Renting vs. buying a home: Hidden expenses, tax benefits and how to weigh what’s right for you

Deciding whether to rent or buy ultimately depends on your lifestyle and financial goals. In a time when interest rates are elevated, home prices are high and the housing market tight, renting can sound like a better option — at least in the short term. But those factors can impact rents too, and you’ll lose out on time and money you could be spending on growing your home equity.

It also depends on where you are in life. For example, if you’re about to retire and want to stay put for as long as possible, then buying a home could be the right choice. But if you’re concerned you won’t be able to handle maintenance costs on your own for at least five years, then renting could be the better option. If you’re not sure which to choose, consider enlisting a credentialed financial advisor to help you make that decision.

Renting vs. buying a home: Which is best?

There’s no universal answer to whether renting or buying is the best option. The answer depends on where you want to live, how much you can afford, your lifestyle, along with a host of other considerations. Other short-term factors like the housing market and where you are in your career can also affect your decision to rent or buy for now, but not forever.

✅ Renting: The benefits

Renting a home involves making fixed monthly payments to someone who owns a house or apartment in exchange for permission to live there. Most renters typically sign a one- or two-year lease that defines the terms of your agreement — including what services and utilities the owner will and will not provide, as well as the monthly cost. When the lease is up, you generally have the option to move out or renew the lease.

Compared to home ownership, the cost of renting offers more than simply the flexibility to leave without needing to sell the home you own, including:

• Fewer responsibilities. While you might find yourself replacing a lightbulb because it’s easier and costs a few bucks, your landlord is generally responsible for all maintenance of your building.

• Predictable payments and bills. Depending on where you live, your landlord might wrap some utilities into your rent. For example, I rent an apartment in New York and only directly pay for electricity and gas. This makes it relatively easy for me to budget for housing expenses.

• Lower upfront costs. Typically, you might have to pay an extra month or two of rent as a security deposit when you first move in — but you’ll get that money back as long as you leave the apartment in relatively good shape when you leave.

• Cheaper insurance policies. While it’s not legally required, renter’s insurance protects your belongings and more at typically lower premiums than homeowners insurance.

• Easier to save cash. Rent is often lower than the monthly cost of owning a home (though not always). If you’re behind on your retirement savings or prefer to keep your assets liquid, then renting may better help you meet those financial goals.

❌ The drawbacks of renting

Renting may be a lot less work than home ownership, but it’s not ideal for every situation. There are rent increases to consider, along with other potential drawbacks:

• No guarantee of long-term stability. As a renter, you have little control over what happens to the building where you live. Your landlord might sell the building to a predatory management company, force you out so her niece can move in or triple your rent when the lease is up.

• You lose out on earning equity. Unlike mortgage payments, rent payments don’t contribute to your wealth — and you’ll have to pay them as long as you live in that home.

• Fewer tax benefits. While you can write off some of your living expenses as a renter, depending on your job and where you live, you can’t deduct rent payments from federal taxes.

• Improvements may be restricted. Depending on your lease, your landlord may restrict how much you’re able to change the property where you live. Even if you can make improvements, you won’t financially benefit from the value you’re adding to the property.

• Renter protection enforcement is expensive. Even in states with robust housing protections for renters, landlords might get away with breaking the law because many renters can’t afford to take them to court. For example, when a friend of mine learned her landlord had illegally moved her off a rent-stabilized lease, she found that she made too much money to qualify for free representation — but also couldn’t afford to pay for a lawsuit herself.

🔍 Learn more: Why renters insurance is worth it — plus 5 steps to getting covered

✅ Buying a home: The benefits

Buying a home is a lot more of an endeavor than renting. But for many, the extra work and cost is worth the effort. To buy a home, you typically need to have at least 20% of the total cost in cash before you can make a bid or qualify for a mortgage.

Most mortgages are loans with terms of 30 years that you pay each month, on top of the other expenses associated with owning a home. While it’s a long-term commitment, these benefits may make it a better option than renting:

• Equity builds wealth. Home equity — or the value of your home in your name — is the greatest source of wealth for most families, setting up yourself and future generations for financial stability. The best part is that you don’t have to wait for your mortgage to come to term — each time you make a home loan payment, you build equity in your home.

• Access to more tax breaks. Homeowners are eligible for several tax deductions that renters can’t make, such as mortgage and home equity loan interest, local property taxes, some home improvements and more.

• Homes typically appreciate. While it’s possible for the value of your home to depreciate — especially if you buy at the height of a housing bubble — homes usually increase in value over time.

• Mortgage payments eventually end. While you’ll still have to pay property taxes, insurance premiums and other expenses related to home ownership, mortgage payments have an end date, unlike monthly rent.

• Improvements increase home value. Not only will your kitchen remodel or new pool make your home more pleasant to live in — it also tends to increase the value of your home (and some upgrades and renovations can even lower your homeowners premiums).

• Built-in financial support. Homeowners can tap into their home’s value to cover expenses through home equity loans, HELOCs or mortgage alternatives, like a reverse mortgage — which pays you money every month, building up a credit balance that you can pay off by eventually selling your home.

🔍 Learn more: 4 ways to get equity out of your home — and what to know before you apply

❌ The drawbacks of buying a home

Homeownership can be a great long-term investment for yourself and your children, but it’s not always the right choice. Expenses can be more unpredictable than renting, alongside other potential downsides:

• Traditional mortgages require a 20% down payment. For many mortgage types, you need a down payment of at least 20% to qualify. Mortgages without a 20% down payment may cost you more in interest and private mortgage insurance.

• Upfront costs can be pricey. On top of the down payment, you might have to pay a wide range of fees associated with the sale — including closing, appraisal, home inspection fees and more.

• You must buy insurance. You generally must shop for homeowners insurance to qualify for a mortgage. But even if you pay in cash, buying insurance is a good idea. After all, you’ll want to protect any asset of that size. If you live in areas prone to flood or fire, you may need to purchase multiple policies, which increase the monthly cost.

• Moving is complicated. Selling your home is more complex and time-consuming than moving after your lease ends. Say you get a job in another state — you may have to make concessions to sell your home quickly.

• Maintenance is your responsibility. If your boiler breaks in the middle of the winter, it’s on you to fix it and foot the bill.

• There may be homeowners, condo or co-op restrictions. If you live in an area with a homeowners association or a condominium, you may pay monthly HOA fees to cover upkeep of common areas. They may also have rules that restrict what you’re able to do with your property, with fees or penalties for breaking the rules.

• Unpredictable expenses. Since you’re responsible for more expenses that can change from month to month than renters — like utilities and maintenance — it can be more difficult to budget for.

🔍 Learn more: 6 ways to get the lowest rate on your next mortgage

7 questions to ask yourself when deciding to rent or buy

Weighing the pros and cons of buying a home is a good way to get a sense of which way you’re leaning. But the choice to buy or rent really comes down to your personal goals and financial circumstances. Ask yourself these questions to help you decide if renting or home ownership is the right financial decision for you

1. What is the housing market like in your area?

The housing market where you plan on living affects both the upfront and monthly costs of owning a home. If a down payment plus fees is out of your budget, then you’ll need to rent.

Let’s take a look at a couple of examples of how different housing markets may impact your decision to rent or buy. In a high-cost city like San Francisco, the average home costs around $1.2 million, according to Zillow. That means you’ll need about $240,000 for a down payment and enough income to afford a monthly mortgage payment of around $8,500 to $11,000.

But ZipRecruiter says the average annual salary is around $95,000 for San Francisco residents. This works out to an average monthly salary that’s lower than the mortgage payment on an average home. While you may be able to afford to buy a home if you live in a dual-income home, folks relying on a single income might find renting an apartment — which costs around $3,200 on average — to better fit their budget.

Now let’s say you’re looking for a house in a less-competitive market — like Peoria, Illinois, where Zillow says the average price of a home is around $123,000. In that case you only need $24,600 for a down payment, plus around $850 to $1,000 per month for a mortgage payment. At $1,100 per month, the average rental price may actually be higher than your mortgage payment, so whether you decide to rent or buy may come down to your ability to foot the down payment.

Even with an average salary of around $57,500, according to ZipRecruiter, the housing market is a better deal in Peoria overall. That’s because the average rent in San Francisco costs about 40% of the average salary, whereas the average rent in Peoria costs about 22% of the average salary in that area.

🔍 Learn more: Do you qualify for home assistance? You might — even if you’re not a first-time homebuyer

2. How long do you plan to spend in your new home?

Generally, buying a home makes financial sense if you plan on staying in the home for at least five years. That’s because it typically takes about five years for a home to appreciate enough in value to make up for the closing costs, realtor fees and other expenses associated with a home purchase.

If you have a job that requires you to move around, or you expect you’ll need to move in the near future, renting will often save you money. It’s also a lot less of a hassle to move out than to sell your home — even if you have to break a lease or find a subletter.

🔍 Learn more: What are the monthly payments on a $300,000 mortgage?

3. Do I expect my housing needs to change soon?

Even if you plan on staying in the same area for at least five years, buying a home doesn’t make sense if you expect your housing needs to change. For example, my husband and I are planning on having children soon, but we’re not sure how many we want. That’s why we’re choosing to wait before we buy a home — after all, we might find ourselves stuck with a place that’s too small for our needs in a couple of years and have to sell at a loss.

Similarly, if you have family members like children or grandchildren who are planning on moving out of your home in the next five years, it’s worth holding off on a new purchase until after they do.

🔍 Learn more: Buying a new home after retirement: Pros, cons and weighing your options

4. How much can you benefit from home ownership tax perks?

Talk to your accountant or another tax professional about how much they think you could benefit from the tax perks of home ownership. This largely depends on your mortgage payments and local tax laws. If your annual mortgage interest payments, local real estate taxes and other itemized deductions you make on an annual basis are higher than the standard deduction.

Here are the standard deductions for 2024:

• Married couples filing jointly: $29,200

• Heads of household: $21,900

• Single or married and filing separately: $14,600

If you’re over 65 or are blind, you’re eligible for an additional deduction between $1,500 and $2,000, depending on the way you file your income taxes.

Don’t think you’ll benefit from an itemized deduction? Then you won’t be able to reap this benefit of homeownership.

🔍 Learn more: Tax breaks after 50 you might not know about

5. How much will maintenance and repair cost if I buy?

Maintenance expenses are almost guaranteed when you buy a home. Homeowners spent an average of $13,667 on maintenance and repairs in 2023, according to an Angi study — and that number is likely to increase each year with inflation. If you assume an annual inflation rate of about 3% — slightly higher than the average inflation rate over the past decade — then you can expect that average cost to increase to about $18,367 in 10 years. Ideally your salary will keep up, but if you’re budgeting on a fixed income that doesn’t adjust for inflation annually, the upkeep costs could eat away at your savings. Renting, which is easier to predict, could be a better choice for you.

If the home you’re thinking of buying doesn’t cost much but is in disrepair, talk to contractors and architects to get an estimate of how much it’ll cost you to fix it up. If those expenses are comfortably within your budget, with room for unexpected costs, then it may be worth it.

🔍 Learn more: Is a tiny home right for your retirement? Weighing the pros and cons

6. How vulnerable is the area to natural disasters?

Owning a home in states that are prone to flooding, tornadoes, wildfires and other natural disasters can get expensive. Insurance prices in disaster-prone areas are significantly higher than average. For example, homeowners in hurricane-prone Florida will have likely paid an average of $14,140 in home insurance premiums in 2024, according to Insurify. That’s more than 4 times as high as the projected national average of $3,520.

Considering last year’s disastrous hurricane and wildfire season, rates are expected to rise by 8% more in 2025. Even if your state has limits to insurance rate hikes, insurance companies have started to challenge that in some cases. For example, State Farm is asking California to allow them to make an average 22% rate hike in response to the historic Los Angeles wildfires. It’s unclear if a rate increase of that size will be allowed, but if you live in a place prone to natural disasters, the cost of insuring your home is not cheap, and you can expect it to get more expensive.

Even if your home is well-insured, it’s worth considering whether you want to go through the process of rebuilding or a sale, should disaster hit. For some, owning a home is worth the cost, risk and potential work involved in rebuilding — but it’s not for everyone.

🔍 Learn more: 6 ways for older Americans to save on homeowners insurance (that can work for you too)

7. How does your state protect renters?

There are few federal protections for renters outside of the nondiscrimination clause of the Fair Housing Act, but each state has its own tenant right protections. These can cover anything from services the landlord must provide tenants to how much a landlord can increase your rent each year.

Start with your state’s attorney general’s office to learn how well your state and local government protects tenants.

How to shop for a mortgage: 5 simple steps

If you think you’re ready to buy a home, it’s helpful to have a mortgage secured before you choose a home so you have a sense of your budget. Here’s how to get started:

1. Calculate your budget. A good rule of thumb is to keep your total housing costs under 28% of your gross monthly income.

2. Know your credit score. Order your free credit report from the federally authorized AnnualCreditReport.com and review it for errors, inaccuracies or incomplete info. Most credit cards allow you to see your credit score at no charge.

3. Research lenders. Look into a handful of banks, credit unions and online lenders who service your state or community to narrow down the type of lender you’re interested in.

4. Compare multiple quotes. Contact at least three lenders for mortgage estimates, comparing the APR — and not just the interest rate. Ask about mortgage rate locks that can protect you from rate fluctuations.

5. Apply for your mortgage. Submit your formal mortgage application and documentation.

6. Close the deal. Review your monthly housing costs as you approach closing, and get the keys to your new home.

Learn more about home loan types, popular loan programs, the steps to homeownership and what to watch for in our comprehensive guide to shopping for a mortgage.

More stories in our home and budgeting series

• How to recession-proof your home right now: Expert tips for homeowners

• Saving vs. investing: How they differ for growing and protecting your wealth

• 4 popular mortgage loans for homebuyers: Conventional, FHA, VA and jumbo loans

• Can you qualify for a mortgage if you’re about to retire?

• What not to fix when selling a home: 7 updates to skip (and avoid wasting money)

FAQ: Renting, homebuying and protecting your finances

Still not sure about whether you should rent or buy? Here are answers to common questions that may help you decide. And take a look at our growing library of personal finance guides that can help you save money, earn money and grow your wealth.

What is the 5% rule for renting vs. buying?

The 5% rule is a quick way to help you decide whether you can afford to buy a home or should stick with renting. If your annual housing costs are less than 5% of the amount you paid for the home, then buying a home may be relatively affordable.

Of course, the 5% rule is only one of several factors you might want to consider when deciding whether to rent or to buy. For example, if you’re buying a home with mortgage payments you can barely afford, it doesn’t matter if the annual cost is under 5% of the purchase price.

Should I get prequalified for a mortgage loan?

Prequalification could be a good first step in the mortgage process, providing you with an informal estimate of how much you may be able to borrow. Unlike mortgage preapproval, prequalification provides a quick way to evaluate your financial readiness to purchase a home without the need to complete a lengthy mortgage application or gather personal and financial documentation. Learn more about the difference between these two important homebuying tools in our guide to home loan preapproval and prequalification.

How much rent can I afford?

Generally, you should aim to spend no more than 28% of your monthly income before taxes on housing expenses — be it rent or mortgage payments, insurance premiums and property taxes. So, if you make $4,000 a month before taxes, with this rule of thumb, you can comfortably afford to pay a little more than $1,000 in rent.

Can I use home equity to invest in a rental or investment property?

You can use a home equity loan to buy a rental or investment property, but borrowing from your home equity is risky, especially if you don’t know if an investment is a sure thing. Among the two most popular ways to tap into your home’s equity are home equity loans and home equity lines of credit. Both types of loans are ways to borrow from the money you’ve already paid into your home, based on your home’s appraised value. And there are no restrictions as to how you can use the money you borrow. Learn more about the benefits and risks of tapping your home equity for a second home or investment.

Can a lender ask my age as part of the application process?

Yes, but a mortgage lender or brokerage can’t legally deny your application based on your age. Your date of birth is often included on an application as part of the usual personal and information a lender or creditor gathers, and while your age can be a consideration among other factors — such as your income and credit score — it can’t be considered alone to decline you a loan or credit. The only age requirement is that you must be at least 18 years old. Learn more in our guide to mortgage approval in retirement.

Is real estate or the stock market a better investment?

Real estate and stocks both have their risks and merits when it comes to investing. Stocks are typically more volatile than real estate, but real estate requires a lot more work than investing in the stock market — often with higher upfront costs.

If you’re debating whether you should rent and invest the money you would’ve spent on maintenance, insurance and property taxes on investments, consider talking to a credentialed financial advisor, who can illustrate the benefits and drawbacks of each choice based on your particular financial situation. And see our comprehensive guide to common investing myths (and why you don’t need thousands to get started).

Sources

• State of Home Spending, Angi. Accessed June 13, 2025.

• Home Insurance Rates to Rise 8% in 2025, After a 20% Increase in the Last Two Years, Insurify. Accessed June 13, 2025.

About the writer

Anna Serio-Ali is a trusted personal finance expert who specializes in consumer and business financing. A former certified commercial loan officer, Anna’s written and edited more than a thousand articles to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in Business Insider, CNBC, Nasdaq and ValueWalk, among other publications, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020 for her work at Finder.

Article edited by Kelly Suzan Waggoner

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