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Renting vs. Buying a House



To buy or to rent, that’s the question. Buying a home potentially has long-term benefits. These include possibly seeing it increase in value over time, which could give you a sizeable return on your investment if you decide to sell it in the future. But unlike renting a home, buying means you’re responsible for maintenance and repair expenses instead of the landlord. And that means it’s important to understand, and budget for those costs.

Here’s a look at some of the key differences in costs.

Explore the differences in costs


Buying

  • Down payment
  • Closing costs

The median percentage of the purchase price that first-time homebuyers make as a down payment is 6%.
Source: 2019 Profile of Home Buyers and Sellers by the National Association of Realtors (PDF)


Renting

  • Security deposit (usually at least one month’s rent)
  • Pet fees (if you have a pet)


Buying

Homeowners insurance covers specific aspects of your property, as well as the belongings you keep in your home. It also may help protect you financially if a person is injured on your property.

Private mortgage insurance, which you may be required to get depending on the type of mortgage you get or your down payment amount, is designed to reimburse your mortgage lender if you stop making payments on the home.

Both of these items may be rolled into your monthly mortgage payment so you don’t have to worry about making separate payments for them.

The average annual cost of a homeowners insurance policy is $1,211.
Source: Policygenius


Renting

Renters insurance typically covers the value of items in your residence in case of theft or damage.

The average annual cost of a renters insurance policy is $180.
Source: Business Insider


Buying

You’ll likely pay directly for utilities including water, sewer, and electricity, plus any fuel for heating systems.


Renting

Many landlords cover at least some utilities costs, such as water and sewer. The information on your specific rental should be detailed in the lease.

The percentage of the overall utility bill that goes toward heating a home on average is 42%, making it the most expensive system in a home.
Source: Energy.gov


Buying

For a single-family home, you’re responsible for maintenance expenses, such as fixing a leaky roof or replacing a faulty HVAC system. Condos and townhouses have some maintenance covered with homeowners association dues.

One rule of thumb is to set aside between 1% and 4% of the home’s purchase price each year for repair and upkeep costs.


Renting

Your landlord should cover significant repairs and upkeep of the structure.


Buying

You’ll pay property taxes based on the appraised value of your home. These may be part of your monthly mortgage payment if you have escrow, which is when you pay a certain amount each month to your mortgage company and then they hold onto that money and use it to pay your homeowners insurance and property taxes.

Mortgage interest or property taxes in some cases could be tax-deductible. Learn more about the tax benefits of homeownership.

The average effective property tax rate in the U.S. is 1%
Source: USA Today


Renting

You’ll pay no property tax directly. But the costs of property taxes are included within the overall cost of rent. Renters aren’t eligible to claim a tax deduction for the property taxes they pay as part of their rent.


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