Should I Rent or Buy a House?

A house is one of the largest purchases you’ll ever make. Gone are the days when the McCallister families of the world can afford three-story McMansions, so it isn’t a decision to be taken lightly. While we’ve experienced firsthand benefits of homeownership, we’ve also dealt with a lot of the associated headaches. It’s a universal law that as soon as you close on a house, a kitchen drawer breaks. It’s no surprise we hear the whether you should rent or buy a house debate a lot. If you rush into buying a home before you’re financially stable, you could easily wake up in a living nightmare, dancing around until daylight come and you wanna go to a different home. We want to save you from begging Beetlejuice to help you escape.

In the short term, renting is usually cheaper, but in the long run, buying a house is the better financial decision—when it makes sense dollars and cents and lifestyle wise.
Buying and renting both come with advantages and disadvantages.
A mortgage payment is not the same as your monthly rent—you have to factor in several other costs such as insurances, taxes, and maintenance, which can quickly add up and increase every year.
You should be mindful of how much of your net worth is tied up in your residence, as your home is highly illiquid and you will always need somewhere to live.

Where on the FIRE Ladder Is Buying a House?

While we hope everyone can one day reach the dream of homeownership, it isn’t suitable for everyone on every rung of the FIRE ladder. If you are currently renting and are considering purchasing a home, we recommend you wait until after you have an emergency fund and after paying off high-interest debt on rung four. We’ll dig into other financial considerations below.

Considerations in the Rent or Buy a House Debate

There are two main factors to consider when assessing your personal situation:

Financial considerations
Lifestyle considerations

Financial Considerations

Buying a home on a fixed-rate mortgage on the surface looks like it provides stability for your housing expenses, as it takes market fluctuations out of the equation for the most expensive category of your monthly budget—housing.

But that’s only part of the equation.

While your principal and interest payment will remain locked in for the life of a fixed-rate mortgage loan, the escrow (or related expenses if you choose to pull them out of escrow and pay yourself) can change significantly, depending on the state you live in.

For instance, we bought our first home in Florida. That’s right, the Jim Cantore meme capital of the world. While Florida has a nice Save Our Homes law to help protect property taxes from skyrocketing—which is a huge problem in states like California—it doesn’t have similar protection for homeowners insurance. Poll a random Floridian about homeowners insurance, and you’re likely to either get punched in the face or receive an emphatic “we don’t talk about Bruno, no, no, no!”

For some homeowners, insurance and property taxes have gotten so high that it’s the same as their principal and interest going toward their mortgage, doubling their monthly payment. Hyper-inflation in property taxes and homeowners insurance can make people consider selling their house and moving, so they’re important expenses to plan for when considering buying a home. If you aren’t financially sound with margin in your budget, you can find yourself in a terrifying position worse than rising rent prices.

Along with property taxes and insurance costs, don’t forget maintenance. While renters have to keep general maintenance up (air filters, cleaning, etc.), they have someone to call when the air conditioner breaks in the middle of August (as it always does in Florida). While owning your home gives you more flexibility on vendors and getting someone out quickly so you aren’t at the mercy of your landlord’s scheduling, you also have to foot the often pricey bill.

A few guidelines we recommend to ensure you have financial stability before buying a house are having:

An emergency fund saved up for your monthly expenses; we also recommend beefing it up before closing to cover unforeseen moving costs, furniture, and that pesky kitchen drawer
All of your high-interest debt paid off
Enough buffer in your budget to cover unexpectedly higher costs, such as a higher purchase price when closing or property taxes reevaluated after removing incentives or breaks the current owners receive

A few other financial considerations when evaluating if you should buy a home include:

What percentage of your net worth is the purchase price? The more of your net worth you have tied up in your primary residence, the less freedom you have for financial independence, as you would have to sell your home to capitalize on the equity.
What is the mortgage payment and escrow expenses versus your income? Gurus within the personal finance realm debate gross income versus net income, but most agree your housing shouldn’t be over 25% of your income. We agree this is a good guidelin, but argue that high-income earners should aim for less. The more you can save toward retirement versusing investing in where you sleep, you sooner you’ll reach your FIRE freedom. An extra living room and garage space for a third car aren’t worth the cost of freedom in our minds.
What is the local real estate market like in the area you intend to purchase in? Are properties appreciating in value?

Lifestyle Considerations

Depending on your lifestyle, either renting or buying may be more conducive. For example, if you enjoy a more nomadic life of moving frequently, covering the closing costs, moving expenses, and other costs associated with buying a home will be hard to make back. You typically need to live somewhere 3-5 years or longer before it makes sense financially to purchase a house. With higher interest rates in recent times, some experts say that the timeline is now closer to 5-7 years.

A few considerations for lifestyle preferences:

If you’re transferred for jobs often (i.e. military) or constantly on the road (truck driver, consultant, etc.), you may struggle to make back the initial housing investment of buying
Do you prefer everything custom built and designed?
Would you rather revive and star in Fear Factor than have to deal with home repairs?
Do you hope to move to another area of town, or a different town completely, in the next few years?
As someone sans kids, school zoning is a surprisingly large factor for Gen X and Millennial parents, so it’s worth considering on the front in before settling down.
Are you planning on getting hitched in the next few years? Your hopeful spouse-to-be might hate the home you bought and pressure you to sell it to get a new home that’s your home together. (As a general rule, women seem to hate moving into bachelor pads.)

TL;DR Summary of Rent or Buy Considerations

Check the market appreciation in the area
Consider how long you plan on staying, in both the area and that house in particular
Compare the house’s purchase price versus your overall net worth
Evaluate honestly your overall financial picture and stability—check where you are on the FIRE ladder
Assess your projected mortgage and escrow payment versus your income

Rent or Buy: Pros and Cons for Each

Renting and buying both have their advantages and disadvantages, several of which we touched on above. While these factors shouldn’t make the rent or buy decision for you, especially if you aren’t financially ready, they are important to consider when weighing your options.

Pros of Renting a House

Someone else is Fix-It Felix. When the A/C breaks in the middle of the summer, you don’t have to foot the $6,000 bill. Plumbing issues? Call the Mario Brothers. Is the kitchen drawer off the rails again? Not your problem!
Your overall housing costs are less in the short term. While a rent payment may be higher than a mortgage payment, you don’t have to worry about any of the other costs that tip the scales. No down payment, inspections, title insurance, or closing costs for a mortgage. No flood insurance or property taxes. And while we recommend getting renters insurance, it’s orders of magnitude cheaper than homeowners insurance. Oh, and did we mention, no maintenance expenses?
You have the flexibility to move. Anyone who bought at the height before the housing market crash in 2008 can tell you that market fluctuations can make it difficult to sell, as can anyone still in the golden handcuffs of a 2% mortgage interest rate. No matter what Elsa says, those homeowners are finding it hard to let it go. Selling a home is a big deal. If you haven’t been in the house long, you might find yourself upside down and having to bring money to the table at closing to eat the thousands you spent upfront in closing costs.
You have time to assess the market and what neighborhood you want to settle down in. Renting buys you patience. It gives you time to explore all the different options and to capitalize on the best financial deal. It also allows you to scope out which side of the railroad tracks you want to live on, especially if you’re new to an area.

Cons of Renting a House

Rent prices are out of your control. We heard horror stories from friends where their rent increased over 10% at renewal time last year. While renting protects you from shifting long-term costs such as insurance and property taxes, you have zero control over how much your landlord will decide to charge when your current lease expires.
Minimal personalization options are available. While you can cram the couch full of Live. Laugh. Love. pillows, the design of your rental is a take-it-or-leave-it scenario. Even if you could do a renovation on a rental, you wouldn’t want to invest your money into someone else’s property.
Over time, you lose out on financial gains such as equity. While renting is generally cheaper if you won’t be staying in a place for several years, being a permanent renter leaves equity on the table indefinitely, cutting you out from a significant piece of the financial puzzle. The goal of homeownership is to pay off your mortgage and own your home, reducing your expenses in retirement. With renting, you’ll always pay someone else for a place to call home.
Your landlord can kick you out. Rental property owners can decide they want to sell their property or simply not to renew your lease, leaving you scrambling to find a housing alternative that fits within your budget and isn’t a refrigerator box in the corner of the Wal-Mart parking lot.
A rented house doesn’t feel like a home. Renting doesn’t give you the same emotional contentment that buying a house does. When you own a house, it becomes your home. When you rent, you know you’ll eventually have to move, which never gives you a sense of stability and belonging.

Pros of Buying a House

You are paying yourself rent. While mortgages payments could never win a rent lookalike contest, when you’ve tackled the large interest-heavy front end of your mortgage, you pay yourself your mortgage payments. And when you eventually pay off your mortgage, you free up one of the most expensive line items in your monthly budget. Having no mortgage or rent payment is an amazing feeling of freedom, and it’s something we hope everyone achieves along their journey to FIRE freedom. Although it’s important to note that until you completely pay off your mortgage, you don’t actually own the house. The bank can foreclose on you if you fall behind in payments, leaving you considering the Wal-Mart box situation at all.
You build up equity. Assuming the house market doesn’t drop, you build up equity in your house as the market value increases. A market drop, while not probable, is possible, which is why we want you to be financially stable before buying a house. Also keep in mind, in the first (several) years of owning a house with a mortgage, you msy be paying more in interest payments to the bank than the house is appreciating. Check our our free mortgage amortization calculator to run the numbers.
You may receive a tax deductible. If you have a high mortgage balance, especially coupled with a high interest rate, you may have enough expenses to itemize on your tax return.
You can let your internal HGTV spirit animal soar. Owning gives you more freedom to make your house a home. If you hate the creepy clown wallpaper in the under the stairs Harry Potter-esque guest half bath, you can take it down. If you wish you had an open floor plan, you can renovate. And feel free to give all the nails you want to hang photos on a little tap-tap-taparoo.

Cons of Buying a House

It’s more difficult to move. Selling a home is a pain in the butt. While markets usually appreciate over time, situations arise, especially locally, where home owners struggle to sell their home, or can’t sell it for what they need to recoup financially as part of their transition.
You have more variable expenses. With renting, your only variable expense is your rent payment and perhaps your internet if your provider decides you no longer qualify for “new customer discounts.” A ten-dollar increase in your internet bill before you call them up and threaten to switch providers if they don’t find some other “special deal” is nothing compared to a 10% increase in homeowners insurance or 5% increase in property taxes. The government won’t negotiate your property taxes. They’ll slap a lien on your property instead.
You’re responsible for repairs. Similar to the government, the roofer won’t care that your mortgage is already 25% of your income. They’ll charge you $15,000 anyway. As soon as your dryer stops drying, your fridge is likely to stop fridging. While a leaking toilet might only need a $15 part replaced, some home repairs can be a huge drain on your budget.
You might end up with crazy neighbors. While this is true when renting too, it’s a more permanent problem when you own your house if they do as well. You’re stuck with them until they die or you move. We’ve had neighbors before that we affectionately named the Methheads. While they fortunately kept to themselves, you’re just at likely to get the whackjob who screams at you because she thinks you jumped the fence and mowed her lawn. Which is ridiculous, because you don’t even like mowing your own.
You’re more likely to make emotional financial decisions that don’t fit within your budget. We’ve all heard about the forever home or dream home. It lasts until a developer builds a new, slightly better community next door. Not only do your preferences for houses change over time, but we often rationalize spending above ours budget in order to secure “the dream.” We both know the real estate agent is going to show you houses out of your price range. And we’ve all fallen in love as soon as we drove through the Stars Hollow replica town and walked in the front door to Gilmore Girls comfort vibes. Even I—the analytical, budget nerd—am guilty of this. That seldom happens with a rental.

Common Misconceptions in the Rent or Buy Debate

Now that we’ve covered the basics of the rent or buy debate, let’s touch on a few common misconceptions.

“In my area, I can get a mortgage cheaper than what I’d pay in rent.”

Everybody channel your inner Badger and sing the Twaughthammer classic from Breaking Bad. Fallacies, fallacies. All your lies won’t set you free. While the statement may be accurate on the surface, it doesn’t paint a full picture. As mentioned above, homeowners also have to worry about:

HOA fees
Homeowners insurance
Property taxes
Maintenance and repairs

Once you tally up the total of all the costs of owning and protecting your biggest financial asset (and liability), the math usually changes.

“When buying, I’m making money off my investment, while renting is throwing money away.”

While you can eventually make money off investing in your personal property, it takes several years before you see the financial benefits and dig out of the hole of closing costs and interest-heavy mortgage payments. When renting, you aren’t throwing money away. You’re paying for someone else to worry about all the property’s problems. You’re also buying yourself time to get your budget together and climb your way up the FIRE ladder to where homeownership is a better fit.

“I’ll save on taxes with my mortgage interest.”

Cue Badger again. No, not the “helicopter, bitch!” one, the Twaughthammer lead singer one. While you may be able to deduct your mortgage interest, you have to itemize your deductions to do so. The IRS has increased the standard deduction so much that you have to be living it up in either the castle from Blank Check or reside in a high cost-of-living city. The standard deduction in 2024 for single filers is $14,600 and $21,900 for join filers. That a lot of interest and other deductions to capitalize on the money your paying the bank for the privilege to borrow their money. The reality is, the vast majority of Americans take the standard deduction versus itemizing, so the tax advantages fall out of the equation.

“But I’ve found my forever home.”

The first time a pipe bursts and floods your house, you’ll realize no home is a forever dream home. HGTV sold us the vision, but it has an expiration date all homes eventually reach. While homeownership is exciting and can be a wise financial decision in the long run, is can also be a major headache. The biggest mistake we see (and that I would have made without my husband’s guidance) is becoming too emotionally attached to a house during the home buying process. While you want your house to become your home, it can’t come at the sake of your sanity and rational decision making.

“Buying a home is one of the best financial decisions you can ever make.”

We would argue that a home is actually one of the worst financial investments you make, as it requires constant upkeep and is highly illiquid. That’s why the less of your net worth that’s tied up in your primary residence, the better. If you love the real estate market, save up for rentals as investments instead. We’ve seen the struggle of downsizing from the home your family spent decades in and that your children grew up in that has filled with clutter over the years. It’s a tough emotional decision to make in order to find financial independence late in life. It’s much easier to live smaller and build your net worth outside of your primary residence so you don’t have to unplug it to become financially free. This isn’t to say buying a home is a horrible financial mistake. It’s still wise in the long-term due to market pressures, but it isn’t comparable to investing in the market or rental properties.

Final Thoughts on the Rent or Buy Debate

Buying a house is one of the biggest financial decisions you’ll ever make. While it’s an exciting rung on the personal finance ladder for all Americas, you want to buy a house after careful consideration, when the financial and lifestyle considerations sync up to make it a logical choice. Buying a home before you’re financially ready or before you’ve settled down can turn into a nightmare situation that is difficult and expensive to get out from under.

If you aren’t sure where you fit in the considerations above, check out all the other free home buying and mortgage resources we offer on our Jobtown Station page. If you have a question specific to your situation, drop a line to the hive mind in our budgeting and personal finance Facebook group. When you close on your first house, buy a home in your dream city, or close the deal on your planned retirement home, make sure you share the exciting news so we can celebrate with you!