s important to carefully analyze your specific circumstances. Take a close look at all the associated expenses and do a thorough assessment. This way, you can make an informed decision about whether renting or getting a mortgage makes more financial sense for you. ^{1, 2, 3}

What Is the 5% Rule When Comparing Renting vs. Buying?

The 5% rule is a handy guide to help you figure out the financial side of renting versus buying a home. Take the value of the home and multiply it by 5%, then divide that result by 12. This calculation will give you your breakeven point. Now, if the monthly rent for a similar home is below the breakeven point, it’s generally more financially sensible to rent. On the other hand, if the monthly rent exceeds the breakeven point, it might make more financial sense to buy. 

The 5% rule is a good starting point, but it shouldn’t be the only thing you rely on when making your decision.⁴

What Is the Best Age to Buy a House?

There is no “best age” to buy a home. You could be financially ready in your mid-20s or you might need to wait until later in life. At the end of the day, the right time to buy a home depends on your financial readiness, stability, and personal circumstances.

Factors such as your ability to afford a down payment, secure a mortgage, and maintain the costs and responsibilities around homeownership are important considerations. Additionally, if you plan to stay in one place for a while and homeownership aligns with your long-term goals, then it might be the right time for you. Remember, there’s no set age for buying a house – it’s about being prepared and making a decision that best suits your individual situation. ^{1, 2, 3}

Consider Renting-to-Own With Divvy

Traditional renting or buying a home may not be the perfect fit for everyone’s goals or financial situation. If you’re looking for an alternative, consider Divvy’s rent-to-own program. With Divvy, you can rent a home and grow your home ownership savings, all while having the option to purchase it later. It’s a flexible and empowering approach that allows you to test out a home before committing to buying. Divvy is here to help you achieve your housing goals, whether that means renting or eventually owning. 

Ready to learn more about Divvy? Find out how Divvy works.

Sources

1. https://thezebra.org/2022/05/02/to-buy-or-rent-that-is-the-question/

2. https://realestate.usnews.com/real-estate/articles/should-you-rent-or-buy-a-home

3. https://fortune.com/recommends/mortgages/renting-vs-buying-a-home/

4. https://themakingofamillionaire.com/the-5-rule-2a0af60d345c

5. https://www.thestreet.com/housing/where-is-buying-cheaper-than-renting

6. https://themortgagereports.com/100927/housing-markets-cheaper-to-buy-than-rent-2023

7. https://wallethub.com/answers/cs/how-do-i-add-my-mortgage-to-my-credit-report-2140656873/