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Rent vs. Buy

Renting vs. Buying

It’s usually better to buy a home than to rent one, in most cases. Comparing buying to renting is actually a fairly complicated endeavor. However, there are a few easy guidelines you can use to aid you in reaching your decision. Buying a home is usually more beneficial than renting except when:

  • You intend to move within a few years
  • Your rent is very low
  • You are new to the area

Building equity vs. “throwing your money away”

Although it’s often said that by owning a home, you’re not “throwing your money away on rent.” This may be true, but when you buy a home, you will still spend money on things that don't build any equity. These include:

  • Closing costs
  • Interest on your mortgage
  • Property taxes
  • Property Insurance
  • Private Mortgage Insurance (if your down payment is less than 20%)
  • Maintenance

In fact, these expenses are more than you’d likely spend on rent. If the only financial advantage to buying a home were building equity, it wouldn’t be enough to offset these expenses, and it would be better to rent. The reason buying is usually better than renting is not because you avoid throwing money away, it's because:

  • You lock in your monthly payment for 15 or 30 years (If you kept renting, you’d probably pay more each year)
  • Your house will likely increase in value over time

Freezing your monthly payments is the real benefit. Were it not for this, it would make more sense for many people to rent. This is the gem that makes home buying worthwhile. There are a couple of other advantages to buying:

You can stop making payments when the loan is paid off. This is a big advantage, but it doesn't get your costs down to zero. You will still pay for taxes, insurance and maintenance, even after your loan is paid off. On a home worth $180,000, that could be around $525 per month. Sure, that's better than the $1,000 or more per month you could be spending on rent, but it's not free.

You may be able to deduct mortgage interest on your income taxes. For most people, this advantage is pretty small, but you can certainly calculate it in your own analysis if you want to be complete.