Renting vs. Owning a Home: Which Is Cheaper?

·6 min read
Dean Mitchell / Getty Images
Dean Mitchell / Getty Images

Financial gurus have long debated the issue of whether renting or owning provides the better bang for your buck. Certainly, owning seems like an attractive option, especially when mortgage interest rates are at low levels. Conversely, renting is still a popular and affordable choice for many people. In fact, 30.6% of U.S. households were renter-occupied in the first quarter of 2021, according to the Census Bureau.

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Discover the pros and cons of renting versus buying a house that can help you determine which option is better suited for you.

Main Differences Between Renting and Owning

Owning vs. renting — both are big decisions. The bottom line is that renting and owning are quite different. To start, renting is a bit more cyclical while owning can be more stable. Owning also often requires a much longer commitment than renting.

Ultimately, you will be committing to living in your home for months or even years. For many, it boils down to dollars and cents, but you should also consider other factors, such as location.

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How Renting Works

Renting a home means paying the owner of an apartment or house money every month to live there. Most of the time, the renter and property owner sign a lease, which is a written agreement that states how long you will live there, how much you will pay in rent, the frequency of the rent payment and rules you must follow. It should also state what happens if rent is paid late and outline any other costs you might have to pay.

The property owner might also require you to pay a security deposit, which is an additional, one-time payment held until your vacancy date. Shortly after you move out, the property owner will deduct the cost of repairing any damage not caused by normal wear and tear, and then refund the rest of the deposit to you. The owner might also be able to retain your security deposit to cover unpaid rent in the event you break your lease.

Ownership Basics

Owning differs from renting in that in addition to occupying the property, you own the rights to that property, as documented by the deed. You can borrow against it if you have equity, and you can make changes without getting anyone’s permission.

When you own your home, you typically don’t pay rent unless you’re leasing the land the home sits on. But you might have a mortgage payment and other costs associated with living in the property. Some examples of other costs include real estate taxes, property insurance and mortgage insurance premiums. For condominiums and some planned communities, owners might also pay homeowners association dues.

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Is Renting Better Than Owning?

Although renting might seem less advantageous than owning, several strong reasons could persuade you to rent instead of own.

Protection From Property Value Losses

First, renters are relatively protected from obsolescence. Because rental agreements have limited terms, in the event that a property is deteriorating, offers fewer amenities than comparable properties or has maintenance or management issues, you can look elsewhere for another place to live once your lease expires.

No Property Taxes

Another great reason people choose to rent is that they do not have to pay property taxes. Property taxes and homeowner’s insurance are the responsibilities of the owner. And although you typically have to pay your first month’s rent and a security deposit in advance, renting often comes with fewer upfront costs than buying.

Rental Payments Stay the Same

Lastly, your rental payment is static — unless your lease states otherwise, your rent does not change for the term of your lease. This provides a consistency that helps renters budget their expenses month-to-month.

In some cases, renting is cheaper than buying, at least for the first few years. Run the numbers through an online rent vs. buy calculator to see if this might be the case for you.

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Advantages and Disadvantages of Owning a Home

People often associate buying and owning their own home as part of living the American dream. Homeownership can be very rewarding, but it does come with its own share of obstacles. Before rushing into a new purchase, carefully consider the advantages and disadvantages of owning your own home.

Homeownership Pros:

Homeownership Cons:

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Daria Uhlig contributed to the reporting for this article.

Last updated: July 16, 2021

This article originally appeared on Renting vs. Owning a Home: Which Is Cheaper?

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