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Buying vs. Renting a Home
Is home ownership right for you?
Before making a hasty move, review the details and make the financial decision that is right for you. While owning a home may be beneficial for some, many people find renting to be a better option. There are plenty of examples that show how renting can save consumers a considerable amount of money. However, the decision to rent versus buying a home is purely a personal choice.
| Advantages | Considerations | |
|---|---|---|
| Buy |
Property builds equity Sense of community, stability, and security Free to change decor and landscaping Not dependent on landlord to maintain property |
Responsible for maintenance Responsible for property taxes Possibility of foreclosure and loss of equity Less mobility than renting |
| Rent |
Little or no responsibility for maintenance Easier to move |
No tax benefits No equity is built up No control over rent increases Possibility of eviction |
Chart Courtesy of Government National Mortgage Association (Ginnie Mae)
If you decide to buy a home, your income, savings, and monthly expenses play an important role in determining how large a mortgage you can afford. To figure out the amount you can afford, use a mortgage calculator. You can use the simple mortgage calculator (opens new window) tool provided by the Consumer Financial Protection Bureau (CFPB), or one of the many other mortgage calculators available online.
Savings: Buying
Under current U.S. tax rules, taxpayers who itemize their expenses can deduct the interest paid on mortgage debt up to a certain limit. New legislation reduced the amount through the year 2026; however, the change affects only those living in expensive housing markets. With a tax benefit for homeowners, the savings could be significant. However, it’s important to know all of the costs impacting your decision to buy.
If you purchase a home in a sub-division or planned community, you may be obligated to pay a Home Owners Association (HOA) or Property Owners Association (POA) fee. The same may be true if you buy a condo or townhouse. This fee may cover things like trash and snow removal, mowing and maintenance of common grounds and upkeep of shared facilities like a clubhouse, playground, tennis courts and swimming pool. HOA fees vary greatly depending on the community, so they need to be considered in your decision. If you live in a state with high property taxes, you will also need to factor in this additional cost each year.
Buy vs. Rent Comparison
The chart below shows a cost comparison for a renter and a homeowner over a seven year period. The renter starts out paying $800 per month with annual increases of 5%. The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000. After 6 years, the homeowner's payment is lower than the renter's monthly payment. With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years.
| Years | Rent Payment | Mortgage Payment | Monthly Difference | After Tax Savings | Yearly Difference | After Tax Savings |
|---|---|---|---|---|---|---|
| 1 | 800 | 1000 | -200 | -50 | -2400 | -600 |
| 2 | 840 | 1000 | -160 | -10 | -1920 | -120 |
| 3 | 882 | 1000 | -118 | +32 | -1416 | +384 |
| 4 | 926 | 1000 | -74 | +76 | -888 | +912 |
| 5 | 972 | 1000 | -28 | +122 | -336 | +1464 |
| 6 | 1021 | 1000 | +21 | +171 | +252 | +2052 |
| 7 | 1072 | 1000 | +72 | +222 | +864 | +2664 |
From 8 to 30 years, savings increase every year.
Monthly Expenses: Buying
Your rental company takes part of your rent payment to cover certain housing expenses. When you decide to purchase a home, you accept responsibility for paying for those expenses. They are additional costs to your monthly mortgage payment and should be included in your budget estimates. Typical expenses include: property taxes and special assessments; home/hazard insurance; utilities; maintenance; HOA or condo fee; membership fees (such as for recreational facilities), cable TV, and other services.
HOME BUYING RESOURCES
Home Buying Checklist (opens new window) - Take this list with you when comparing homes.
Home Ownership: Finding the Right Home, Buying a Home and Owning a Home (NCUA)
Fair Housing: Equal Opportunity for All (opens new window) (HUD booklet)
Avoid Predatory Lenders (opens new window) (Center for Responsible Lending)
To learn more about buying a home, visit:
Buying a Home (opens new window) (U.S. Department of Housing and Urban Development)
Know Your Options (opens new window) (Federal National Mortgage Association, or Fannie Mae)