Pros and Cons of Buying a House vs. Renting

September 19, 2022 By , ,

If you’re dreaming of owning a home, there are few things in life that compare to the day you’re ready to close on your mortgage. From pre-approval to appraisal, to closing and recording, it’s the culmination of years spent planning and saving. However, before jumping in, it’s important to review the pros and cons of buying a house and know the signs you’re ready to buy a house, like being familiar with the disadvantages and advantages of owning a home and the advantages and disadvantages of renting.

Pros and Cons of Buying a House: What are the Disadvantages of Renting?

Renting is a good option if you’re not sure you’re ready to step into the homebuying journey. It offers flexibility, convenience, and some financial freedom, as you won’t have to spend money on home maintenance, repairs, insurance, or property taxes. Other potential advantages include:

  • You may be able to live in a space you couldn’t afford to purchase
  • Renting a home is more quickly arranged than buying a home
  • You’re not tied down if life circumstances change

However, there are also potential disadvantages of renting, including:

You’re not building equity

When you rent a house, the space isn’t yours; that means that as the home’s value appreciates, the landlord builds equity, not you. In addition, your monthly rent helps the homeowner build up equity more quickly while you remain stagnant. This is one of the biggest disadvantages of renting.

Related: What are the Best Ways to Build Equity?

Rental regulations

You must follow the terms stated in the rental contract. This may leave you with little wiggle room to upgrade or decorate your space. If you do make changes, it’s up to you to put everything back the way it was by the time your lease is up, or you may forfeit your security deposit.

Your landlord calls the shots

Your landlord can increase the rent, sell their house, or make it unavailable to rent, which leaves you to figure out new living arrangements. Recent rental supply shortages and a strong job market have increased single-family rent price hikes across the nation, according to CoreLogic. While landlords may increase rent annually, your monthly mortgage payment will stay the same year to year, unless you decide to change it.

 Less outdoor space, and it’s more difficult to have pets

For many renters, the experience of having to stay at home for months due to the coronavirus pandemic emphasized the value of having a private outdoor space. Whether it’s for gardening, pets, or backyard barbeques, outdoor space may be at a premium if you’re renting an apartment, condo, or a single-family home. Additionally, if you have pets, you may have to pay monthly pet rent and a pet deposit, depending on your animal’s size.

No tax benefits

You won’t receive any tax breaks from renting. However, if you own a home, you may be able to take advantage of certain tax benefits, such as the home office deduction, mortgage interest deduction, or mortgage points deduction.

Young girl playing with a dog inside a moving box after hearing about the advantages of owning a home

Pros and Cons of Buying a House: What are the Advantages of Owning a Home?

If you’re unfamiliar with what it takes to own a home, you may be surprised by the hidden costs that add up over time, including:

  • Property taxes cost extra over and above your mortgage payments
  • Depending on the loan type and down payment size, you may need to pay for mortgage insurance
  • You have to pay for regular maintenance and unexpected repairs

If you want to compare the different pros and cons of buying a house, here are some of the big advantages of owning a home:

You’re building equity

Home equity is the portion of your home you own free and clear. If you sell your house after building equity, you may end up earning a profit. In fact, during the first quarter of 2022, homeowners with mortgages saw their equity grow by 32.2 percent year over year, according to CoreLogic.

You’re putting down roots

There’s a sense of pride that comes with being a homeowner in your neighborhood. It may encourage you to connect with those who live and work around you on a deeper level and participate in local affairs.

You’re in control of your environment

One of the most tangible advantages of owning a home is being able to adjust the property to your preferences. If you don’t like the kitchen, renovate it.  If you want to change up your outdoor space, there’s no one to stop you from starting a few landscaping projects.

Home value tends to appreciate over time

While the past couple of years have seen high appreciation rates (approximately 27 percent), homes on average appreciate around 3.7 percent each year. Keep in mind, this number fluctuates depending on the market, interest rates, and the age and condition of the house, among other factors.

Your house is a source of cash

If you own a home, you have access to the equity you’ve built up. It may be a strategic option if you need to pay down high-interest debts, like student loans, or if you need to remodel or renovate. If you have sufficient equity, there are multiple options to take advantage of it.

Home equity loan

These loans let you borrow against what your home is worth. You’ll receive the funds as a lump sum. It’s a popular option for borrowers who face one-time, big-ticket expenses, such as a wedding.

HELOCs

With a home equity line of credit, you can continuously borrow from your equity and pay it back over a set period of time; keep in mind, there are important differences between HELOCs and home equity loans.

Cash-out Refinance

You can refinance a mortgage to get a new rate, adjust its length, or add or remove a borrower. However, with a cash-out refinance, you’re receiving a new mortgage for more than what you owe; the “cash out” part comes from the difference between your new loan amount and what you owe.

Dad playing with daughter in living room after thinking about the disadvantages of renting.

Other Signs You’re Ready to Buy a House

If you think you’re ready to make the leap to homeownership, you must be familiar with the pros and cons of buying a house, as well as the potential disadvantages and advantages of owning a house. However, there are broader questions you need to answer if you think you’re ready to move forward, such as:

  • Do you have a stable income?
  • Have you saved up enough for a down payment and an emergency fund?
  • Do you feel comfortable managing debt?
  • Is your credit score where it needs to be?
  • Will you want to live in the same neighborhood long-term?

Before buying a home, make sure you’re able to recognize all of the signs you’re ready to buy a house. While the disadvantages of renting may be inconvenient right now, a new mortgage shouldn’t stop you from saving for things like retirement, or from accomplishing your other long-term financial goals.

Need Help on Your House Hunt?

Your neighborhood Mortgage Advisor is available day and night to answer your questions through the entire home buying journey, from start to finish, and beyond. Reach out if you’re ready to take a confident next step, or visit our blog for home buying tips.

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