Rent vs. buy: A guide to help you decide

For many people, buying a home is part of the American dream, but it can be out of reach for many people due to their lifestyle or financial situation. If you find yourself in this situation, renting can be an excellent alternative.

Owning a home isn’t automatically better than renting, and both options provide you with stability and a place to live. If you’re debating whether you should rent or buy, this article will outline the main differences between the two. It’ll also help you determine which option is bette for your situation.

Renting vs. buying: What are the differences?

When you rent a home, you’re allowed to live in a house owned by someone else in exchange for monthly rent payments. You’ll sign a contract with the landlord outlining the terms of your agreement.

In comparison, when you purchase a home you hold the legal title which gives you certain rights to the property. Here are the main differences between renting vs. buying.

Equity

Owning a home allows you to build equity as you make your monthly mortgage payments. You borrow money against the equity in your home, invest it or use it to build long-term wealth. When you rent, you can’t build equity since you don’t own the home.

Tax benefits

Owning a home also comes with certain tax benefits. For example, the mortgage interest deduction allows you to deduct any interest paid on your mortgage that year from your taxable income. This isn’t an option for renters.

Flexibility

Renting provides much more flexibility than homeownership since you can move with relatively short notice. In comparison, homeowners have to sell or rent out their house first (or pay two mortgages), which can be very expensive and time-consuming.

Maintenance and repairs

As a homeowner, you’re responsible for all the necessary maintenance and repairs. If an appliance unexpectedly breaks, you’re the one who has to fix or replace it. These costs can start to add up over time.

In comparison, renters have fewer responsibilities than homeowners. They’re responsible for paying their rent on time and taking care of their living space, but the landlord handles maintenance and repairs.

Financial commitment

Homeownership requires a much larger financial commitment than renting. As a homeowner, you have to save up money for a down payment and closing costs before you can even buy the home. You’re also responsible for monthly mortgage payments, property taxes and homeowners insurance.

Renters have to pay an initial security deposit and monthly rent payments. They can also purchase renters insurance, but this is optional, unlike home insurance. All in all, these costs are relatively small compared to the costs that come with buying a home.

Rent or buy: Factors to consider before deciding

Here are the biggest factors to consider before deciding whether to buy or rent your next home.

Your financial situation

Your financial situation is one of the most important aspects to consider when choosing whether to rent or buy. If you’re wondering whether you’re financially prepared for the responsibility of homeownership, here are a few things to look at:  

• Your income: Your income largely determines your ability to qualify for a mortgage. Reviewing this factor alone may help you determine whether you should rent or buy a house.

• Down payment and closing costs: There are two big expenses you have to plan for when buying a house — the down payment and closing costs. You’ll need a minimum down payment of 3% to buy a home, and closing costs usually cost between 3% and 6% of the purchase price.

• Your debt-to-income ratio: Your debt-to-income (DTI) ratio is the total percentage of your monthly income that’s going toward debt payments. Most lenders look for a DTI ratio below 50% for conventional loans.

• Property upkeep: Before buying a home, it’s a good idea to build up your savings for future property maintenance and repairs.

• Other homeownership costs: You should also look at the other costs of homeownership, like property taxes, homeowners insurance and HOA fees, if applicable. Consider whether your income is high enough to pay for all these additional costs.

Your Location

Owning a home provides stability, which can be preferable if you’re starting a family or are more established in your career. Renting provides more flexibility in location, which might be preferred if you’re young, single or exploring locations before settling down.

If you’re considering buying a home, it’s important to ensure you’re happy with the location you’re considering. For example, you may want a home that’s close to friends and family, has a short commute or is close to your favorite activities.

How to use a rent vs. buy calculator

A tool like the Rocket Mortgage^® rent or buy calculator can help you determine whether it's more affordable to rent or buy a home. You’ll start by entering your desired home purchase price, down payment, credit score, interest rate and monthly rent payment.

When you’ve entered the necessary information, you’ll click the "Calculate" button. The calculator will tell you the number of years it’ll take for buying to be cheaper than renting in a given scenario. Of course, this calculator doesn’t tell you the whole story since it can’t anticipate the costs of maintaining a home for long periods of time.

The bottom line

The decision to rent vs. buy a home isn’t an easy one to make. Your financial situation, location and personal preferences will all determine which is the right choice for you. If you are ready to take the next step toward homeownership, you can start the mortgage approval process today.

¹Clients who are current renters will receive a lender credit toward closing equivalent to 10% of the total amount of their 12-month rental payment, up to $5,000. Current renters are defined as individuals who are currently under a lease agreement. Offer only valid on primary residences. Offer valid only through retail channels and on loans that are locked on or after February 11, 2025. Offer not available for Non-Occupant Co-Clients. Offer not available for partnerships. Offer not valid on Jumbo loans, Schwab products or previously locked or closed loans. Offer is nontransferable. Offer is not valid with any other discounts or promotions. Additional restrictions/conditions apply. Rocket Mortgage reserves the right to modify/cancel this offer at any time. This is not a commitment to lend.