When your family begins to expand and a small apartment is no longer suitable for your needs, then it is time to start looking for a house. You have two options available to you when it is time to move: you can either rent or buy.
Both options have distinctive advantages and disadvantages to consider. If you want to purchase a home, then you will need enough money to secure a mortgage unless you plan to make an offer in cash. That means a down payment of up to 20% is necessary to qualify through some lenders, although some programs can lower that requirement to 3.5% if your credit score is high enough. Many U.S. veterans can qualify for a zero-down mortgage as well.
If you decide that renting is a better option, then the process is similar to what you follow when leasing an apartment. You will be asked to fill out an application, run through a credit check, and pay a security deposit on the property. Unlike a condo or apartment, most single-family house rentals will require you to pay all of the utilities, care for the property as if it were your own, and even manage right-of-way or HOA issues.
These key points can help you to determine if renting or buying is the better option for your family right now.
List of the Pros of Renting vs. Buying a House
1. Renting gives your family more flexibility.
When you decide to rent a house instead of buying one, then you have more flexibility in your living arrangements Most single-family units come with a 6-month or 1-year lease. If you decide that it is time to move after fulfilling this obligation, then there is nothing that can hold you back. Just give your notice to your landlord or property management agency, pack up your stuff, and turn over the keys when you are done. You don’t need to worry about finding someone else to take over the lease once it expires.
2. You need less money up front to get into the property you want.
Most leases for single-family homes will require you to provide the first month’s rent, the last month’s rent, and your security deposit before you are given the keys to start moving your stuff. If your home rents at $1,500 per month, then that means you’ll only need $4,500 to put down immediately. You’ll then get to skip the last rent payment because you already made it. The security deposit should also be refundable, so the money comes back to you if you leave the house in an equal or better state. If you are asked to even place 10% down on a $150,000 mortgage, then that’s $15,000 you need before closing costs.
3. Your landlord is responsible for fixing issues with the property.
Although you are asked to maintain the property as if you were the owner when you rent a house, that rule does not apply to repairs that are outside of your actions. If the roof begins to leak, then it is the responsibility of the owner to manage that expense. This advantage applies to your appliances, water heater, furnace, and other essentials in most states as well. You are responsible for any damage that you might cause, so take care that the only maintenance issues are normal wear-and-tear to avoid some unexpected expenses throughout the life of your lease.
4. You are not responsible for any property taxes unless the lease says otherwise.
Unless your lease or rental agreement says that you are responsible for paying the property taxes of a house, you are not responsible for this expense. All you need to do is make your monthly rental payment on time each month. As long as you abide by the terms of your contract, then the landlord must allow you to stay for the duration of your agreement. If you are responsible for paying taxes, then look at what the local laws say about ownership, squatting rights, and other factors that could potentially transfer the title to your family if you stay there long enough.
5. You don’t need to worry about the house or property losing value over time.
Many homeowners are just now getting above water on their mortgages after the 2008 financial crisis hit the global real estate market. When a property is “under water,” then it means the homeowner owes more on the loan than what the real estate is worth. If you are renting a single-family home instead, then you don’t need to worry about this issue. There aren’t any expenses beyond the rental payment like there can be with a mortgage. You can focus on your goals instead.
6. There can be limited choice in the buying market.
The choices that you have to purchase a home may be limited in some communities. Since you are purchasing a house that will be useful for several years to come as a family, there are some specific requirements that you’ll want to watch for with a property. That means you may only have a handful of qualifying properties to tour. When you decide to rent instead, there may be additional inventory to consider that can help you to find a space that perfectly meets all of your needs.
7. Rentals can handle variable income levels easier than home ownership.
If your finances are variable or they could be changing in the near future, then home ownership is not the best option. Rentals can help you to adapt to adjustments in your income more readily since there are more outs available for you. If you can no longer afford your rent, some landlords may allow you to break the lease if you can find someone else to take over the payments. You even have the option to move out without a credit penalty before the contract expires in some situations.
The best way to tell if which option is right for you is to balance the home-value appreciation with the upfront costs you face with buying. If your property only needs to appreciate 2% to 3% each year to break even with rental payments, then purchasing a house makes sense if your finances permit it. When your property needs 7% each year to break even, then renting is the better financial choice.
8. Renting allows you to avoid all of the risks of ownership.
Some people look at the idea of buying a house as an investment in themselves. The idea that owning a property doesn’t carry a lot of risk is incorrect. Most people can have their wealth grow faster using mutual funds from a long-term perspective instead of using real estate. Housing can be a volatile market where you can lose a lot of value very quickly. That is why renting can be advantageous, despite the challenges which sometimes exist with that investment. You can avoid most of the risks entirely.
9. You can create long-term rental relationships with many landlords.
Although some landlords will make you leave after your lease is up, a majority of them want to keep good tenants on their properties to ensure that they have a meaningful income. If you want stability without the issues of home ownership, then take care of a rental house to the best of your ability. Pay your rent on time. Be proactive about repairs – and even consider doing some of the easier ones yourself without notifying the property owner. It is not unusual for families to stay in the same house for 5-10 years, if not longer, because they’ve built a solid relationship with their landlord or property management agency.
10. There are fewer ongoing expenses to pay when you rent.
Renter’s insurance is a fraction of the cost when compared to a homeowners’ policy. You might need to pay for a flood policy depending on where your new house is located when you buy instead of rent. There are HOA fees to pay, property taxes, and even sometimes higher utility bills. When something breaks down, then you hire someone to fix the problem or you purchase the parts to do the work yourself. If you’re trying to save some money every month, then renting will always be an advantage.
List of the Cons of Renting vs. Buying a House
1. Landlords have permission to inspect their property.
The landlord-tenant laws across the United States give landlords permission on some level to inspect their property to ensure that you are caring for it as inspected. Although they must follow specific laws about how and when they can send a notice, they can also appear at your door if they suspect or your report an emergency situation. If they do not like the condition of the property, then they can begin eviction proceedings that can be costly to fight. You don’t need to be present at the time of the inspection, but you will need to protect yourself by taking pictures of your property before it occurs. Buying a house means you’re always in control of the property unless you violate building codes or ordinances.
2. You know what your mortgage payment will be in most circumstances.
Unless you have an adjustable-rate mortgage, you always know what your mortgage payment will be over the life of your loan. If you obtain a 30-year fixed mortgage, then the only changes to it will be the amount of property taxes and homeowners insurance payments that you make if you pay them to your lender. When you are renting a property, then the landlord has the right to modify the terms of the lease after they expire so that you end up paying more after each cycle. You might find it necessary to move several times to keep your expenses in check.
3. Renting does not give you the opportunity to build equity.
When you make your rental payments each month, the money goes to the landlord or their agent. It is a payment for the right to live and use their real estate. You do not build any equity with them because you don’t own anything. If you only miss one payment, the landlord also has the right to evict you from the premises for a violation of your lease. When you buy a house, each payment reduces the principal that you owe while any increase in value gives you meaningful equity that can be used for credit when needed.
You can cash in on an appreciation that happens with a house that you buy as well. Most properties increase in value over time. If you buy at $150,000 and then sell at $230,000, then you get to keep the difference. There are tax implications to consider when profiting from the transaction, but there are also some ways to avoid that issue in some states.
4. Buying a house gives you more stability when compared to renting.
When you have children, the home where you live often dictates what school they will attend. If you are moving each year to avoid steep rent increases, then you might be pulling your kids from one school to the next, making it a challenge for them to create lasting friendships. Owning a home means that you have stability. The only reason you have to move is if your circumstances change and you want to sell the property. You don’t even need to sell either if you own it – you can choose to rent it to someone else.
5. Owning a property means that you can upgrade or improve the structure.
If you are renting a single-family home, then any changes that you make to the property come at the discretion of the landlord. You must receive their permission to make even simple changes, like the color of paint on the wall or the varnish on the deck. If you are permitted to make those alterations, then they come out of your pocket and stay with the property. You don’t normally get to take the upgrades with you when moving. If you own a house, then you can improve it or make changes that are based on your preferences.
6. Rentals do not always allow you to start a business in your home.
If you decide to rent a home instead of buying one, then you will want to read the terms and conditions of your agreement carefully. Some landlords or agents will not allow you to start a business on the property. There might even be stipulations against telecommuting from the house. When you purchase a home instead, these restrictions typically go away. You might face some zoning problems depending on the opportunity you pursue, but that will be the extent of the roadblocks that you face.
7. Home ownership can provide your family with some significant tax benefits.
When you decide to purchase a home with a mortgage, then the interest payments you make can become a deduction on your annual tax returns. Although updates to the U.S. tax code may limit this option for some families, it can provide a significant savings in what you must pay to the IRS each year. There are some limitations on what you can claim, especially if a second mortgage is necessary to fund the purchase, but it can help you to manage your finances a little better.
The only tax advantages you will find with a rental home is if you have an active home office. You can take a percentage of your monthly payments, utilities, and other expenses based on the size of the space you use as a deduction from your business income. If your company doesn’t make a profit, then you might need to defer this savings until it does.
8. There can be limited choice in the rental market.
Your choices will sometimes be limited when you try to find a rental because landlords have the right to put some stipulations on their property. They can decide if pets are permitted on the property, so owning a cat or dog could prevent your application from receiving approval. You might find that there are no properties available which have enough bedrooms or bathrooms to meet the needs of your growing family.
You can take advantage of the freedom to be more mobile when you rent, but buying a home allows you to choose the exact property that meets your expectations now and into the future.
9. You don’t face the threat of eviction on a single missed payment.
If you miss a rental payment at any time, some laws do not require the landlord to accept one that is late. That means the eviction process can begin immediately. You may find that there is only 2-3 weeks at that stage to find a new place to live. Having an eviction judgment is a public record that can make it challenging to find another rental, obtain low-interest financing, or even purchase a home in the future.
When you miss a mortgage payment, the lender will typically work with you to find a way to make the past due manageable. They can extend a loan by a month sometimes, work out a payment plan to pay a portion of the amount, or take other steps that are unique to your situation. Even if you decide to push the home into foreclosure, the process can take 6-12 months to complete sometimes – giving you plenty of time to save up for a move.
10. There is more privacy when you own a home instead of renting one.
If you thought that your neighbors in an apartment complex were bad, just wait until you become that one family who rents a home wherever everyone else purchased theirs. Owning your property means that you can take advantage of the peaceful silence that surrounds your house. Nosy neighbors aren’t going to report every perceived infraction to their friends who serve as your landlord. You don’t need to let anyone in for inspections, review lease addendum’s each year, or manage changes to your utility account. It’s yours until you decide to sell.
A Final Thought on Renting vs. Buying
Renting a home can be a struggle at times if there are children in your family because you are always under the threat of needing to move. This lack of stability can interfere with social relationships, force school changes, and even alter the after-school activities that you choose as a family. Since a landlord can decide to sell the property even if you live there in most states, there are never any guarantees available to you.
Buying a home makes sense when you want to settle down. If you have a stable job, guaranteed income, and want to establish your presence in a neighborhood or community, then the equity you start building can improve your credit, increase your net worth, and have something to hand down to your family as an inheritance later on. Rentals cannot provide any of these benefits.
The pros and cons of renting vs. buying a home usually focus on finances first because of the cost differences involved. If you are not sure how much home you can afford, then speak with a mortgage specialist, a realtor, or someone you trust about the status of your finances and credit. That way, you will know which option can provide the most benefits to your family.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.