Advantages & Disadvantages of Renting vs. Buying a Home
One of the more important financial decisions you'll make is whether to rent or buy your home. In some cases, a limited income or a lack of savings may make renting the only viable alternative. However, if you're in a position where you have the choice, weigh a number of factors before making your final decision.
Lower Upfront Costs
An advantage of renting is that the upfront costs are lower than when purchasing a home. In many cases, landlords only require the initial month's rent plus a matching security deposit before you move in. To buy a home, many lenders require a down payment of at least 20 percent of the purchase price and you may also have to pay closing costs. You may qualify for a government-backed FHA loan requiring a lower down payment, but you'll have to bear the additional cost of private mortgage insurance, which protects the lender in case you default.
Greater Flexibility
Renting also provides greater flexibility than buying a home. You can move from place to place without the hassle of having to sell your home and purchase a new one. You can also enjoy greater financial flexibility as you won't have to spend money on home repairs, improvements and property taxes. With the money you save on expenses, you can start an investment program or spend more on entertainment or other discretionary items.
Long-Term Impact
On the downside, you do not build equity when you rent a home. When you buy, your equity in the property grows as you continue to make payments over time. You can use the equity as a source of additional funds by taking out a home equity loan or line of credit. If the value of the property appreciates, you can also sell it at a profit. With renting, you have nothing to show for all the money you've paid to the landlord.
Landlord Rules
Another disadvantage of renting is that you must follow the rules imposed by your landlord. You may have limited choices in what you can do with the property as far as painting or decorating. The landlord may also prohibit you from owning pets or place restrictions on where you can park your vehicle. When you own, you generally have the freedom to do what you wish with the property.
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