Our Maryland mortgage lender team are often asked if it’s cheaper to rent or to buy a home. A lot depends on where you are in life financially, what your plans are in the future, and on what the housing market is doing. In many cases, it depends on where you live too.
Current market stats on 50 of the most popular metro areas shows an even split between renting and buying. In half of the markets it’s cheaper to own your own home, whereas, in the other half, it’s more beneficial to rent. One example is Memphis, Tennessee, where rental costs were double what owning a home cost. Even in the same state, it all depends on the area you live in and where it is that you are looking to move to. Let’s take a look at the pros and cons of renting vs. buying.
Benefits of Buying a Home vs Renting
Many people feel that buying a home is a good long-term investment because, once you’ve paid off your mortgage, the home is yours and you don’t have to worry about having to move if it isn’t in your plans. You have something to show for all the money you have paid. Paying rent for 10 to 15 years on the other hand means having nothing to show for all the money you have paid each month.
When you buy a home, it will increase in value over time and you can tap into your home’s equity once you have paid 20% of your mortgage down. You also have the freedom to decorate, make renovations, and improve the home without having to first get permission from a landlord.
Possible Downsides to Buying a Home vs Renting
The main downside to buying a home is that it’s a pretty big commitment and one that you need to be sure you can handle. You also have the problem of rising interest rates that can increase your monthly repayments if you don’t have a fixed-rate loan. This isn’t a problem if you plan ahead and have the funds to cover a rise in your payments. However, if you are on a stricter budget, a rise in payments can be a problem. When you are renting, your monthly rent payments tend to stay the same. However, if your rent rises, it’s easier to look to rent somewhere cheaper, whereas when you buy a home, you can be stuck there for a while.
Something else that you need to consider is house maintenance costs, such as having to replace a broken boiler, repairing burst pipes or a damaged roof, and getting other repairs done. When you rent, these costs are the responsibility of the landlord. There are other pros and cons to consider:
Pros of Buying
- Once your mortgage is paid off you won’t have the cost of monthly payments
- You can earn a return in your investment if your home value appreciates more than what you have paid
- The interest that you pay is a tax-deductible
- Over time, the value of your home can increase
- The equity that builds is like having a savings account that you can tap into
- You can customize your home with renovations
- Your monthly repayments will help to build your credit
Cons of Buying
- All home repairs are your responsibility
- The downpayment is fairly large
- It is more difficult to qualify for a mortgage
- There are expenses, such as HOA dues, property taxes, homeowners insurance, and mortgage insurance
- Its harder to relocate
- The up-front cost is big
Pros of Renting
- The landlord is responsible for repairs
- It’s much easier to relocate
- You won’t be paying HOA dues
- The cost to move in is low
- In some cases, your monthly rent payment will be lower
Cons of Renting
- It doesn’t really feel like your own and you can’t make changes to suit your style
- You aren’t earning any return on the payments you make
- Your monthly rent rates could rise
- Renting doesn’t help improve your credit
- Most landlords won’t make cosmetic upgrades, so a home can feel a bit out of date
As you can see, there are a lot of cases where the cost of buying a home can be less than renting. Long term, it is usually cheaper to buy a home rather than rent, but it also depends on where you live and what the current housing market is like.
If you have questions about mortgage and home costs, give our Maryland mortgage lender team a call today!