Renting vs. Buying: Analyzing the Costs

For many of us, owning a home has been a lifelong dream. We are commonly asked, does it make more financial sense to rent a house or get a mortgage? That answer depends on multiple factors: your finances, your long-term plans and the real estate market. 

The costs you will pay whether you decide to buy or rent depend on more factors than simply a mortgage versus the cost of rent. Let us lay some of the costs out for you:

Cost of Renting:

  • If you rent a home or apartment, your monthly costs are generally fixed. Rental contracts can be anywhere from one month to 18 months in length. However, rent prices are likely to increase as you end one contract and begin another, even if you stay in the same property.
  • A fixed, monthly rent rate may or may not include utilities such as electric, gas, and cable or Internet.
  • Most, but not all, leases require the first month’s rent, last month’s rent and a security deposit equal to one month’s rent in advance. So for example, an apartment that costs $1,000 per month will require you to pay $3,000 up front.

An upside to renting is that your landlord is responsible for all repairs, unless otherwise stated. When you’re a tenant, your landlord is responsible for paying to fix any issues with the property. If your roof starts leaking or pipes burst, you can simply give your landlord a call and they will handle the rest.

However, the cost of renting a home/apartment could cost more than, sometimes double, the amount a mortgage would be on that same property. A landlord’s goal is to maximize profit earned from your rental, so keep that in mind as you consider renting vs. buying. While you are saving money on potential repairs, you could still be overpaying for the home.

Cost of Buying:

  • When buying a home, most mortgage lenders require a down payment of between 5 percent and 20 percent of the home’s price.
  • Some loans may have a lower threshold, but down payments below 20 percent will mean paying for private mortgage insurance, or PMI, which is an additional monthly expense.
  • A mortgage calculator can give you a rough estimate of your monthly payments, including your mortgage and other expenses such as property taxes and homeowners insurance.

Unlike renting, as the homeowner, you will be responsible for all maintenance and repairs.

With these costs in mind, here are some situational reasons why you might consider buying versus renting.

Reasons to Buy

  • Stability. You plan to stay in the same place for more than a few years.
  • Affordability. You’re eligible for a mortgage, with payments you can afford.
  • Equity. Mortgage payments let you build equity ownership interest in your home, while money paid for rent is money that you’ll never see again. If you’re willing to put some “sweat equity” into a fixer-upper, that will allow you to buy something more affordable, increasing the value with improvements over time.
  • Freedom. You want the freedom to customize your home to fit your lifestyle.
  • Tax Benefits. Owning a home comes with tax benefits. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, and some of the costs involved in buying a home

Reasons to Rent

  • Flexibility. You aren’t sure how long you’ll be in the home due to work, changing family circumstances or other reasons.
  • No Maintenance Costs. If nearly anything inside or outside your house breaks, it’s your landlord’s responsibility to fix it.
  • Unpredictable Finances. Your finances are likely to change soon, potentially making it difficult to keep up with mortgage payments.
  • No market risk. When you buy a home, you take on the risk (and potential reward) of the home’s value changing.

With all of these factors in mind, the choice between buying and renting is ultimately yours! Make sure your living situation is complimentary to the lifestyle YOU want.

If you are still unsure about whether to buy or rent, give the Robinson Team a call. We’d be honored to help find the right home for you!

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Our agents write often to give you the latest insights on owning a home or property in the Chattanooga Metro Area area.