Is It Better to Rent or Buy a House?

Choosing between renting and buying a house is a big decision that can impact your future. Deciding which option is better could depend on several factors, including your financial situation, lifestyle preferences, and long-term goals.

Buying a home may provide the opportunity to build equity and long-term stability, while renting may offer flexibility and lower upfront costs. This article compares the costs, benefits, and drawbacks of both options to help you decide which suits you best.

Reasons for buying a house

Becoming a homeowner could come with plenty of advantages, including the opportunity to build equity, being able to personalize a living space, housing stability, and more – let’s take a look at the main benefits of buying a home.

Building equity over time

Home equity is the difference between a home’s market value and the outstanding balance on the mortgage.

As you pay down your mortgage and decrease the debt on the property or if the property’s value appreciates, you could build equity in your home.^[1]

Homeowners are also subject to market fluctuations, where property value may depreciate (value decreases) and this could result in losing equity in a home. Decreases could be the result of economic conditions, home maintenance, or a drop in home values in the neighborhood.^[2]

Once you do build equity in your home, it could be leveraged for financial needs, allowing you to explore borrowing options such as home equity line of credit (HELOC) and home equity loans (HELOANs) – these options require a lien on your home as collateral, which comes with potential risks, including foreclosure of your home, if payments are not met.^[4]

Home values typically appreciate, contributing to your long-term wealth and stability. As of 2024, house prices have increased by an average of 189% since 2000. Find out more on how the average house prices vary by state and how they’ve risen over time.^[5]

Control over living space

Homeowners generally have greater control over their living space, with the freedom to renovate, modify, or personalize their home without landlord restrictions, but it’s important to comply with local regulations.^[6]

Owning a home allows homeowners to decorate and modify their space more freely. You can also have pets, without the need of landlord approval. However, homeowners in Homeowners Association (HOA) neighborhoods must follow HOA regulations, which may include a limit on the number of pets per home, rules on repainting, and other visible property alterations.^{[7] [8]}

More stability and predictability

Homeownership could offer more housing stability compared to renting, as homeowners are not subject to landlord decisions such as not renewing a lease, selling the property, or being priced out with large rent increases due to demand in your area.^[3]

There are two categories that mortgage products usually fall into; variable-rate loans and fixed-rate loans. With variable-rate loans, the interest rate is set above a specific benchmark and may fluctuate – meaning it can change at certain periods. Fixed-rate loans carry the same interest throughout the entire length of the loan – meaning that the interest remains the same regardless of whether mortgage interest rates go up or down.

Homeowners generally opt for fixed-rate loans for the predictability, where they know how much they need to pay each month with less chance of surprises.^[9]

Potential for passive income

Owning a home gives you the opportunity to make passive income by renting part of the property.
Almost 6% of Americans claim income from rental property and there are various ways to do this including Airbnb.^[10] According to an Airbnb Economic Impact Report, Airbnb hosts earned $24 billion in 2023, with 43% of them revealing that Airbnb helped them stay in their homes.^[11] Before renting out a property, it’s important to look into local laws, tax implications, insurance coverage, to be aware of Fair Housing laws, and other laws and regulations.^[12]

While renters may be able to earn income by subletting or listing on platforms like Airbnb, doing so can be more complicated. Your lease may or may not allow it, and subletting without permission could lead to penalties and eviction. You may need to read your lease carefully, consult your landlord, and review local requirements before making a decision.^[13]

Reasons for renting

Renting a home comes with its own advantages, with lower upfront costs, flexibility and less maintenance costs.

Here are some of the pros of renting a home:

Lower upfront costs

Renters avoid major upfront costs such as a down payment, property taxes, closing costs, and other fees required when buying a home.

A down payment can be as little as 3% on a fixed-rate mortgage, but you can also choose to put 20% or more down, whereas a security deposit is the main upfront cost when renting. A deposit is typically equal to one month’s rent although in some circumstances it can be the equivalent to two month’s rent or more. Depending on your goals this can still make it considerably cheaper than saving for a down payment.^{[14] [15]}

Flexibility to move

Lease agreements usually range from month-to-month to one-year terms, allowing flexibility for renters to move.

There’s no need to sell up or go through the potentially lengthy process of buying and selling a home, meaning that renters may relocate more easily without the need to sell a property. If you move frequently for work or you’re unsure of a neighborhood, renting allows you the flexibility of moving without a major commitment. Leases typically last for a year, but breaking a lease is often easier than selling a home, landlords may offer month-to-month renting options after the initial lease term.^[3]

Fewer maintenance responsibilities

Landlords spent an average of $2,458 on maintenance in 2023, a cost that renters need not worry about. This includes jobs such as lawn care, gutter cleaning, interior painting, and new appliance installation.^[16]

Renters typically have minimal maintenance to worry about with few, if any, maintenance and repair costs.^[3]

Key differences between buying and renting a house

With pros and cons for both renting or buying, here are the key differences between the two:

Buying a home	Renting a home
A down payment is required	A security deposit is required
Builds credit through on-time mortgage payments	Renting can build credit when using a rent reporting service
Responsible for maintenance	Not responsible for most maintenance or repairs
Affected by home value	Not directly affected by home value
Possible tax benefits	No tax benefits

Sources ^{[15] [16] [17]}

Challenges of home ownership

• High upfront costs: Buying a home requires a large upfront investment (down payment, closing costs and insurance).^[14]
• Home value fluctuations: Homeowners are susceptible to market changes and declining values. Market crashes can delay resales or impact investment returns.^[4]
• Limited flexibility: Selling a home is time-consuming and it’s a process that can take months to complete.^[18]
• Maintenance and uphold costs: All repairs and most maintenance are the responsibility of the homeowner.^[16]

The risks of renting

• Lack of stability: Landlords could choose not to renew the lease agreement.
• Rising rental costs: Rent can increase over time. High-demand areas with rent hikes could result in significant rent increases for tenants.
• No built-up equity: Not owning your home generally means that when you leave a rental, you won’t get any rent money back (except possibly your security deposit).
• Limited personalization: Renters usually need landlord approval for renovations, painting or modifications.^[3]

Is it cheaper to buy or rent a house?

A LendingTree analysis of 2022 and 2023 data from the Census Bureau’s American Community Surveys data compared monthly rent and housing costs for homes with a mortgage in the largest 100 U.S. metros. This data found that in all 100 major metro areas, median monthly housing costs were lower for renters than for homeowners.

In the U.S. the difference between median gross rent ($1,300) and median housing costs ($1,775) for homes with a mortgage was $475 per month in 2022 and $498 difference ($1,300 and $1,775) in 2023.^[19]

Can I afford to buy a house with my income?

Some lenders may follow the 28/36 rule, meaning you should spend no more than 28% of your income on mortgage payments and 36% on total debt payments.^[20]

To determine how much you can afford, multiply your gross monthly income by 28% – so, if your gross monthly income is $3,500, your maximum monthly housing expense would be $980 ($3,500 x 0.28) using this method.

But your debt-to-income ratio would include all minimum monthly debt payments, to calculate this you would multiply your gross monthly income by 36% – for instance, if your gross monthly income is $3,500, your maximum monthly debt would be $1,260. Your total monthly debts (including your monthly mortgage payments) would not exceed this amount, when using the 28/36 rule.^[20]

What hidden costs come with buying a house?

There may be unexpected costs when buying a home that you may not have thought of, some examples might include the following.

Costs in the fine print:

• Closing costs such as application fees
• Property tax
• Homeowner insurance
• Mortgage insurance

Outside your home:

• Driveway
• Lawn
• Leaf/snow removal
• Trash
• Curb appeal
• Deck, patio, or pool
• Home exterior
• Pest control
• Tree care

Inside your home:

• Appliances
• Flooring
• Furniture
• Window coverings and lights
• Utilities
• Security system
• Home tools
• Emergency costs

Emergency funds could help you prepare for when there are repair or replacement costs among many other unexpected costs that could crop up.^[21]

How does renting impact my credit score?

Renting can help build your credit, though it is rare. This is because according to the Urban Institute only 5% of rent payments are submitted to the credit bureaus (Equifax, Experian, and TransUnion). Fortunately, if you are renting and want to build credit, Self can report your rent payments* to the credit bureaus. Your rent payments will then be included in your credit report.

Rent payments that are reported to the credit bureaus may help you build credit. Equally – late or missed payments could negatively affect your credit score. Some rent reporting services, like Self’s, only report positive payments. In other cases, though, late and missed rent payments can be reported to credit bureaus, or a landlord may send unpaid rent to a collection agency, which will report it as a collection account.^{[17] [22]}

*Results vary. You may not receive an improved credit score. Not all lenders use scores impacted by rent/utility payments.

Sources

1. My Home by Freddie Mac. "Home Equity: Building Wealth Through Homeownership," https://myhome.freddiemac.com/blog/homeownership/20180226-what-is-home-equity.
2. Rocket Mortgage. "What Is Negative Equity?" https://www.rocketmortgage.com/learn/negative-equity.
3. Experian. "Buying vs. Renting a Home: Which Is Better?" https://www.experian.com/blogs/ask-experian/buying-vs-renting-a-home-which-is-better.
4. Equifax. "Home Equity Loans vs. Home Equity Lines of Credit," https://www.equifax.com/personal/education/loans/articles/-/learn/home-equity-loans-vs-home-equity-lines-of-credit/.
5. Zillow. "United States Housing Market," https://www.zillow.com/home-values/102001/united-states.
6. Freddie Mac. "4 Benefits of Owning a Home," https://myhome.freddiemac.com/blog/homeownership/4-benefits-owning-home.
7. HOA Management. "HOA Dog Rules," https://www.hoamanagement.com/hoa-dog-rules/.
8. HAR. "Understanding HOA Rules for Making Changes to Your Home or Property," https://www.har.com/ri/3823/understanding-hoa-rules-for-making-changes-to-your-home-or-property.
9. Investopedia. "Fixed-Rate Mortgage: How It Works, Types, vs. Adjustable Rate," https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp.
10. iProperty Management. "Landlord Statistics," https://ipropertymanagement.com/research/landlord-statistics.
11. Airbnb Newsroom. "Economic Impact 2023 US," https://news.airbnb.com/economic-impact-2023-us.
12. Realtor.com. "Can You Rent Out Your Primary Residence?" https://www.realtor.com/advice/rent/can-you-rent-out-your-primary-residence/.
13. Passive Airbnb. "How to Sublet on Airbnb," https://www.passiveairbnb.com/airbnb-sublet/.
14. Wells Fargo. "Compare the Cost of Renting vs. Buying a Home," https://www.wellsfargo.com/mortgage/learn/compare-cost-of-renting-vs-buying-a-home.
15. Rent.com. "What Is a Security Deposit?" https://www.rent.com/blog/what-is-a-security-deposit/.
16. Angi. "Home Maintenance Spending Report," https://www.angi.com/research/reports/spending/.
17. Urban Institute. "Rent Reporting Can Help Build Credit. Why Aren’t Smaller Property Tenants Opting In?" https://www.urban.org/urban-wire/rent-reporting-can-help-build-credit-why-arent-smaller-property-tenants-opting.
18. Federal Reserve Economic Data (FRED). "Median Days on Market for Homes in the U.S.," https://fred.stlouisfed.org/series/MEDDAYONMARUS.
19. LendingTree. "Renting vs. Owning in the 50 Largest Metros," https://www.lendingtree.com/home/mortgage/comparing-rent-vs-owning-a-home-in-nations-largest-metros/.
20. The Mortgage Reports. "What Is the 28/36 Rule?" https://themortgagereports.com/112145/what-is-the-28-36-rule.
21. Citizens Bank. "21 Hidden Costs of Buying a Home and How to Prepare," https://www.citizensbank.com/learning/the-hidden-unexpected-costs-buying-a-home.aspx.
22. Azibo. "What Happens When Unpaid Rent Goes to Collections?" https://www.azibo.com/blog/what-happens-when-unpaid-rent-goes-to-collections.

About the author

Becca has over 10 years of experience as a content writer, working across various industries including finance, digital marketing, education, travel, and technology. Her work has been featured in publications including Forbes, Business Insider, AOL, Yahoo, GOBankingRates, and more.

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