Should I Rent or Buy a Home? Things to Consider Before Deciding

by Sturdy Real Estate Editorial Staff

If a new home is in your future, you’ll have many things to think about when deciding where to live.

You may wish to be close to where you work, or you may need space to work from home. For those with kids or looking to start a family, good schools, playgrounds, and other family-friendly amenities nearby will be priorities. You may also desire convenient access to shops, restaurants, entertainment, and outdoor activities.

Another big decision you’ll have to make is whether to buy or rent a home. Important factors include how much you’re willing to spend upfront and your desire for predictable monthly payments. Your decision will also affect how much control you have over design and remodeling decisions.

Let’s take a closer look at these and other considerations when deciding whether to purchase a home of your own or find a place to rent.

Buying a Home

Here are some key considerations for buying a home.

Invest for the Future

Purchasing a home is also an investment. Because the value of a home may appreciate over time, you’ll have the opportunity to build equity as you make mortgage payments. It helps to live in an area with a healthy job market, quality schools, and desirable amenities.

Lock In Monthly Payments

If you take out a fixed-rate mortgage, your principal and interest stay the same for the life of the loan. Your total monthly payment can still change if property taxes, homeowners insurance, or HOA dues change, but a fixed-rate mortgage can make your housing costs more predictable than renting. Rent may increase at renewal depending on your lease terms and local laws.

Enjoy Tax Benefits

Homeownership may come with tax benefits, but they depend on your situation. Some homeowners may be able to deduct mortgage interest if they itemize deductions. For homes acquired after December 15, 2017, the IRS currently limits the home mortgage interest deduction to interest on up to $750,000 of qualifying home acquisition debt, or $375,000 if married filing separately. Because tax rules can change, buyers should speak with a tax professional about their specific situation.

If you sell your primary home, you may qualify to exclude up to $250,000 of gain from your income, or up to $500,000 if you file jointly with your spouse, as long as you meet IRS eligibility rules.

Customize Your Space

When you rent a home or apartment, your landlord can restrict you from remodeling the kitchen or even nailing pictures to the wall. Purchasing your own home frees you from these restrictions. As the owner, you have complete control over whether to put in a new floor, paint the walls a different color, or install new appliances.

Costs of Purchasing and Owning a Home

When you buy a home, you’ll likely owe a down payment along with closing costs to finalize the purchase. Depending on the loan type, credit profile, and available programs, down payments may range from as low as 3% to 20% or more of the purchase price. For example, if you purchase a home for $300,000, your down payment may be anywhere from $9,000 to $60,000.

You’ll also need to cover any maintenance or repair costs, such as fixing a leak or replacing an old water heater. Other costs of ownership include property taxes, homeowners’ insurance, and homeowners’ association dues.

Renting a Home or Apartment

Here are some factors to think about before renting.

Flexibility

Renting may be a good fit if you expect to move in the next few years, need short-term flexibility, or are not ready for the upfront costs of buying. Buying may be worth exploring if you plan to stay in the home long enough to offset the upfront costs of purchasing, often around five to seven years, and you’re ready for the responsibilities of ownership. Because the numbers can vary by home price, rent, interest rate, taxes, insurance, maintenance, and how long you plan to stay, a rent-vs-buy calculator can help you compare your options.

Cost Uncertainties

If you rent a house or apartment, your landlord typically pays for repairs. You will also not have to pay property taxes. Keep in mind, though, that your landlord will owe property taxes and may pass the cost on to you.

Your primary costs as a renter include rent, fees, and a security deposit. Your landlord can increase your rent at any time, which makes planning your budget a challenge. Your landlord has the option of not renewing your lease which means you may have to move unexpectedly. Finally, you may not deduct the cost of rent from your tax bill.

Build Someone Else’s Wealth

When you pay rent, you are paying your landlord’s mortgage. This means you are helping him or her to build equity if the value of the property increases. If you purchase a property of your own, you have the opportunity to build that wealth for yourself.

Other Considerations

While pondering the above considerations, the decision of whether to rent or buy often comes down to two basic questions:

What are your housing needs? Do you need something for a single adult, a couple, or a family with kids? Do you plan to live in the same area for the long term, or do you expect to move again sooner rather than later?
Are you ready for a large purchase? Do you have a steady income and have you saved enough for a down payment? Are you prepared to make monthly mortgage payments? Will you be able to cover the cost of maintenance and repairs to your home?

If you’re ready to buy, Sturdy Real Estate is here to help. Our agents will work closely with you to find a home that meets your needs and fits your budget.

Give us a call at (417) 881-3061 or reach out online to get started!

Editor's Note: Originally published on our previous website on Sep 22, 2021 and updated for clarity and current resources.