Renting vs Buying a House: Which Is Right for You?

By: Peter Warden Reviewed By: Paul Centopani
June 26, 2023 - 8 min read

The debate: renting vs buying a house

Renting vs buying a house isn’t much of a contest.

Three-quarters of Americans still want to be homeowners, according to a 2022 The New York Times survey. Those respondents “place owning a home above career, family and college as a sign of prosperity.”

In this article, we’ll explore the benefits and disadvantages of both, as well as how you may overcome the barriers to homeownership. renting and owning a home. We’ll also help you figure out which is the right choice for you.

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The pros and cons of renting vs buying a house

Pros of renting

Renting is the smart choice for some people, regardless of generation or financial status.

Those could be ones who don’t like settling down and instead prefer life to be a constantly moving adventure. Or it could be existing homeowners looking to downsize and are considering renting as an option.

It likely also encompasses “digital nomads,” the ones who work exclusively online and can do so from any connected place in the world. Others live year-round in RVs, touring the country.

Yet others, perhaps most, prefer the solidity and security of an apartment. But they want to move at will. And the costs of buying and selling a home would be prohibitive if they relocated every couple of years, let alone annually or more often.

And there are other reasons why some prefer to rent. They may be scared of the costs of maintaining a home. And they love that they can call a landlord to fix the roof, plumbing, electrical and so on.

Cons of renting

Many tenants are paying down a mortgage. The trouble is, it’s their landlord’s.

At the end of the mortgage, that landlord will own the home outright and that property will likely be worth much more that its original purchase price by then. Meanwhile, the renter will own nothing. And that may be the biggest drawback of renting.

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You have most of the costs of homeownership but are missing out on the prize at the end. You won’t own what may by then be your single biggest asset.

And there are other cons:

  1. You can never fully put down roots. Of course, some live in a rental for decades. But there’s a constant, nagging fear that one day you’ll be forced out
  2. If you have a fixed-rate mortgage, your main homeownership cost won’t change unless you sell or refinance. However, rents — amid occasional and brief falls and pauses — tend to move relentlessly higher
  3. It’s never your home. And there are limits on how far you can go in putting your personal stamp on it before your landlord reins you in

The downsides are powerful and unless you’re one of those natural nomads, you’ll likely want to buy.

While some may never be homeowners, you might be surprised by the available programs that could help you afford what looks unattainable.

Pros of buying

To some extent, the upsides of homeownership oppose the downsides of renting. As a homeowner, you can:

  1. Increase your net worth through your property appreciating in value as home prices rise
  2. Build “equity,” which is defined as “the amount your property is currently worth, minus the amount of any existing mortgage on your property.” Your equity will grow as your home increases in value and you pay down your mortgage
  3. Access your equity — When you have enough equity, you can use it as collateral (security) for a low-interest home equity loan or home equity line of credit (HELOC). You can use that money for any purpose
  4. Get tax breaks on the interest you pay on your mortgage
  5. Grow roots — You can stay as long as you want to, provided you can keep up your mortgage payments. There’s no landlord to throw you out on a whim
  6. Make your home express your personality — Do what you want to it. There’s no landlord to rein you in.
  7. Improve or extend your home — Many use home equity loans or HELOCs to make their homes bigger, better, more comfortable and more valuable
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For most Americans, these are benefits they enjoy every day and barely notice.

Cons of buying

In the 2023 Apartment List Millennial Homeownership Report, 24% of millennials said they’d given up on homeownership. About three quarters of those identified the reason as “I cannot afford to buy a home.” The rest said they valued the flexibility renting provides.

And some who identified affordability as an issue will be correct. While many on lower incomes will be eligible for a mortgage with zero down payment or will be in line for down payment assistance, a few — especially those who are poor money managers with bad credit — should probably stick with renting.

Of the 76% of millennials who still hoped to buy, 58% identified saving for a down payment as their biggest obstacle to homeownership. And 35% said it was the monthly payments they’d have to find.

Again, you can see their point. It’s hard to save a down payment while you’re paying high rent. And monthly payments on mortgages are sometimes higher than rents are.

Of course, those monthly payments will stay the same forever with a fixed-rate mortgage while rents typically rise so that barrier’s a temporary one. But it’s not much consolation during the time you can’t afford the payments.

Still, you might wonder if some are overestimating how big those monthly payments will be. If you’re worried about them, use our mortgage calculators to be sure whether your fears are grounded.

More cons

Other homeownership cons include:

  1. Other homeownership costs — Maintenance, repairs and property taxes
  2. The possibility of home prices falling — Although, so far, such drops nationwide have always been temporary
  3. It’s more difficult and costly to move home than for a renter

Most Americans are homeowners. And you can bet that most of them were scared about the financial implications of buying a home before they did so. It can be tough to start with. But, if they’ve pulled it off, why shouldn’t you?

Factors affecting your decision to rent vs buy a house

Real estate market

People often ask whether now is a good time to buy a home. And the answer’s nearly always ‘it depends.’

Of course, there are periods when everything’s perfect: homes are available while prices and mortgage rates are low. But those times tend to be rare and brief.

You can see why. When mortgage rates are low, everyone wants to buy. So the inventory of for-sale homes drops and that pushes up prices. That’s the basic economics of supply and demand.

Very few buy their first homes in ideal conditions. If you wait for the market to be good in all ways, you might never buy. So don’t let the perfect be the enemy of the good.

Financial considerations

Your personal financial circumstances are much more crucial than the wider housing market to the timing of the purchase of your first home. Your ducks need to be all in a row.

And you’ll need:

  • A down payment (unless you’re eligible for a VA loan or USDA loan, neither of which require any down payment) — But that can be as low as 3% of the purchase price for a conforming loan or 3.5% for an FHA loan
  • Fair credit or better — You can get an FHA loan with a credit score of 580 or better. Or even lower with a 20% down payment. But the higher your score, the lower your mortgage rate’s likely to be. Read How to raise your mortgage FICO score fast
  • A moderate debt burden — This is your debt-to-income ratio. And lenders will want to be sure that your existing debts won’t make your new mortgage hard to afford
  • A sufficiently high income to comfortably afford your monthly payments
  • Closing costs — You’ll have to pay fees, costs and taxes associated with your mortgage and home purchase transaction

Don’t forget that many first-time buyers with low or moderate incomes are entitled to down payment assistance. And some of those programs can cover closing costs, too.

Personal readiness

Your life and your head need to be in places that make homeownership a sensible move. You should ask yourself:

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  1. Will the home I want to buy meet my and my family’s needs for the next several years? It’s costly to move again
  2. Is the home I want to buy in a location that will suit me or us for a while? For example, you may not want to buy a home in a terrible school district if you have a baby. And you’ll want a reasonable daily commute
  3. Am I prepared, if necessary, to sacrifice aspects of my lifestyle in order to afford my new homeownership costs?
  4. Is my job or career sufficiently secure that I needn’t worry about unemployment or short hours or reduced bonuses? Lenders can be patient over such problems but they’ll ultimately foreclose if you fall too far behind on your payments
  5. How important is it to me to fulfill my homeownership dreams?

If you’ve done everything to get prepared and find yourself in the right stage, reach out to a local lender to start your path to homeownership.

The costs of buying vs renting a home

We can’t tell you for sure that buying a home will cost more than renting one. That’s because you might live somewhere where the home rental and sales markets are different from the norm. Or you may be reading this at a time when market conditions are unusual.

Generally though, it’s a bit more expensive to buy than rent in the short term. At some point, rents will likely rise while your mortgage payments remain steady.

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And then you’ll begin to save. How soon that happens will probably depend on the economy, your local housing markets and so on.

Often, it’s more expensive to buy than rent even if your monthly mortgage payments are lower than the equivalent rental payments. That’s because tenants don’t have to pay for maintenance, repairs, homeowners insurance and sometimes property taxes.

But we’re talking about raw expenses here. Once you add in the benefits of homeownership the equation changes.

The biggest benefit is the equity you build. How quickly that happens depends largely on home prices in your area. But you’re reducing your mortgage balance each month and can deduct your mortgage interest for tax purposes. Even if home prices tank, they always recover over time. And owning a major asset that typically appreciates has serious value.

Take-away: Is it a good time to buy a house?

It’s rarely a good time to buy a house. Usually, either mortgage rates or home prices are higher than you’d like. Industry experts often quip that it’s always a good time to buy — as long as you can afford to.

While we can’t say if you should buy a home, doing your homework can help you make a decision. It can be helpful to research and work out which type of mortgage will likely suit you best, your estimated mortgage payments, if you qualify for down payment or closing costs assistance, and prices in the areas you’re interested in.

Research can’t guarantee that you’ll make the right decision. But it sure helps.

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FAQ — Renting vs buying a house

What should you consider when deciding whether to rent or buy?

First, you need to be sure you want to be a homeowner. Not everyone does. Then you should spend time researching the likely initial and ongoing costs. Can you comfortably afford your monthly mortgage payment and the other expenses that come with homeownership?

Is renting cheaper than owning a home?

It often is cheaper to rent than buy. Sometimes, monthly mortgage payments are lower than equivalent rents. But those exclude some of the continuing costs of homeownership, such as repairs, maintenance, property taxes, homeowners insurance and perhaps homeowners association fees.

However, when you factor in home price rises, building equity and the fact you’ll own the property once you’ve paid off your mortgage, homeownership has historically been seen as financially better than renting.

What are the advantages of owning a home?

For most Americans, homeownership is highly desirable. Besides the obvious financial benefits, you have the pride of that ownership, the security of knowing you can stay as long as you like, and the freedom to stamp your personality on your home.

Peter Warden
Authored By: Peter Warden
The Mortgage Reports Editor
Peter Warden has been writing for a decade about mortgages, personal finance, credit cards, and insurance. His work has appeared across a wide range of media. He lives in a small town with his partner of 25 years.
Paul Centopani
Reviewed By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.