Renting A Home Compared To Purchasing A Home

Everyone needs to live somewhere, and given how impactful one’s living situation is to one’s overall level of financial and mental well-being, it is important to carefully compare available options before making long-term decisions. But as with most major decisions, living arrangements are by no means one-size-fits-all. Different preferences and lifestyles fit more naturally with different kinds of housing options. One of the basic choices everyone needs to make in this area of life is deciding whether to own or rent their home. Both alternatives come with costs and benefits, and which one is right for a particular individual depends on a range of factors. Here are some of the key differences that are important for consumers to bear in mind when deciding where to live.

Upfront Costs

One major difference between renting a home and purchasing a home is the upfront costs associated with each. Homes are the most expensive purchase of most individual’s lives, and so even among those with lots of money saved up, individuals usually seek out home loans to help support the cost of their new purchase. Many lenders require borrowers to place a down payment on the home, typically ranging from five to twenty percent of the value of the purchase. For a home that costs 300,000 dollars, a five percent down payment is 15,000 dollars. At twenty percent, the down payment is 60,000 dollars. It is often a good idea to pay as much as possible in one’s down payment, since it will reduce the overall amount of the home loan, ultimately saving in interest costs over the long run. Other factors that influence initial costs of purchasing a home include any fees associated with taking out a loan and the costs of any repairs needed before moving in. In the short term, it is almost always more expensive to buy, as renters will generally have far fewer upfront costs. There will usually only be a refundable security deposit roughly equal to one month’s rent due before move in, though some landlords also require first and last month’s rent. If the rent for an apartment is 1,000 dollars per month, the tenant might only be required pay 3,000 dollars before moving in.

Continue reading to learn about the recurring costs for each option.