The conventional image of the American dream doesn't normally center around renting that beautiful home with a white picket fence. Instead, home ownership is the traditional view of prosperity in the U.S. However, some people may find the option of renting a home more practical and financially sensible when comparing the pros and cons of renting and buying.
Pros of Renting
Renting is typically a less significant commitment than buying. Though you sign a lease, you don't have to worry about selling a home if you have to move. You have greater flexibility in the event of a job transfer. You also don't have to worry about much of the basic maintenance and repairs as a landlord usually manages those things. A renter also doesn't need to come up with funds for a down payment.
Cons of Renting
A significant drawback of renting is that your payments produce no investment benefit like a housing payment does. You spend the money for the right to the living space and that's it. You also have limited control over property changes or upgrades as landlords make these decisions. Some properties also have limits as to the types of decor and furnishings you can bring into the home or apartment. You normally pay a security deposit when renting and you have to sign a lease for a specific rental period.
Pros of Buying
Homeowners get the intangible benefit of pride in owning a home. Financially, you can also benefit significantly with a good purchase and loan because you build up equity value in the property over time. At the end of your loan term, you own the property outright. Homeowners also get tax deductions on mortgage interest and property tax payments. As a homeowner, you also have greater autonomy on property upgrades and improvements, though you may have to gain approval from a city or homeowners association for some projects.
Cons of Buying
Buying is often a sizable upfront investment. You usually have to pay 20 percent down on the price of the property to get a conventional loan. Otherwise, you typically have to buy mortgage insurance that costs around 1 to 2 percent of the property's value each year. You also have to pay for maintenance and repairs yourself and buy homeowner insurance. Homeowners also tend to have less flexibility in moving because of the time and expense of going through a property sale. If you don't intend to stay in an area for many years, the hassle and costs of buying and selling often are not sensible.
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