Buying vs. Renting a Home

Buying vs. Renting a Home

Is Home Ownership Right for You?

Before making a hasty move, review the details and make the financial decision that is right for you. While owning a home may be beneficial for some, many people find renting to be a better option. There are examples that show renting can save consumers money. However, the decision to rent versus buying a home is a personal decision.

Chart Courtesy of Government National Mortgage Association (Ginnie Mae)

If you decide to buy a home, your income, savings, and monthly expenses play an important role in determining how large a mortgage you can afford. To help determine the amount you can afford, you  can use this mortgage calculator from Freddie Mac, or contact a HUD-approved housing counseling agency in your area. HUD approved counselors can help you create a home buying budget at no charge.

Costs of Homeownership

Under current U.S. tax rules, taxpayers who itemize their expenses can deduct the interest paid on mortgage debt up to a certain limit. New legislation reduced the amount through the year 2026; however, the change affects only those living in expensive housing markets. With a tax benefit for homeowners, the savings could be significant. It is important to know all of the costs impacting your decision to buy.

If you purchase a home in a sub-division or planned community, you may be obligated to pay a Home Owners Association (HOA) or Property Owners Association (POA) fee. The same may be true if you buy a condo or townhouse. This fee may cover things like trash and snow removal, mowing and maintenance of common grounds and upkeep of shared facilities like a clubhouse, playground, tennis courts and swimming pool. HOA fees vary greatly depending on the community, so they need to be considered in your decision. If you live in a state with high property taxes, you will also need to factor in this additional cost each year.

Buy vs. Rent Comparison

The chart below shows a cost comparison for a renter and a homeowner over a seven-year period. The renter starts out paying $800 per month with annual increases of 5%. The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000. After 6 years, the homeowner's payment is lower than the renter's monthly payment. With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years.

From 8 to 30 years, savings increase every year.

Monthly Expenses: Buying

Your rental company takes part of your rent payment to cover certain housing expenses. When you decide to purchase a home, you accept responsibility for paying for those expenses. They are additional costs to your monthly mortgage payment and should be included in your budget estimates. Typical expenses include: property taxes and special assessments; home/hazard insurance; utilities; maintenance; HOA or condo fee(s); membership fees (such as for recreational facilities), and other services.

HOME BUYING RESOURCES

Home Buying Checklist - Take this list with you when comparing homes.
Home Ownership: Finding the Right Home, Buying a Home and Owning a Home (NCUA) 
Fair Housing: Equal Opportunity for All (HUD booklet) 
Avoid Predatory Mortgage Lending (Center for Responsible Lending)

To learn more about buying a home, visit:
Buying a Home (U.S. Department of Housing and Urban Development)
Know Your Options (Federal National Mortgage Association, or Fannie Mae)