The decision to rent or buy a house is an important one. Not only is it likely your most significant expense, but record low home inventory levels and a fluctuating economy add to an already complex decision.
Additional considerations, such as proximity to work and school, entertainment and leisure options, and the cost of maintenance and upkeep, certainly also play a role in the decision.
Ultimately, the decision to rent or buy a house depends on your financial situation and what you want your life to look like five, 15 and even 20 years later; if you're looking to make a move and not which housing path is best for you, consider the points below.
Pros of Buying a House
Over 65% of Americans own a home, and though interest rates are higher than the historically low 2-3% seen in 2020, they're still lower than the high of over 18% reached in 1981. Many of the positive attributes of homeownership are still valid, even in today's volatile market.
Your home can increase in value
Real estate tends to appreciate over time. So buying a home in Florida not only gives you a place to live; it also lets you build equity in an asset that may increase in value. Today, Florida's real estate market is one of the strongest in the country. Since 1991, Florida home prices have increased by over 400 percent. In 2022 alone, Florida home values increased faster than any other state in the nation, jumping around 17 percent.
You can borrow against your home's equity
When you have enough equity in your property, you can borrow money against that equity to pay for home improvements, tuition, and just about any other expense by taking out a home equity line of credit (HELOC) or home equity loan.
Another advantage of buying a home is that you can enjoy predictable payments that make budgeting easier. In addition, by taking out a fixed-rate mortgage, homebuyers can lock in a set payment (though property taxes and homeowners insurance premiums can change). Renters, on the other hand, must contend with rising rent costs.
Freedom to personalize
Need to change your kitchen? Would you like to convert your basement into a home movie theater? When you buy a home, you have the power to personalize your space and the freedom to renovate how you want. However, if you're a renter, small changes like mounting a TV or painting a wall may violate your lease agreement.
Buying a home is a significant expense. Fortunately, there are some valuable tax benefits for homeowners. For example, you may claim a deduction of up to $10,000 per year on certain owner-related expenses like real estate taxes. In addition, if you take out a mortgage, you can deduct the interest charges on your home loan. Finally, if you buy a home and sell it for a profit, you can likely exclude up to $250,000 ($500,000 if married and filing jointly) of those gains from your income tax, provided you have lived in the home for at least two of the last five years.
Pros of Renting
Traditionally, renting is considered a more affordable housing solution than buying a home outright, though rental prices are still above average. For some, the ability to move around more freely and the lack of routine maintenance and homeowners' insurance more than justify the costs.
Renting typically requires a 12-month commitment, and some landlords will allow you to rent for an even term. So, if you're testing the waters in a new city or aren't sure whether you're ready to buy, renting gives you more flexibility than committing to homeownership.
No down payment or real estate taxes
When you rent an apartment or home, the landlord will ask for a security deposit and your last month's rent payment upfront. This represents a much smaller upfront cost than buying, where a down payment of 10% or even 20% of the purchase price is typical. In addition, as a renter, you're also spared the obligation to pay real estate taxes, which you would have to pay if you bought a home.
Fewer maintenance requirements
With homeownership comes maintenance and upkeep, which usually includes landscaping and repairing or replacing home systems like the roof, air conditioning, or plumbing. For example, renters may be responsible for replacing air conditioning filters and light bulbs but don't generally have to worry about dealing with a broken oven or dishwasher.
Lower insurance costs
Since renters don't have to insure the home's structure, a renter's insurance policy is usually much cheaper than a homeowners' insurance policy. And, while not all buyers need to take out private mortgage insurance (this is only required for buyers who take out a conventional mortgage with less than 20% down), it's never a concern for renters.
What Other Factors Impact the Homeownership Decision?
Before choosing between buying or renting a house, you should also consider some factors that impact where you live. Some of the considerations include the following:
- If it's more affordable to buy or rent where you want to live
- If you think the neighborhood and home values are on the rise
- The quality of local schools and healthcare facilities
- The availability of jobs, even if you're happy in your current career
- Access to entertainment and amenities
If you plan on buying, you might weigh these factors differently than if you want to rent for a year or two. As a buyer, it's essential to consider how an area changes and whether it's evolving into a place you'll want to live for the long term.
In 2022, Florida became the fastest-growing state. As a result, there may be a lot of development, which could quickly turn a quiet neighborhood into a sprawling suburb with strip malls and increased vehicle traffic.
So, Should You Rent or Buy a House?
Choosing between buying and renting comes down to your priorities and preferences. In either case, understanding your financial situation and outlook is critical.
No one can predict the housing market's future or mortgage rates, but if history has taught us one thing, housing values often increase over the long run.
Therefore, if you know where you want to live, have saved up for a down payment, and are ready to be a homeowner, purchasing a home is the more rewarding and intelligent financial decision. However, renting is likely the right choice if you're still saving up or need a more flexible housing option.
If you still need to decide which path is best for you, Seacoast Bank can help. Our Mortgage Lending team can help you understand your options and walk you through the home-buying process when you're ready to take the next step.