Buying vs Renting: Pros, Cons, and How to Take Action
If you’re ready to move, but you’re not sure if you want to buy or rent your next home, this post is for you. We will cover the costs of buying vs renting, as well as the pros and cons of renting or owning your home. We’re here to help you know if it is better to rent or buy, given your current situation.
How Much Does it Cost to Buy a Home?
If you’re going to buy your own home, there are many costs associated with this outside of the purchase price itself. This section will go over the main costs that you’ll encounter when you’re buying a home.
Down Payment
Your down payment is a percent of the home’s listed price that you pay upfront. This percentage can range from 3% up to 20% based on your mortgage loan type, market, and credit score. In the current seller’s market[link seller’s market to the blog we rewrote on this topic] we’re in, most buyers find that they are putting around 6% in for their down payment.
Home Appraisal
An appraisal is done to make sure the home’s listed price matches the home’s value. This price ranges anywhere from $300 to $425 for single-family homes, and between $500 and $800 for multi-family properties.
Home Inspection
An inspection will be performed by a licensed home inspector. They will be looking for any potential problems that the home buyer may have missed on their walk through like a cracked foundation, or leaks in the roof. Inspections for smaller homes (less than 1,500 square feet) usually cost between $250 to $325. For properties larger than 2,500 square feet, you can expect to pay upwards of $350.
Property Taxes
You could be responsible for anywhere from six months of property taxes before moving in, but this depends on your area and the time of year.
Loan Payments and Insurance
You’ll pay loan payments and insurance each month. The Homeowners and Renters Insurance Institute estimated this to be around $1,312 annually for insurance alone. However, your loan payments and insurance costs vary based on the purchase price, home location, and loan terms. Insurance professionals estimate that homebuyers pay anywhere from a couple hundred to more than $3,000 a year for their insurance costs.
Upkeep
As a homeowner, you will be responsible for all of the maintenance and upkeep around your house once you purchase it. Upkeep includes lawn care, plumbing systems, roof repair, renovations, and more.
What Are the Pros and Cons of Buying a House?
When you purchase a house, several advantages and disadvantages are associated with this process. This section will talk about both of them as they pertain to buying your home.
Pros of Buying a House
- Builds equity over time
- Easier to develop relationships with your community
- Freedom to customize the home to your tastes
- Potential for additional income from renting out the property
- Tax benefits like the homestead exemption and federal tax deductions
Cons of Buying a House
- A high upfront cost to the buyer
- Most homes won’t come furnished
- Potential for financial loss
- Responsible for upkeep and maintenance
If you plan to rent a home, there are a few costs that come along with it as well.
- First month’s rent — Renters are usually required to pay the first month’s rent upfront. The average rent cost in the United States is $1,124, so you need to plan accordingly for this double expense.
- Non-refundable deposit — You may be charged a nonrefundable deposit ranging from $100 to $500 all the way up to the same cost as rent, depending on your landlord’s preference.
- Pet rent — A lot of landlords will add on extra rent costs if you own a pet. These additional costs can range from an extra $10 a month up to $100 or more. Additionally, you’ll typically need a separate pet deposit, which can cost anywhere from $200 to $500.
- Renter’s insurance — Many states require renters to have renter’s insurance to protect against any lost valuables. The average cost is $15 per month.
- Security deposit — Most landlords require a security deposit before moving in. This acts as insurance against damage, broken leases, and late rent.
- Utilities — Most renters have to pay monthly utilities on top of their monthly rent expenses. These costs vary by usage and where you live.
What Are the Pros and Cons of Renting a House?
When you decide to rent a house, you get a few advantages and a few disadvantages with this process. This section will talk about a few of those concerning renting your next home.
Pros of Renting a House
- Credit requirements don’t factor in as much
- The landlord will do maintenance and repairs
- The relocation process is easier
- Some utilities may be included in your rent
- You’re not exposed to the real estate market
Cons of Renting a House
- Limited control over the rent price increasing
- Limited guaranteed housing security
- No chance to build equity
- No federal tax benefits available
Should You Rent or Buy a Home?
Now that you understand all of the costs associated with buying vs renting, you can decide which is right for you. Renting a home vs buying a home have their pros and cons, and it’s just a matter of what you can afford and what you want to be responsible for in your home. If you decide that buying a home is the right choice for your current situation, contact one of our real estate professionals for help with the buying process.