For many people, purchasing a home is the very definition of living their best life and achieving the American dream. But it’s not the right choice for everyone or might not be the right move to make at a given moment.
Owning a home may be the biggest financial commitment you’ll ever make, so it makes sense to carefully consider the upsides and downsides of buying vs. renting. Sometimes, the flexibility and affordability possible with renting can be a good fit.
Read on for advice that will help you answer, “Should I rent or buy a house?”
• Learn the pros and cons of buying vs. renting a home
• Take a quiz to help you decide if you should buy or rent a home
• Find out the steps to take when you’re ready to start hitting the open houses
Rent or Buy a Home: Pros and Cons
Deciding whether to rent vs. buy is a very individual decision. There’s no rule about which is better; much will depend on your personal goals and your financial situation.
Here, take a closer look at whether it is better to buy or rent a house.
Advantages of Renting
Here, the upside of being a renter:
• Low-maintenance lifestyle. Your landlord is typically responsible for repairs and maintenance, so your time and money can be spent elsewhere.
• Potentially lower monthly expenses. Your landlord may also pay some of your monthly utilities, and you aren’t responsible for paying property taxes.
• Flexibility. When your lease is up, you can renegotiate or move…across the street or across the country. If you aren’t ready to lock into a location for at least a few years, renting can be a smart step.
• Low investment. You don’t need to make a big investment (like the down payment and closing costs associated with home buying) when you move into a rental. You might have to put down a security deposit, but that will typically be much less costly.
Disadvantages of Renting
Now, consider the downside of being a renter vs. a homeowner.
• Rules to follow. Your landlord may have restrictions that you don’t like, such as no pets or no remodeling.
• Not building wealth. The rent you pay each month doesn’t give you any equity in a property. It just goes to the owner, unless you set up a rent-to-own agreement.
• Lack of control over your monthly charges. Your rent could spike due to inflation, the housing market heating up in your area, and other factors.
• Uncertainty. If the owners decide to sell the building you live in, you may need to move unexpectedly and quickly, which can also get expensive.
Advantages of Buying
If you decide to buy vs. rent, here are some of the benefits you may enjoy.
• Building wealth. As you make mortgage payments, you are usually building home equity.
• Tax advantages. Homeowners may be able to deduct both mortgage interest and their property tax payments (plus possibly other related expenses) from their federal income taxes if they choose to itemize their deductions.
• Freedom. You have far fewer restrictions involving remodeling, pet ownership, and so forth. Want to paint a bathroom purple, rip out a wall, or adopt five rescue dogs? Go for it.
• Stability. You can put down roots in a community and school district. When you decide to move, it’s your decision.
• Affordability. Sometimes a mortgage payment can be cheaper than rent, especially if you get a good mortgage rate.
Looking at the price-to-rent ratio of a city helps gauge whether it makes more sense to buy or pay a landlord. The housing market dynamics of your location may determine this aspect of whether to buy or rent a house.
Disadvantages of Buying
Now that you know the potential upsides of owning your own home, take a look at the potential drawbacks.
• High costs. The price of homeownership may be painful in a hot market.
What’s more, accumulating the cash to make a down payment can be challenging and take years of saving. Plus, the closing costs when securing a home can be considerable.
• Credit score. You typically need to qualify for a mortgage, and your credit score will be a factor. Those with excellent credit scores will get better rates; those with lesser scores may want to wait to build their rating before buying.
• Maintenance. You’re generally responsible for all repairs, maintenance, and utilities, plus homeowners insurance, property taxes, and any homeowner association (HOA) dues. These can not only impact your finances but also your lifestyle. Taking care of a home and property can require an investment of time and energy.
• Locked in place. You probably can’t pick up and move on a whim. If you decide to move, until your home is sold, you’re still responsible for mortgage payments and the expenses attached to your new place.
Take the Rent or Buy Quiz
Are You Really Ready to Buy?
When deciding between renting vs. buying a house, the answer may already be clear to you. If you’ve decided to buy, it might make sense to take the following steps.
• Make sure you’re ready for a long-term commitment. If you’ve saved enough for a down payment and know how much house you can afford, those are good signs. Otherwise, create a home-buying budget and saving plan to get started.
• Consider if your line of work allows for job continuity with steady income. Have you had this type of income for the past two years or more? That kind of stability can be important to lenders.
• If your debt-to-income ratio (DTI) appears too high for a loan program you would like to apply for, you may need to consider paying down some debt. To calculate your DTI ratio, divide your monthly debt payments by your monthly gross (pretax) income. The federal Consumer Financial Protection Bureau advises renters to consider keeping a DTI ratio of 15% to 20% or less (rent is not included in this ratio). However, mortgage lenders usually like to see a DTI ratio of no more than 36%, though that is not necessarily the maximum.
• Save money for a down payment, closing costs, and other fees, plus some funds for moving expenses and any remodeling/repairs.
• Check if your credit score is good enough to buy a house, and, if yours falls short, work on building it.
• Do a gut check to see if you’re really ready to be your own landlord, meaning being responsible for your own home maintenance, inside and out.
• Get pre-qualified or pre-approved for a mortgage by providing a few financial details to lenders, who usually will do a soft credit check and estimate how much you may be able to borrow and the terms. A pre-qualification or even a pre-approval can also help give you a leg up when you start home shopping.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
The Takeaway
Should you buy or rent a home? That will be a personal decision, reflecting your finances, the housing market’s dynamics, your willingness to take on the responsibilities of homeownership, and your inclination to put down roots in a certain location. Both owning and renting have pros and cons, and making the right decision will likely require deep thinking and thorough planning.
If you’re ready to become a bona fide homeowner, getting pre-qualified for a mortgage loan with SoFi is quick and convenient. SoFi offers competitive rates and may require as little as 3% down for qualifying first-time homebuyers.
FAQ
Is it better to rent or buy a home?
There isn’t a simple yes/no answer to whether it is better to rent or buy a home. Each has its advantages and disadvantages and may or may not suit a person’s needs at a given moment. For instance, owning a home can allow you to build equity and personal wealth, but the maintenance responsibilities and expenses may offset that. Renting may be cheaper, but you may not be able to personalize your space the way you’d like or perhaps own pets.
Is renting cheaper than owning a home?
Renting can be cheaper than owning a home, though that can depend upon housing market conditions in a given area and the particulars of the home in question. In general, people who rent don’t have to pay property taxes and they may not be responsible for the cost of improvements and repairs, which can make things more affordable.
Is homeownership a good investment?
Buying a home can be a good investment. It allows you to build equity and may offer tax deduction opportunities. However, if property taxes rise steeply or major home repairs loom (like a new roof), home ownership could prove financially challenging.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOHL0223010