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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 examples that show renting can save consumers money. However, the decision to rent versus buying a home is a personal decision.
| 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 help determine the amount you can afford, you can use this mortgage calculator (opens new window) from Freddie Mac, or contact a HUD-approved housing counseling agency in your area (opens new window). HUD approved counselors can help you create a home buying budget at no charge.
Costs of Homeownership
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. It is 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(s); membership fees (such as for recreational facilities), 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 Mortgage Lending (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)