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Should You Buy or Rent a Home?

By Jody McMaster · October 18, 2021 · 3 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Should You Buy or Rent a Home?

Purchasing a home may be the biggest financial commitment you’ll ever make, so it makes sense to carefully consider the upsides and downsides of buying vs. renting.

Rent or Buy a Home: Pros and Cons

Advantages of Renting

•   Your landlord is typically responsible for repairs and maintenance, so your money can go elsewhere.

•   Your landlord may also pay some of your monthly utilities, and you aren’t responsible for paying property taxes.

•   When your lease is up, you can renegotiate or move.

•   You don’t need to make a big investment (like the down payment and closing costs associated with home buying) when you move into the next place you rent.

Disadvantages of Renting

•   Your landlord may have restrictions that you don’t like, such as no pets or remodeling.

•   The rent you pay each month doesn’t give you any equity in a property. It just goes to the owner, unless you set up a rent-to-own agreement.

•   Your rent could spike .

•   If the owners decide to sell their home, you may need to quickly move.

Advantages of Buying

•   Getting a good mortgage rate makes the monthly payments more palatable. And as you make payments, you could be gaining equity in your home.

•   You have far fewer restrictions involving remodeling, pet ownership, and so forth.

•   You have more stability. You can generally stay as long as you’d like.

•   Sometimes a mortgage payment can be cheaper than rent. Looking at the price-to-rent ratio of a city helps gauge whether it makes more sense to buy or pay a landlord and wait.

Disadvantages of Buying

•   The price of homeownership may be painful in a hot market.

•   You typically need to qualify for a mortgage, make a down payment, and pay closing costs to secure a home.

•   You’re generally responsible for all repairs, maintenance, and utilities, plus homeowners insurance, property taxes, and any HOA dues.

•   If you decide to move, until your home is sold, you’re still responsible for mortgage payments and the expenses attached to your new place.

Take the Rent or Buy Quiz

Are You Really Ready to Buy?

The answer may already be clear to you. If you’ve decided to buy, it might make sense to do the following.

•   Make sure you’re ready for a long-term commitment. If you’ve saved enough for a down payment and know how much house you can afford, that’s a good sign.

•   Consider if your line of work allows for job continuity with steady income. Have you had this type of income for the past two years or more?

•   If your debt-to-income ratio appears too high for the loan program you would like to apply for, you may need to consider paying down some debt. To calculate your DTI ratio, divide your monthly debt payments by your monthly gross (pretax) income. The federal Consumer Financial Protection Bureau advises renters to consider keeping a DTI ratio of 15% to 20% or less (rent is not included in this ratio). In general, mortgage lenders like to see a DTI ratio of no more than 36%, though that is not necessarily the maximum.

•   Save money for a down payment, closing costs, and other fees, plus some funds for moving expenses and any remodeling/repairs.

•   Check your credit scores and work on improving them, if necessary.

•   Do a gut check to see if you’re really ready to be your own landlord, meaning being responsible for your own home maintenance, inside and out.

•   Get prequalified for a mortgage by providing a few financial details to lenders, who usually will do a soft credit check and estimate how much you may be able to borrow and the terms.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

The Takeaway

Should you buy or rent a home? Reflecting on prices, your financial health, your desire for or fear of commitment, and other factors may yield the answer.

If you’re ready to be a bona fide homeowner, getting prequalified for a mortgage loan with SoFi is simple. SoFi offers competitive rates and may require as little as 5% down.

Got two minutes? That’s all it takes to learn your rate.

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External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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