Is It Better to Rent or Buy a House?

The decision between owning or renting a home isn’t always as straightforward as it may seem. While buying a house is usually considered a good investment, renting can also have financial benefits.

Determining what’s right for you will depend on many factors, including your life stage, costs involved, and future plans. Here are some key points to weigh as you study the choices that make the most financial sense for you.

Renting vs. buying: key questions

There’s a lot to consider as you weigh the advantages of renting against those of buying a home. Here are some basic questions to ponder before you get started

Am I ready to take on the responsibilities of homeownership?

When you own a home, there are more responsibilities. This includes the upkeep of your property, building enough room in your budget for these maintenance costs on top of your mortgage payments and making the commitment to stay put for a while. If you relocate too soon after buying, you could lose the financial benefits of buying a house in the first place.

How much should I have in savings to purchase a home?

The amount you’ll need in savings depends on your budget, loan type and location, but a good starting point is enough to cover your down payment, closing costs and a financial cushion for emergencies.

While a 20% down payment is often ideal to avoid private mortgage insurance (PMI), most buyers put down less. First-time homebuyers typically put down 8%, while repeat buyers average 19%, according to the National Association of Realtors.¹

In addition to your down payment, plan for 2–5% of the home’s price in closing costs, plus extra funds for moving expenses and home maintenance. So, for a $300,000 home, you might aim to save anywhere from $15,000 to $30,000 or more, depending on your loan program and goals.

Advantages of buying over renting

Homeownership has traditionally built wealth for many families, besides offering people a place to live and relax. Some people view monthly mortgage payments as a type of forced savings because it allows homeowners to build equity gradually each month.

Your equity will also rise if the value of your home goes up. Whether your house appreciates in value over time and by how much depends on the local market, but houses nationally have increased in price by an average of 5.4% annually since 1992, according to economic research firm CEIC Data.²

Other advantages of homeownership over renting include:

• Access to equity. As you build equity in your house, you can borrow against it through a home equity loan or a revolving home equity line of credit. That can be an invaluable resource during an emergency.
• Tax breaks. There are many tax breaks for homeowners, including tax credits for green upgrades and deductions for mortgage insurance premiums if you’re below a certain income level. Mortgage interest deductions are less common since the 2017 Tax Cuts and Jobs Act. Before counting on any specific credits or deductions, it’s important to consult with a CPA or other tax professional.
• Stability and self-determination. When you rent, you may have to leave at the end of your lease if your landlord chooses not to renew. As long as you can actually afford your mortgage, homeownership can be a bit more stable, which is an important consideration for those with dependents. Owning a home means you decide on all renovations and upgrades. Plus, these upgrades may increase your home’s value should you decide to sell.

Disadvantages of buying over renting

Buying your own home also comes with some downsides:

• Ongoing financial responsibilities: Although home improvements are enjoyable to plan, homeowners must also be prepared for the financial responsibility of unexpected repairs and upkeep. If you are renting and the water heater breaks or the roof leaks, the costs would be covered by the landlord. When you own, these costs fall on your shoulders.
• Property taxes: Homeowners pay property taxes, while renters do not.
• Less flexibility: If you get a great job offer across the country or need to move to care for an aging family member, it may be harder to sell a house than to move at the end of a lease.

Advantages of renting over buying

People sometimes say renting is like throwing money away since renters don’t build equity, but this isn’t always accurate. Researchers at Florida Atlantic University found that renters can build wealth just as fast as homeowners—or even faster in certain markets.³

There is an asterisk, of course; renters must invest sensibly to harness the power of compound interest, using the money they would otherwise have spent on home ownership, such as the down payment, insurance, taxes and upkeep. Renters who aren’t disciplined investors, the research shows, would be better off buying a home.

The advantages of renting are mostly the disadvantages of owning:

• More flexibility: It’s easier to move when you’re a renter so you can take advantage of career opportunities or relocate closer to family.
• No property taxes: While your landlord might roll the costs of property taxes into the cost of your monthly rent, you won’t have to pay property taxes directly as a renter.
• Fewer unexpected costs: When the property needs repairs or maintenance, those expensive costs will fall on the landlord rather than you as the renter.
• Lower upfront costs: Paying your first and last months’ rent plus a security deposit is no joke, but it’s still not nearly as expensive as saving for the down payment on a home plus closing costs.

Disadvantages of renting over buying

While you might have a little extra money to invest if you’re not paying property taxes and maintenance costs, you won’t build equity in your own home as a renter. Renters are also subject to the swings of the rental market, which can make your year-to-year costs comparatively unpredictable.

Renters need permission from the owner to make even minor alterations to the property. This can be as mundane as changing the paint color or nailing pictures to the wall, or can be a bigger deal like replacing an old appliance for one that’s more energy-efficient and saves you money on your monthly utility bills. Plus, most upgrades you make stay with the house—and you don’t benefit on the investment like the homeowner.

How to decide whether to rent vs buy a home

Ultimately, the decision on whether you should rent or buy a house isn’t black and white. Your family situation, personal finances, and desired life flexibility all influence the decision. If you decide homeownership is the right path for you, get in touch with a mortgage specialist from Mutual of Omaha.

Frequently Asked Questions

Q1: Is there a calculator that can help me figure out whether to rent or buy a house?

As you run your numbers for various rent vs buy scenarios, you can use Mutual of Omaha’s Home Affordability Calculator to aid in your decision-making process.

Q2: Is it better to rent or own a home in retirement?

As at any other stage of your life, the decision to rent or own a home in retirement will be entirely dependent on your personal circumstances. There are some advantages to owning your home in retirement, though. If your mortgage is paid off in full, the lack of housing costs can be helpful, especially as you are now living off of your savings.

If you are a homeowner age 62 or older with a mortgage, you may qualify for a Lifestyle Home Loan, which can help eliminate your monthly mortgage payments or help increase your purchasing power if you want to relocate in retirement.

Q3: Do millionaires rent or buy houses?

The financial situations of millionaires vary widely, as do their choices between renting and owning homes. By and large, home ownership is still a key driver of wealth, and many millionaires invest in second homes, vacation properties or rental real estate as a part of their portfolio. Real estate is often considered a hedge against inflation and a source of relatively passive income in retirement.

Sources

1. National Association of Realtors, NAR Finds Typical Home Buyer’s Annual Household Income Climbed to Record High of $107,000 in Wake of Rising Home Prices and Mortgage Rates, November 2023.
2. CEIC Data, United States House Prices Growth, 2024.
3. Florida Atlantic University College of Business, Housing Index Shows Why More Consumers Should Rent Rather than Own, March 2022.

Disclosures

Mutual of Omaha Mortgage, Inc., NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Subject to Credit Approval.  For licensing information, go to: www.nmlsconsumeraccess.org

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