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Rent Vs. Buy: Calculator, Facts And Pros And Cons Of Each

Miranda Crace6-minute read

October 27, 2020

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There are numerous factors to consider as you decide whether homeownership is right for you. Plugging your information into our rent versus buy calculator and then putting together a solid list of pros and cons can help you decide whether to pay rent or make a mortgage payment.

Try a rent vs. buy calculator to see which is right for you.

The Rent Vs. Buy Debate

The rent versus buy debate has been in full swing for ages. And it makes sense. Both options have definite pros and cons, but it really comes down to your personal preferences and your financial situation. Before you make any moves, make sure you fully understand all aspects of each option and then weigh the facts against your current circumstances and future goals.

Renting Pros And Cons

Whether it’s an apartment or a house, renting has its distinct advantages and disadvantages.

Pros

Proponents of renting often cite the following as key advantages: less money upfront, no maintenance or repairs, and flexibility. Let’s take a closer look at the pros.

You Need Less Money Up Front To Move In

You typically need 2 months of rent payments and a security deposit to move into a rental property. Of course this depends on the cost of rent and the price of homes in the area, but usually that’s less than what you need for a down payment and closing costs to purchase a home.

Fewer Expenses For Maintenance And Repairs

Paying for home maintenance and repairs are facts of life for homeowners. And it’s not just the work – you also need the equipment, like a lawnmower. But when you rent, someone else cuts the lawn, and if the hot water heater fails, you’re not responsible for the bill.

More Flexibility To Move

If you need to move across the country for your job, it’s generally easier to leave behind an apartment or rental home, both logistically and financially.

Cons

Being able to move easily to a new area and having someone else handle most of the home maintenance are perks of renting. But you pay someone else for those perks, instead of yourself. Here are the cons of renting you should consider.

You’re Someone Else’s Investment

When you buy a home, as you pay off the mortgage you’re not just paying the lender. You’re paying yourself, because you own more and more of your home. And if the home’s market value increases, the profit from your investment is yours.

You can pay rent for months and even years, but when the lease is up, you have nothing to show for it. All your money went into someone else’s pocket.

Your Monthly Payments Aren’t Stable

Get a fixed-rate mortgage, and you know a portion of your mortgage payment stays the same, even after 30 years. Rent an apartment, and you don’t have that same control over your monthly payments. A landlord or property management company decides when rent goes up and by how much.

You’ll Have Fewer Tax Deductions

Just as the apartment, condo or home you rent is another person or company’s investment, they also get most of the tax benefits and deductions. You may be eligible for a few deductions, even if you rent; ask a tax advisor to see what’s available.

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Buying Pros And Cons

No matter if it’s a townhouse, condo or house, buying a home also has its clear advantages and disadvantages.

Pros

Purchasing a home has long been the American dream. It provides stability, a sense of community and hopefully, a nest egg for your future. It requires commitment, but the payoff can be well worth it. Let’s unpack that a bit.

It’s Your Investment

When you buy a home, it’s your investment and you get the benefits. The most significant one is home equity: the difference between what your home is worth and what’s left on the loan. You gain equity in two different ways:

  • As you pay off your mortgage, you build equity in your home. That means the portion of your property that you truly own increases. You can tap into that equity for things like home renovations, paying off credit cards, and other expenses. When it’s time to move, that equity can become a down payment on your next home.

  • You also gain equity when the market value of your home goes up. If homes in your neighborhood that went for $100,000 five years ago are now selling for $120,000, you’ve made $20,000 on your investment.

Monthly Mortgage Payments Are More Stable

There’s a reason fixed-rate mortgages are so popular: The amount of your monthly mortgage payment that goes toward principal and interest doesn’t change for the life of the loan.

That doesn’t mean your monthly payment won’t change. Most homeowners have an escrow account – money your mortgage company keeps for you to pay your homeowners insurance and taxes. Part of your mortgage payment goes into your escrow account each month. When your taxes and insurance costs change, that part of your monthly mortgage payment goes up or down as needed.

But because your interest rate is fixed, part of your mortgage payment will stay the same. So you never have to worry about annual rent increases.

You’ll Be Eligible For Tax Deductions

To encourage homeownership and the benefits it brings to communities, homeowners get tax deductions that renters don’t, like the mortgage interest deduction. When you rent, someone else gets those tax breaks because someone else owns the property.

There are several tax deductions available to homeowners, both on federal and state taxes. Check with a tax professional to learn what deductions you may be eligible for.

Cons

Don’t let the cons discourage you. The good news is there are a lot of options available to help you become a homeowner if that’s right for you. But here’s what makes buying more challenging than renting for some people.

More Money Required Upfront

Times have changed, and you no longer need the traditional 20% down payment saved to get a mortgage if you qualify in other ways. But there’s no getting around it: Buying a home is a significant purchase compared to renting a house or apartment, so there are more fees and costs associated with it.

You Have To Maintain Your Investment

Sure, you need to keep your apartment or rental home in good condition, but chances are when the lawn needs mowing, someone else mows it. And when the lawnmower breaks, someone else repairs it because it’s not your lawnmower. Deciding whether you have the budget to maintain and repair your home, and the ability to do it or pay someone else, is a big part of deciding whether buying or renting is for you.

Less Flexibility To Move

In general, you’ll need to live in a home for about 5 years to recoup all the closing costs. And it takes more to sell and pack up a house than to leave an apartment behind. So spend some time thinking about your career and family plans.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Things To Consider When Choosing To Rent Or Buy

Now that you understand the pros and cons of both options, you should have a better idea of what might work for you. Here are a couple of other key things to think about before making a decision.

Understand The True Cost Of Both Renting And Buying

Many people look only at the rent or mortgage payment each month when they determine which way to go. If monthly costs are comparable, homeownership tends to win. In order to accurately compare the financial impact of renting and buying, look at the total cost of homeownership and the quality of life it affords you. 

There are costs to owning a home you don’t pay when renting, such as homeowners insurance, home maintenance and repairs.

Consider Your Financial Situation And Goals

The first thing to consider when choosing between renting and buying a home is where you are financially. Be honest with yourself about your current situation and seriously consider both your near-term and long-term financial goals.

A house will cost you significantly more upfront, but could save you substantial money over the long run. It’s important to think about how your finances will be affected by both scenarios, so you can be strategic in your decision making.

Think About Where You Want To Be In 5 Years

Honestly assess where you are now and where you see yourself in 5 years. If you’re not quite ready to settle down, buying a home might not be the best option. Renting affords you the freedom to move each year with no strings attached.

Take a look at things like your current job, your ties to your current location, and your relationship status. All of these things can impact your housing needs and should be seriously considered before making a decision.

Rent Vs. Buy: The Bottom Line

There’s no right answer when it comes to renting versus buying. It’s going to boil down to your unique situation. Your financial situation and future plans can help you figure out if buying or renting is right for you.

If you choose the homeownership route, early preparation is key. The earlier you plan for the transition, the better off you’ll be. Rocket Mortgage® can help you when you're ready.

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Miranda Crace

The Rocket Mortgage Learning Center is dedicated to bringing you articles on home buying, loan types, mortgage basics and refinancing. We also offer calculators to determine home affordability, home equity, monthly mortgage payments and the benefit of refinancing. No matter where you are in the home buying and financing process, Rocket Mortgage has the articles and resources you can rely on.