Is It Better to Rent or Buy? What to Know Before Making a Move

4 min read|May 3, 2022|fbtwitteremail

Coke vs. Pepsi. Pancakes vs. waffles. Team Edward vs. Team Jacob. Like these timeless debates, everyone has an opinion on buying vs. renting a home. But there’s no right answer for everyone. They’re both good options. For very different reasons.

Let’s cut to the chase. Is renting or buying a home cheaper?

A hard truth: It depends. To give you a general idea: The median monthly cost for buying a starter home in the US in January 2022 was $1,867. (Not including HOA fees or maintenance and other costs.) The median rent was $1,789 per month.

But it largely depends on location. Realtor.com compiled rental data for studios and one- and two-bedroom homes in the 50 largest metro areas in the US. And compared it with the monthly buying costs (including taxes and insurance) of similar-sized housing in the same places. Based on median listing prices and a few assumptions (details in image). Here’s how the data breaks down.  

Design: TheSkimm | Data source: Realtor.com
Design: theSkimm | Data source: Realtor.com

Got it. How can I compare the costs of renting vs. buying?

If you buy, your monthly costs depend on your mortgage. With a fixed-rate loan, your bill probably won’t change much each month.Unless you refinance down the line. Or if your property taxes go up.

If you rent, your monthly costs depend on your landlord. Who could sell the property. Or increase the rent once it's time to renew your lease. (Unless you have rent control.) The national median rent went up 19.8% in January 2022 compared to the previous year.

Oh, and don't forget about taxes. Homeowners get a few breaks that can help lower their tax bills. But only if they itemize deductions. Renters can't deduct rent. But some states offer credits. 

Okay, so…should I rent or buy?

Here are a few questions to help you get your answer:

What can you afford to pay upfront?

Buying: You need a down payment. Experts recommend 20% of the purchase price, but determine how much makes sense for you. And don't forget about closing costs. Unless you can get the seller to cover them.

Renting: You need to put down a security deposit (typically a month's rent, but it's up to the landlord), plus the first month’s rent. 

How handy are you?

Buying: Maintenance is all you. You're responsible for handling and paying for all repairs and general upkeep. And you could have to spend more on your house’s maintenance some months than others. Many experts suggest saving 1% of your home’s value each year to cover it.

Upside: What you do with the property is mostly up to you. Wanna paint a wall or install new cabinets? Go for it. But you may have to adhere to area laws or HOA rules that would limit what you can do to some parts of your house. (PS: A mortgage also requires you to follow their rules, like about renting out your home.) 

Renting: Your landlord should take care of maintenance. Most things are covered by your rent. 

Downside: They'll do it on their schedule, not yours. 

How long do you plan on staying?

Buying: Be ready to commit. Experts recommend staying for five years or more to recoup your closing costs, realtor fees, and other expenses of buying.

Renting: Want flexibility? Whenever your lease is up, you can leave easily for a change.

What makes sense for your financial goals?

Buying:Could help you build your net worth. When you sell, any profit (after paying fees and the remaining mortgage) is yours. But remember: a profit is not guaranteed. Your home could lose value if it’s not properly maintained. Or if the housing market goes down in general (hi, housing bubble). 

And if you can’t keep up with the monthly payments, your home could face foreclosure. Which could do major damage to your credit report and impact your finances for a long time.

Renting: Won't directly help you build wealth. More like the opposite. But you could save and invest the money that you would've otherwise saved for home maintenance or spent on a pricier mortgage. 

To put it simply: Your decision to rent vs. buy should be more about your lifestyle than the costs. If you have the time and energy to take care of a home, and the stability to stay a while, owning a home might be the move for you. If not, renting has you covered. 

theSkimm

There’s no right or wrong answer to the age-old debate of whether renting or buying a home is better. Which is right for you largely comes down to your needs and financial situation.

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Skimm'd by Liz Knueven, Kamaron McNair, Stacy Rapacon, and Megan Beauchamp