Buying vs Renting a Home
The price of buying a home isn’t the only concern, however; renters across the country are facing an affordability crisis. In 2022, the median monthly rent in the U.S. surpassed $2,000. The 3-4 percent yearly increase renters are accustomed to got thrown out the window, and many tenants are being met with rent increases averaging 17 percent. t the window, and many tenants are being met with rent increases averaging 17 percent.2
With the uncertainty surrounding the housing market, you might be wondering if it’s better to rent or buy a home. While there is no definitive answer, there could be a ‘better’ solution for each individual and their unique financial situation. There might be times in your life where it makes more sense to rent, and other times where buying is a financially sound decision.
Advantages to RentingThere might be times in your life where it makes more sense to rent as opposed to buying. Maybe you’re new to the workforce and you’re trying to save for a down payment, or you’re exploring a new area and don’t know if you’re ready to settle down quite yet. Renting a home certainly comes with its own set of advantages. Here are a few to consider:
Increased mobilityWhen you’re new to an area, it’s important to make sure you’re happy before you settle in long-term. Renting allows you to try out different neighborhoods, towns, or even states before you make the commitment of buying a home. Just remember, you’re obligated to stay put through the entirety of your lease or you may have to pay hefty fees to break the contract.
No Down PaymentIf you haven’t been able to save for a down payment yet, it might be in your best interest to rent for a little while longer. Down payments typically range anywhere from 3 to 20 percent of the purchase price of a home (although your financial institution might offer unique down payment assistance program, like the SouthState Advantage programs)
Some landlords require a security deposit to hold in the case you damage their property or stop paying rent. A security deposit is normally equivalent to one or two months of your base rent, and it’s common for these to be returned at the end of your lease. While this might seem inconvenient, this is typically less than what is needed for a down payment on a house. If saving for a down payment is on your priority list, check out these down payment strategies.
You May Not Be Responsible For Maintenance and RepairsRenting might make the most sense if you prefer to not be responsible for mowing the lawn or other home maintenance. Some landlords might require you to cut the grass or shovel snow, while others provide these services to their tenants. When you’re a tenant, your landlord is typically responsible for the maintenance and repairs inside your home. While this may feel like a luxury, this can backfire if your landlord is slow to address your concerns about your leaky faucet or broken dishwasher.
Best Short-Term Housing SolutionAs a general rule of thumb, if you don’t see yourself living somewhere more than two years, it doesn’t make sense to buy. If you sell your home too soon, you could walk away with little to no equity.
Advantages to OwningOwning a home comes with more responsibility, but the benefits often outweigh renting. If you see yourself staying in the same place for a while, consider becoming a homeowner. After all, you’re paying for a place to live whether you decide to rent or own.
You Build Equity in Your HomeAs a homeowner, you build up equity in your home as you pay down your mortgage loan over time. As a renter, the landlord builds the equity. When you’ve built up enough equity in a home, you might be eligible for a home equity line of credit (HELOC). This line of credit can be used to help finance debt consolidation, weddings, your children’s college tuition, etc.
Further Your Tax Deductions3If you itemize your deductions on your tax returns, becoming a homeowner can offer tax benefits. You might be able to deduct mortgage interests, property taxes, and even home office expenses, if you are a business owner.
Freedom to Make Cosmetic UpgradesOne of the best things about owning your home is you can change anything you don’t like. You want a pink bedroom? Paint it. A clawfoot tub in your bathroom? Install one. You can renovate your kitchen, screen in your back porch, and install a pool. The possibilities are endless.
On track for Financial FreedomIf you decide to downsize later in life, you could sell your home and use the profits to buy something more suitable for your retirement: a condo, townhome, or even a smaller house. With the extra money, do something you’ve always wanted to do. Travel the world or buy an RV. Owning now may put you on track for financial freedom later.
How much home can I afford?The decision to buy or rent is a big one. It is essential to look at your own financial and personal situations to make the right choice. It’s likely your rent payment could be very similar in cost to a mortgage loan payment. If you’re curious to know how much home you can afford, there are many resources available on the internet like this home affordability calculator.
About the Author, Brent Harrell: Brent has worked in the mortgage and finance industries for more than 20 years. Prior to joining SouthState as Co-President of Mortgage, he served as Co-President of Mortgage Lending at CenterState Bank.
2. Rental Market Tracker: Asking Rents Climbed 17% to a Record High in March (redfin.com)
3, Consult your tax advisor.