Everyone has their own situation and your<\/i> reasons for renting vs. buying<\/a> determine which is the better choice. And sometimes \u2014 dramatic pause \u2014 <\/i>it\u2019s going to be renting. Yes, you read correctly. Renting may be the best option for you depending on the situation.<\/p>\n Not quite convinced? No worries! We\u2019ve gathered the data and expert opinions to fill you in on what factors to consider for renting or buying a home, when renting might be the smarter option, and the pros and cons of each. This will help you decide which route is best for you when it\u2019s time to choose.<\/p>\n Buying a home is part of the American dream, but it\u2019s not a decision to take lightly. If you want to buy a house<\/a>, you should consider the increased responsibilities of homeownership, including ongoing home repairs and maintenance<\/a>.<\/p>\n In addition, make sure you\u2019re prepared for the financial factors involved with the homebuying process. Here\u2019s a checklist of questions to keep in mind if you\u2019re thinking about buying a house:<\/p>\n When you purchase a home using a mortgage, you\u2019ll have to meet the lender\u2019s debt-to-income<\/a> \u2014\u00a0or DTI \u2014\u00a0requirements. Typically, lenders like to see a DTI of 45% or less (though some can go up to 50%), including<\/i> your monthly mortgage payment. If you\u2019re already carrying a heavy burden of monthly debt payments that eat up a good chunk of your income, you may not qualify for a mortgage at all.<\/p>\n Becoming a homeowner is a huge financial commitment, so consider paying down other types of debt before taking this step.<\/p>\n The point of an emergency fund<\/a> is to provide financial stability, typically for three to six months, in case of an unforeseen situation. If you buy a home and then lose your job, will you have enough money (including paying for a mortgage) to get by while searching for new employment?<\/p>\n Most homebuyers need to put something<\/i> down to purchase a home. You may not be required to pay 10% to 20% down on a new house (low down payment options are widely available, and some loans even offer zero down payment), but it\u2019s still not a bad idea if you want to lower the overall cost of your loan. This includes paying enough to avoid PMI<\/a>, or private mortgage insurance, which is often required if your down payment is less than 20% on a conventional loan.<\/p>\n It\u2019s not uncommon to have closing costs<\/a> that add up to 2% to 5% of your loan amount. If we take the median sale price of $341,600 for all U.S. homes sold in April 2021<\/a>, 3% in closing costs would be $10,248.<\/p>\n The higher your credit score<\/a>, the better your chances of qualifying for a home loan with a lower interest rate. Shooting for a very good (740 to 799) or excellent (800 and above) credit score on the FICO scoring model should be your goal, though it\u2019s possible to secure a loan with a lower credit score. For example, a government-backed FHA loan<\/a> may only require a credit score in the 500s to qualify, depending on your down payment.<\/p>\n Consider how much your combined monthly homeownership costs will be. This includes (but certainly isn\u2019t limited to) mortgage payments, homeowners insurance, property taxes<\/a>, utilities, and possible HOA fees. Then compare this amount to how much you pay in rent. This will give you a good idea of whether your monthly costs will be similar or drastically different.<\/p>\n If you\u2019re planning on moving within a year or two, buying a house might not make the most financial sense, though it depends on each situation. With expenses like down payments, closing costs, and moving, you\u2019ll pay more upfront for a home. Additionally, it may take years before you build enough equity in your home to walk away with a profit when you sell it.<\/p>\n You might decide to rent instead of buying for multiple reasons, which could include the state of your financial situation. If you\u2019re in the middle of paying off a lot of debt, it likely wouldn\u2019t make sense financially to add all the costs of homeownership into the mix. But you can use renting as a stepping stone on the path to having your own home.<\/p>\n If you\u2019re not yet ready for the long-term commitment of buying a place and want time to plan out your next steps, you might decide renting is worth it. You don\u2019t have to feel like it\u2019s a waste of time or money.<\/p>\n \u201cRenting is providing you a home,\u201d says Cissy Clark<\/a>, a top real estate agent with 19 years of experience in Bakersfield, California<\/a>.<\/p>\n \u201cHaving a home is not wasting your money. Renting a home to have a roof over your head for your family or for yourself is not frivolous, it\u2019s a necessity.\u201d<\/p><\/blockquote>\n In addition, your job might require you to travel or move around a lot, which isn\u2019t always conducive to living the life of a homeowner. In this type of situation, it could be beneficial to have the flexibility of renting.<\/p>\n Every mortgage payment you make adds to your equity (that\u2019s your ownership share) in the home. This is often one of the most common arguments for buying vs. renting because in most renting situations your monthly payments aren\u2019t going toward building your wealth.<\/p>\n Your home can appreciate over time<\/a>, which means it can grow in value. This could be a result of factors in the market where you live, such as a company moving into your area and offering hundreds of new jobs. Or you might be able to increase the value of your home with home improvements (but be aware of low-value home improvements<\/a>).<\/p>\n Homeownership can offer certain tax advantages, such as a mortgage interest tax deduction<\/a>. This type of deduction can help you save money on your taxes each year.<\/p>\n When you own a home, you get to do what you want with it. Paint the walls, hang pictures, and make the space your own \u2014 because it is your own! However, do be mindful of HOA rules<\/a>, if there are any.<\/p>\n You can\u2019t do much about the neighbors in the apartment next door, above you, or below you when you\u2019re renting. But in your own house, it doesn\u2019t have to seem like the whole apartment complex is part of your home. Rather, you get some privacy.<\/p>\n Houses can<\/i> appreciate, but it doesn\u2019t mean they will<\/i>. And you can\u2019t know how much appreciation will occur, if any.<\/p>\n A liquid asset is cash or something that can be easily converted to cash. Houses aren\u2019t liquid assets. If you want to tap into your home equity, you have to sell or refinance your house. Selling isn\u2019t necessarily a quick process and you have to pay agent fees, and closing costs, as well as a down payment on a new home if you\u2019re buying one. Refinancing<\/a> can free up some money, but you\u2019ll still have debt and interest payments.<\/p>\n Owning a home isn\u2019t cheap and every little cost adds up<\/a>. Depending on the state of your home and what needs to be repaired or replaced, you could easily spend thousands maintaining your HVAC system, windows, gutters, appliances, and more.<\/p>\n What are you supposed to do with your home if you want to go on a long vacation or relocate? What about if you don\u2019t like your neighbors? Owning a home lets you be flexible with your home space, but it also makes it harder to just get up and leave when you want.<\/p>\n A down payment<\/a> on a house could be tens of thousands of dollars. That\u2019s a lot of cash, which you might not have on hand. Renting may require a deposit, but it\u2019s often significantly less than what you’d put down for a home. \u201cIf you rent for $1,500 a month, you might put $3,000 down,\u201d says Clark. \u201cIf you maintain the property that you\u2019re borrowing, you get it [the deposit] back.\u201d (Though keep in mind that your down payment is putting equity into your home, and even though it\u2019s not liquid, it still belongs to you!)<\/p>\n Home maintenance costs aren\u2019t the only expenses you have to worry about. Here are a few additional expenses to keep in mind:<\/p>\n Compared to buying, renting isn\u2019t necessarily a long-term deal. The length of rental leases can vary, but one year is a common term. This gives you freedom to move onto something else in a short amount of time.<\/p>\n The renter isn\u2019t often on the hook if something needs to be repaired or replaced in a rented home.<\/p>\n Your monthly rent payments may be less expensive than a mortgage for a home, though it depends on the situation.<\/p>\n Many apartment complexes or other types of commonly-rented communities provide access to amenities like pools and clubhouses. Free access to these types of amenities can save you money on a gym membership.<\/p>\n The National Association of Insurance Commissioners reported the average yearly cost of renters<\/a> insurance to be $180. This is much lower than the $1,211 average yearly cost of homeowners insurance.<\/p>\n Certain rental costs, such as water or garbage pickup, may be included in your monthly payments. A homeowner would have to cover these costs themselves.<\/p>\n Renters aren\u2019t at risk if a rental unit depreciates in value because it\u2019s not their property.<\/p>\n It may be built into your rental agreement that your rent can\u2019t change or can\u2019t change by more than a certain percentage. But what about once the lease is up? Going from lease to lease can have different variables, such as the price of rent changing.<\/p>\n Your monthly rent payments aren\u2019t building you any equity in a home because it\u2019s not your property. It doesn\u2019t mean renting is not worth it, but it does mean you aren\u2019t necessarily putting money toward an investment.<\/p>\n Renters don\u2019t receive the tax advantages that homeowners do, such as a tax deduction for the interest paid toward a mortgage.<\/p>\n Since you don\u2019t own the property, you can\u2019t enjoy the benefits of a home\u2019s appreciation.<\/p>\n It\u2019s not your home, so you likely can\u2019t customize it exactly how you want. This often means no renovations or permanent changes to the home. In addition, many rented homes, including apartments, may offer less privacy than a place you own.<\/p>\n At the end of the day, buying a home isn\u2019t always a smart investment and renting isn\u2019t always a waste of time and money. It depends on what\u2019s best for you.<\/p>\n You should assess your current situation to see if renting is worth it or if buying is a better option. Consider the long-term costs and benefits. How long do you plan to be in your new place? If it\u2019s less than a few years, renting might be the way to go because of the upfront and ongoing costs associated with buying. And if you sell a home soon after buying, the real estate agent commission<\/a> (often around 6%) could cut into your profit.<\/p>\n But if you plan to be in your home for at least five years, it could be worth it to buy. Your home should hopefully appreciate each year and raise its overall value. This can offset the home\u2019s continuing maintenance expenses, which can cost about 1% of your home\u2019s purchase price each year.<\/p>\n Remember to weigh all the pros and cons before deciding whether to rent or buy, and then select the option that works best for your current situation. If it\u2019s renting, don\u2019t believe the myth that having a roof over your head isn\u2019t a good investment. And if it\u2019s buying, connect with a top real estate agent<\/a> to find your dream home.<\/p>\n Header Image Source: (Matthew Henry<\/a> \/\u00a0Burst<\/a>)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Is renting worth it? Learn about the pros and cons of renting vs. buying so you know if you\u2019re making a smart investment.<\/p>\n","protected":false},"author":256,"featured_media":24948,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[192,620,625],"tags":[],"class_list":["post-24942","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-buyers","category-buy-house","category-rent-or-buy"],"acf":[],"yoast_head":"\n![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/06\/cash-offer-for-my-home-paper-3-666x381.png\")
<\/a>Factors to consider if you\u2019re thinking about buying a house<\/h2>\n
How much debt do you carry?<\/h3>\n
Do you have an emergency fund?<\/h3>\n
Do you have enough money for a down payment?<\/h3>\n
Do you have money for closing costs?<\/h3>\n
Do you have a good credit score?<\/h3>\n
Will combined monthly homeownership costs be less than rent?<\/h3>\n
Do you plan to stay in this home for several years?<\/h3>\n
When might it be better to rent?<\/h2>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/06\/is-renting-worth-it-house-666x381.png\")
<\/a>Pros of buying<\/h2>\n
Mortgage payments add to your equity<\/h3>\n
Home appreciation<\/h3>\n
Tax advantages<\/h3>\n
Your home is your own<\/h3>\n
Privacy<\/h3>\n
Cons of buying<\/h2>\n
Uncertain appreciation<\/h3>\n
Non-liquid asset<\/h3>\n
Home maintenance<\/h3>\n
Inflexible<\/h3>\n
Down payment<\/h3>\n
Additional expenses<\/h3>\n
\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/06\/is-renting-worth-it-balcony-666x381.png\")
<\/a>Pros of renting<\/h2>\n
Flexibility<\/h3>\n
Low (or no) maintenance or repair costs<\/h3>\n
Potentially lower monthly payments<\/h3>\n
Access to amenities<\/h3>\n
Lower insurance costs<\/h3>\n
Lower utility costs<\/h3>\n
Less financial risk<\/h3>\n
Cons of renting<\/h2>\n
Increased rent rates<\/h3>\n
No home equity<\/h3>\n
No tax deductions<\/h3>\n
No home appreciation<\/h3>\n
Less freedom and privacy<\/h3>\n
![\"\"](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/06\/is-renting-worth-it-keys-666x381.png\")
<\/a>Is renting worth it?<\/h2>\n