By David Kexel

Homeownership: It’s the quintessential American dream, and you’re thinking of taking the plunge. But wait a minute. Have you considered the pros and cons of owning your own home when compared to renting? We’ve broken down the pluses and minuses of both options so you can make the decision that’s right for you.

Renting

Pros

  • Flexibility – When you’re renting, you’re not tied down and can easily pack up and move once your lease expires. This can come in handy if you need to move for a job opportunity or you don’t like your neighbors.
  • Maintenance-free – If something breaks, you can call your landlord and have them pay for the repairs.
  • No real estate worries – Since you don’t own the property, you’re not exposed to the ups and downs of the real estate market. If the property drops in value, you’re not liable for those potential losses when it’s time to move.

Cons

  • No ownership – When you rent, you’re paying each month to use someone else’s property. If you own a home, that money can help create equity in an asset you own.
  • No tax benefits – As a renter you receive no housing-related tax benefits since you don’t own the property and are not paying the mortgage.
  • Rising rates – When your lease is up, your rent could go up as well. This could be a problem if rent is rising faster than your income.
  • Upgrades – When you rent, you’re pretty much stuck with what you’ve got – from wall color to flooring to fixtures. In most cases you won’t be able to paint or remodel a space to fit your liking or your lifestyle.

Buying

Pros

  • Build equity – Rather than paying rent to a landlord, a portion of your mortgage payment goes toward paying down the principal balance (the remainder goes to paying loan interest). After several years of payments, you’ll have built up equity in your home, and eventually (typically after 30 years) you’ll own your home free and clear!
  • Tax benefits – On your federal tax returns, you may be able to deduct your property taxes and mortgage interest expense, reducing your overall tax burden. (Consult a tax adviser for details.)
  • Stability – Owning a home provides a measure of security because your monthly payment won’t fluctuate wildly from year-to-year. (It could go up slightly due to property taxes and insurance.) Renters have to worry about rising rents anytime their lease expires.
  • You call the shots – As a homeowner, you can make changes to your home to fit your needs and sense of style – change the wall color, update your bathrooms, etc. Just be sure you follow local building codes and don’t violate rules of your homeowner’s association.

Cons

  • Financial risk – Some like to think of homeownership as a great investment because you’ll make money when you sell. That’s not always the case. If home values fall in your area or you need to move a few short years after purchasing, you could end up losing money when you need to sell.
  • Upfront costs – Buying a home doesn’t come cheap. First you’ll need to save enough for a down payment – typically 20 percent of the home’s value – plus an additional 1 percent in closing costs. Low-down payment options are available, but not everyone qualifies.
  • Ongoing expenses – In addition to the monthly mortgage payment, you’ll also have to pay for insurance, property taxes and ongoing maintenance. Expect to spend 1 to 2 percent of your home’s value each year on maintenance. That doesn’t include the cost of any additional remodeling or upgrades you’d like to tackle.

Tell us what you think about renting vs. buying – leave a comment below.