When it comes to buying and owning homes versus renting one, the differences are startling.
If you choose to buy and own your own home, you will have tons of upfront costs, many of which will need to be paid out of pocket. Other costs are paid at closing. Some of these costs include the following:
- The down payment.
- Home inspection costs.
- Home appraisal costs.
- Earnest money.
- Your first year’s homeowners insurance.
- Property taxes.
- Miscellaneous closing costs.
While you should be prepared to take care of these costs, before you go to close talk to your agent and find out whether the seller is willing to cover or share the closing costs.
There are many recurring costs associated with homeownership, as well. These include:
- Property taxes, which are subject to change each year.
- Loan payments.
- The cost of your homeowner’s insurance.
- Utility payments.
- Maintenance costs.
- Private mortgage insurance.
Homeownership also comes with some rather unique, more unpredictable costs. These are either rare or one-time costs that you should consider:
- Furniture and fixtures.
- The cost of moving.
- Home renovations and improvement projects.
- The fact that you will have to pay for all repairs not necessarily covered by insurance.
Upfront costs for home rentals are a bit different. It doesn’t have nearly as many or as expensive costs, but here are the upfront costs you will likely be facing:
- The cost of moving from your old place to your new place.
- A nonrefundable deposit, such as a pet deposit. These deposits can fluctuate based on many factors.
- Your first month’s rent. (If you move mid-month, your landlord may give you a prorated amount. Check with them first!)
- A security deposit.
Recurring costs for rental homes can include:
- Your monthly rent payment.
- A potential pet rent, rather than a pet deposit.
- The cost of utilities.
- The cost of getting your laundry done.
- Renters insurance.
Pros and Cons of Buying:
- You build up equity over the course of time.
- You can receive special tax benefits, including federal tax deductions and homestead exemptions.
- You can be more creative with your home.
- You can build up a sense of community. If you move into a home with a large community, you can build a network of friends.
- You can turn it into an investment property. From turning it into a duplex to listing it on short-term renter sites like VRBO and Airbnb, you can help offset your costs by renting out your property.
- You may face financial losses if the area you live in decreases in value.
- You are solely responsible for all repairs and maintenance costs.
- You face high costs upfront, and usually higher long-term costs, as well.
- You can’t expect a furnished home, as most homes are sold unfurnished.
Pros and Cons of Renting:
- You don’t have to worry about any repair or maintenance fees.
- You won’t have to deal with as strict credit requirements.
- You can move much more easily.
- You don’t have to worry about the value of the home you’re living in decreasing.
- You may find that you save money on utilities, as some utilities are included in many rental properties.
- Unless you live in an area with rent control laws, you may find that the cost of your rent goes up.
- You won’t have any federal tax exemptions.
- Renting does not build equity.
- You have no guarantees that you will be able to stay in your rental property forever, or at all..
Only you can decide what the right choice for yourself and your family is. With this guide, you can weight the options more carefully and decide which will work out best for you.