During college and afterwards, adults must weigh the pros and cons of renting versus buying, or, if the option is available to them, moving back home to save money.
Buying a home is one of the largest purchases most people will make. Several factors influence the decision-making process for this major investment and renting may be the better choice depending on the amount of money saved and other individual circumstances.
Consider the pros and cons of the options:
| Rent | Buy | Live at Home | |
| PROs | No long term commitment – the lease might be for one year versus 15-30 years for a mortgage No need to sell a home – if relocating quickly and the economy is not good, selling property might be time consuming and therefore inconvenient No need to have a large amount of cash available – to rent, a security deposit, which could be the equivalent of one to two month’s rent, is required versus 20% for a down payment when purchasing Landlord is responsible for major repairs and property maintenance Simpler process | It is your own place – this is a dream for many people Often a good investment over the long term Tax benefits – interest and property taxes are deductible on primary residences for federal income tax returns; may also be deductible on some state income tax returns Can make decorative changes and/or additions that are permitted by a homeowner’s association and county regulations to better fit a particular life style | May live rent free or only asked to pay a small amount Ability to save more of income for a down payment or a place to rent May enjoy being with family, having meals together |
| CONs | No equity accumulates in a home – rent doesn’t go to the investment of owning a home No tax advantages May not be able to paint the walls or make other decorative changes Rent may increase when lease expires A co-signer may be needed if income is not stable of if the renter is young. Other fees, such as a credit check, may be assessed Will need to obtain renter’s insurance to protect personal property in the event of fire, theft or damages Need to factor in utilities, as these expenses often come separate from rent May have to live with a roommate to make rent more affordable | Several costs will be incurred, such as insurance and various fees, in addition to the mortgage Responsible for all repairs and property maintenance, which can be costly May have difficulty selling home if market is saturated or the economy is not good Mortgage insurance – borrowers must pay for this insurance unless there is a 20% down payment. Would it be better to wait to buy? Costs of owning a home – in addition to the monthly payment that includes interest, there are: Closing costs, estimated at 3.5% of purchase price Down payment, usually 20%, otherwise mortgage insurance Property taxes and insurance Condo or home owner’s association fees Property maintenance costs | Lack of privacy – opportunity to entertain may be limited Readjustment to living back with family versus living on your own May need to abide by house rules |
There are clearly many trade-offs for each option.
This is a decision that will be different for every individual because it is based on personal circumstances. Ultimately, the question to ask is: “What best fits my financial situation, lifestyle, preferences and stress level?” Then work out a budget to meet those goals. Use the links below to help with your planning and budgeting process:
