Owning a home has advantages and disadvantages – and the same can be said about renting. So how can you be sure homeownership is the right choice for you?
To decide whether you should buy a house, you’ll need to set financial goals and determine the type of lifestyle you want. To help, we’ve compiled a comprehensive list of the advantages and disadvantages of buying a house to help you determine whether homeownership is right for you.
What Are The Pros Of Buying A House?
Buying a home has many advantages you should consider before you become a homeowner.
Lower Long-Term Housing Costs
Most people use their finances as the determining factor when deciding between renting or buying a house. You might assume renting is more affordable than purchasing, but that may not be the case in the long term.
When you take out a fixed-rate mortgage, your monthly principal and interest payments stay the same over the life of the loan. Rental prices usually increase at least once a year – and don’t stop climbing.
A home may be more expensive upfront, but homeowners usually pay less for housing over time due to a combination of fixed monthly payments and homeowner tax deductions and credits. A National Association of REALTORS® report found that the savings usually kick in within 5 – 7 years, so homeownership could start saving you money in a relatively short amount of time.
Stable Long-Term Housing
In most cases, renters sign a lease that lasts 1 or 2 years. Sometimes landlords offer longer lease terms, but contractually, renting is short-term compared to owning a home. When you own a home, you aren’t limited to a short-term contract that a landlord may or may not renew, and your address stays the same for decades.
As long as a homeowner is up to date on their mortgage payments and property taxes, they can keep their property forever. If the homeowner dies, they can transfer ownership of the property to heirs.
Potential Return On Investment
With each mortgage payment, you build home equity you can convert to cash. You can leverage your equity through a home equity loan or home equity line of credit (HELOC) to fund home improvement projects, consolidate debt or invest in another piece of real estate.
You can also cash in on your equity by selling your home. You may earn a profit – especially if property values have increased in your area – but the proceeds may be subject to capital gains tax.
Tax Benefits
You pay more taxes as a homeowner – but certain tax benefits can help you offset the cost. For instance, you could write off the interest you paid on your mortgage if you itemize your deductions.
Homeowners can also deduct property taxes on their returns, potentially reducing their tax bill by up to $10,000. If you’re married and filing separately, you can claim up to $5,000. You can claim these tax deductions for the combined total of your property taxes, state and local income taxes and any sales taxes.
Freedom To Renovate
You own the home, so you’re not accountable to a landlord’s rules. In most cases, you can change your property as you see fit. You can renovate your kitchen, paint your walls and add landscaping. If you belong to a homeowners association (HOA), as long as it doesn’t break the association’s bylaws, you can even build an addition.
Freedom To Share Or Rent
You can also decide who lives in your home. Many rental properties limit the types or number of pets you can have. But as a homeowner, you can own a dog, a cat or both – and don’t have to worry about pet deposits.
You can invite family members or friends to live with you, or rent part of your home (or your entire home) for short-term rentals.
A Sense Of Community
For some buyers, owning a home in a close-knit community offers emotional benefits that renting doesn’t provide. Whether you live in the suburbs or a city, you’ll likely find neighbors who can lend you a hand when you need help.
A sense of community can also be a significant advantage for couples with children. Being around homeowners with a similar lifestyle can be a great way to find lifelong friends.
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What Are The Cons Of Buying A House?
The disadvantages associated with buying a home can make homeownership less attractive to some people. Below, we’ll look at some potential downsides of homeownership.
Higher Initial Costs
You’ll need more than a down payment to cover the cost of buying a home. You’ll also need to factor in closing costs, which include several fees, such as origination fees, a home appraisal fee and title insurance.
To rent a property, you typically pay a deposit and 1 – 2 months of rent upfront. When you compare the upfront cost of buying a home to the upfront expenses of renting, renting has lower upfront costs.
Lack Of Flexibility
Owning a home can mean more freedom and less flexibility all at once. If a homeowner needs to move, they must go through the process to rent or sell the property. It’s not as simple as packing your bags and changing your forwarding address. When you’re a renter, you can wait until your lease ends to find a new place to live.
Selling a home can be a time-consuming process. If you’re not working with an agent, you’ll likely need to stage your home, take pictures for marketing, place it on a multiple listing service (MLS) and then wait to receive offers. For many homeowners, owning a home is worthwhile for financial, lifestyle or personal reasons. But not everyone wants to feel tied down to a single home or area.
Increased Financial Responsibility
Like any loan, a mortgage is a serious financial commitment. If you fall behind or miss mortgage payments and default on your home loan, the consequences can range from credit score damage to foreclosure.
Your mortgage payments are made up of more than the loan’s principal and interest. You’ll also pay property taxes and homeowners insurance. And unless you made at least a 20% down payment, depending on the loan, you may also pay mortgage insurance. All of these additional expenses can increase your monthly payment.
Responsibility For Maintenance And Repairs
Besides monthly mortgage payments – typically including the cost of homeowners insurance, property taxes and (potentially) mortgage insurance – homeowners are also responsible for home maintenance and repair costs.
If an appliance breaks, you’ll pay to repair or replace the appliance out of pocket unless you have a home warranty. If you decide to renovate your home, you may discover issues you weren’t aware of that inflate the cost of the project.
What Are The Pros And Cons Of Renting A House?
We’ve delved into the pros and cons of buying a home in some detail, and now it’s time to weigh the pros and cons of renting.
Pros Of Renting
- Greater mobility: A renter can leave a property when their lease is up.
- Less responsibility: Renters usually aren’t responsible for repairs or maintenance in and around a rental property or for paying property taxes.
- Lower upfront costs: To acquire a rental, a renter usually pays a security deposit and 1 month’s rent in advance, which is lower than the upfront costs of buying a home.
- Less risk of loss: When property values drop, renters don’t risk losing money if the property doesn’t sell.
Cons Of Renting
- Less opportunity to build wealth with the property: When you rent, the money you pay your landlord doesn’t come back to you. When you buy, you likely build home equity over time.
- Less control over the property: When you rent, you have less control over keeping a pet on the property, deciding who can live with you, renting or subletting.
The Bottom Line
Deciding whether to buy or rent can be challenging if you’re unsure how owning real estate can benefit you. Thoroughly evaluating the pros and cons of buying a house can help you make an informed decision about purchasing a home and deciding if it’s best for your personal and financial needs.
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Hanna Kielar
Hanna Kielar is a Staff Writer for Rocket Companies with a focus on personal finance, automotive and personal loans. She has a bachelor's degree in professional writing from Michigan State University.
