To Rent or to Buy A House: All the Arguments for Each Option

Should I rent or should I buy?”: The age-old dilemma that many grapple with when considering what would be their best living (and housing) situation.

For all the commitment-phobes out there, the prospect of buying a house can be daunting. It’s a big investment, and usually it’s based on a 20- or 30-year mortgage contract, unless you plan on selling before it’s paid off — and that has its own set of challenges. Renting a home comes with a lot of flexibility and freedom that’s attractive to nomadic souls as well as those with savings that are slim to none.

On the other hand, buying a home can be liberating and, at the same time, stabilizing. If you own your home, you can do whatever you want with it — paint over those crazy wall colors from the ’80s, replace or remove bad carpet, decorate or upgrade at will, keep as many pets as you want, and so on. There’s also the benefit of knowing exactly how much your house payment will be every month with no threat of it increasing over time if you got a fixed-rate mortgage.

That being said, there are very legitimate reasons both to rent and buy a house, and it all depends on your unique status and circumstance. Making a decision requires taking stock of your current needs, goals, and financial capacity. Once you’ve evaluated where you are and where you want to be, it’ll be up to you to determine whether it makes more sense to rent or to buy.

But before you give your final answer, know the specifics of what you’re getting into with each arrangement. Here’s a big-picture breakdown with research and insight from industry experts. You hold all the cards — you just have to know how to play them.

A smiling woman hugging a pillow to herself on a white antique sofa in a house you could rent or buy.
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The case for renting a house

Flexibility and finding what you want

One major perk of renting is that it allows flexibility, so you’re not confined to a neighborhood, a time frame, or a house you’re just not sure about yet. This can be particularly reassuring if your job or lifestyle could change in the near future.

For example, if you’re anticipating a location move for a job, a possible change in relationship status, or if you’ve just moved to a new city you’re still getting to know, renting gives you options for adapting to all the changes that life brings.

“If someone’s not certain about their job situation — they may get promoted to a different location within their company in a year — then it might make more sense to rent and not be tied down to a particular market location,” says Drew May, a top Augusta, Georgia, real estate agent with 25 years experience.

Maybe you’re newly single or it’s your first time living with roommates. Renting provides the flexibility and peace of mind to find the best housemate and type of home or layout that works best for you, without being locked into a long-term arrangement.

Maybe you’re working toward buying a house or you’re brand-new to an area and you want to decipher what neighborhood best suits your needs. The temporary option of renting allows you to try out a different neighborhood if you’re not sure about your current one. Furthermore, if you want to be in a certain in-demand neighborhood because of its amenities or proximity to work, finding affordable rental properties in more expensive areas can be more feasible than buying.

Financial considerations

Other than a security deposit and renter’s insurance, which is typically very affordable, there are no extra or hidden costs with renting a home. Just like homeowners, renters are responsible for a monthly payment and utilities (although in many cases, some utilities, like the water bill, are covered by the landlord), but none of the other expenses that come with homeownership.

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Where you can save money by renting

Homeowners have to pay property taxes, which are determined by the property tax rate in a given market location and the value of the home. It varies state by state, but the national average of property tax rates on a home value of $250,000 is 1.08%, or $2,700 a year, as of February 2020. Renters are not responsible for paying property taxes.

Homeowner’s insurance is required for a mortgage loan and is highly recommended whether or not a buyer is financing their house. It’s necessary in the unfortunate event of a fire, theft, hail, or any other unforeseen event that damages the home or property, or injures someone else on your property. There are several factors that determine the cost of homeowner’s insurance, such as your ZIP code and the scope of coverage.

The national average of annual homeowner’s insurance is $1,228 as of February 2020, but that varies widely by city — from Honolulu, Hawaii, on the low end with a $332 average annual premium, to Conch Key, Florida, on the high end with an $11,702 average annual premium.

For a stark contrast, renter’s insurance costs, on average, $187 a year and covers nearly everything homeowner’s insurance does — except for the house itself, which the landlord is responsible for covering.

Another financial barrier that’s removed for renters is there is no down payment required to rent a house, aside from the security deposit, which typically is one month’s worth of rent. The down payment is a percentage of the home value buyers pay when they purchase a house, which can range from 0% with a VA or USDA loan to 20% with a conventional mortgage loan — or even higher, if buyers have the funds.

What about maintenance costs? Nope, renters don’t have to pay those, either. The landlord is responsible for fixing broken appliances, heating or cooling issues, plumbing problems, and anything else that would make the unit uninhabitable.

Housing market limitations

There’s no getting around it — you need money to purchase a house to pay for the aforementioned homeowner’s insurance, property taxes, maintenance issues, down payment, and of course the monthly mortgage payment. That requires being in a financial position to do so, and the state of the housing market can put an extra strain on your ability to buy a house.

The availability of homes on the market, especially for first-time homebuyers, is at historically low levels. According to HomeLight’s Top Agent Insights Report for the fourth quarter of 2019, almost half of the agents surveyed (46%) said that inventory levels were lower than they expected.

May backs up these reports:

“The starting point for a first-time buyer for a starter home is limited inventory under $200,000. The cost of construction has been going up, the cost of materials, the cost of land development. So we don’t anticipate that it’s going to get cheaper or more affordable than it is right now.”

The fluctuating nature of the housing market is another consideration when deciding whether renting or buying a home is right for you. Selling a house can be tricky and harder than some might think. “If it’s a declining market where prices are going down, or where the market is very uncertain, renting might be the safer way to go,” says May.

A house under renovation, an option you can use to decide whether it's better to rent or buy a house.
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The case for buying a house

Buying a home is an investment

There are a lot of financial advantages of buying a house if you’re in a position to do so, and top among them is your equity. Equity is where most homeowners build most of their wealth; it represents the amount or value of your home that you own outright (as opposed to what you still owe on your mortgage). You can calculate equity by subtracting the amount you still owe from the current market value of your home. The difference is how much equity you have, which will be greater depending on how much you’ve already paid on your mortgage. And as your home increases in value over time — which many do — you’ll build even more equity.

Another way to look at building equity is that it’s a type of forced savings account. It’s “forced” because you have to pay your mortgage every month, which in turn builds equity.

There are many ways you can tap into home equity, including:

  • Sell your house and use the proceeds for a down payment on a bigger, better house.
  • Sell your house and use the proceeds to downsize and buy a smaller house with cash.
  • Get a home equity loan, also known as a Cash-Out Refinance, which borrows against your equity with low interest rates. You can use this to pay down high-interest debts or finance educational expenses, for example.
  • Get a reverse mortgage — an option for retirement.
  • Get a home equity line of credit — similar to a credit card, with your equity amount as the limit.

Luckily for homeowners, equity tends to increase over time. According to CoreLogic, a leading investment and data analytics company, home equity increased by 5.1% in 2019 compared to 2018.

“We’re seeing consistent price increases. Rents are going up. If you are an owner, of course your equity is growing on an annual basis. People who are buying — even two years out, they can be making money. If they do decide to sell, after two or three years, they’re in a good position for equity growth in our market.” says May.

Other financial benefits of buying a house

Other than building equity, having a mortgage on your home has additional financial payoffs. For one thing, it can boost your credit score by adding to your credit mix, one of the main factors of your credit score. In addition to using a credit card, a mortgage loan diversifies your credit, thus increasing your score.

Another pro to buying a house that homeowners enjoy is the option of getting a fixed-rate mortgage, so you never have to worry about your monthly payment increasing. As a renter, your monthly rental payment is subject to go up after every lease term. But as a homeowner, you can lock in your mortgage loan interest rate (which in early 2020 are still near record lows) and know exactly what you will owe every month for the next 30 years.

Finally, homeownership comes with tax benefits not available to renters. These include deducting mortgage interest on up to $750,000 for married couples; A Mortgage Credit Certificate for lower-income buyers who qualify for a percentage of mortgage interest paid annually; And a tax break for money made when selling your home for up to $250,000 in profits for single sellers and up to $500,000 for married sellers filing jointly.

The power of homeownership: Imagine the possibilities

Despite the sometimes long and winding road to homeownership, having those keys in your hand is a pretty great feeling. You now own this house. It’s yours! You can do whatever you want with it! You don’t have to go through a landlord to fix something in a timely manner or ask for permission to paint the walls, because the landlord is you.

As a homeowner, you can consider your home a canvas to add or take away color as you see fit. If you want to repaint, expand, change light fixtures, remodel the bathroom or kitchen — you name it — you can renovate or redecorate to your heart’s desire.

You’re also in charge of who else resides in your home — be that a spouse, a significant other, a friend, a family member, a roommate, as many pets as you want, or a tenant if you decide to rent out a room — because you can do that, too!

A woman walking with a young boy toward the front door of a white house they could rent or buy.
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What’s the move?

So, what’s the verdict? As you can see, both renting and buying a house come with great benefits. When deciding whether it’s better to rent or buy, consider the unique qualities of each and what makes the most sense for your current situation.

You should also ask yourself some questions that could weigh heavily on your decision.

You might be a better renter candidate if:

  • You’re likely to want or need to move in the near future.
  • You’re not sure where you want to live or if you want to stay put.
  • You have bad credit and don’t want to pay high interest rates associated with a low credit score.
  • You don’t want the responsibility of paying for and managing repairs and maintenance.

You might be a better buyer candidate if:

  • You’re ready to settle down — at least for a couple of years.
  • You have good credit.
  • You have enough savings for a healthy down payment.
  • You or your partner have solid job security.

Now that you have the skinny on why you should rent and why you should buy, go forth and decide for yourself. Onward!

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