To rent, buy, or build? That is the question. It can be difficult to decide just which option is best for you when it comes to selecting a place to live. While there are some advantages to renting, there are a number of significant benefits to buying a home or building one from the ground up. In order to decide which housing option is best for you and your situation, you’ll want to understand the pros and cons of buying a house vs. renting or building, and you’ll also want to know which personal factors you’ll want to take into account. In this piece, we’ll guide you through the pros and cons of renting vs. buying or building, and help you decide whether it’s best for you to build, buy, or rent a home.
The Pros and Cons of Renting, Buying, and Building
It’s obvious that there are goods and bads to building a home, just as there are to renting or buying an existing home. The issue is that it’s sometimes difficult to determine exactly what the pros and cons are to each option and, more importantly, what they mean to you and your situation. Not to worry, we’ll spell some of them out for you.
The Pros of Renting
Renting has grown in popularity, especially in recent years. In fact, the number of renter households went up by nearly 9 million between 2005 and 2015, the largest jump ever over a 10 year period. There are a number of reasons why people choose to rent when faced with the dilemma: buy or rent? Here are some of the pros of renting a house:
- It’s more affordable. You don’t need to save for a down payment. Monthly rent is also often cheaper than a mortgage payment, and some landlords take care of utilities and/or waste disposal and water fees.
- It’s often less maintenance. Often landlords will take care of basic repairs and also handle the upkeep of the lawn or grounds.
- It’s a shorter commitment. Typically, rental contracts are only for a year or two. This means you’re not tied down to a long-term commitment. Renting can be ideal for college students or younger people who are in a less stable stage of life.
- It allows you to save money. Since renting typically doesn’t require a large down payment and has lower monthly costs, you’ll have the ability to save up for a down payment for a home of your own.
The Cons of Renting
While there are certainly plenty of reasons to rent, there are also a number of drawbacks. While affordability and flexibility make renting desirable, there are several factors that are less than ideal. It’s pretty easy to talk to any renter and get a laundry list of items that bother them.
- Obnoxious neighbors. More often than not, renters live in apartments. Renting an apartment typically entails living in close proximity to other tenants which means plenty of noise and several different types of people.
- Your money is not “going to work” for you. When you pay rent, it simply affords you the privilege of living at the property, and your money essentially goes down a rat hole. When you pay a mortgage, on the other hand, your monthly payments go toward not only living in your home, but actually owning your home.
- Poor living conditions. While not all rental properties are in bad shape, not surprisingly, a fair number of them are. With tenants frequently moving in and out, rental units see their fair share of wear and tear. The sheer fact that renters are not the owners of the property may make them more prone to disrespect the space and take less good care of it as they would if they owned it.
- Less long-term control over payment amount. Often, landlords will raise the monthly payment amount from contract to contract with little or no warning. With a mortgage on the other hand, you can typically count on the same monthly payment for the duration of your mortgage (sometimes up to 30 years)!
The Pros of Buying a Home
Buying your first home is an exciting, but also time-intensive and often stressful ordeal; it’s more than obvious that there are many pros and cons of buying a house. When all the paperwork and searching are over, however, owning a home is a rewarding accomplishment. While keeping up a home comes with its own set of challenges, the benefits generally far outweigh the yearly costs. Some of the pros of buying a home include:
- Freedom to customize and improve. While renting a home, there are often many restrictions on what you can and can’t add to or change about the space. With your own home, you have free reign to remodel, repaint, redecorate, and put as many nails in the wall as you’d like.
- Owning property. Having your own property not only means that you have control over the space; it also means that you own a piece of land that, more often than not, appreciates in value over time. While your home may deteriorate over time, the lot your home sits on will, depending on where you live, typically grow in value as time passes.
- Your money works for you. Your monthly mortgage payments eventually go towards you owning a home outright. When you rent, on the other hand, the money you pay each month gets you no closer to owning that property. As you pay your mortgage and pay off more and more of your home loan, you begin to build equity. That equity can later be used as a line of credit if times get tough.
The Cons of Buying a Home
Owning your own home is all roses until you’re unable to make your monthly mortgage payment or something goes wrong. While there are so many advantages to owning your own place, there are certainly some risks and unpleasantries involved. Here are some of the cons of buying a home:
- The home buying process is tough. Buying a home is almost always much more complicated than simply renting. Placing an offer, getting the inspection and appraisal done, potentially finding a real estate agent, researching and locking in mortgage rates, getting homeowners insurance, finding an affordable home security system, paying for all your utilities, and being fully in-charge of most repairs can be daunting. Be sure you’re ready for all of that if you plan on buying a home.
- There are stiffer penalties for missed payments. If you miss a rent payment, a nice landlord may give you a pass or be willing to work with you. Missing a mortgage payment, however, could result in a hefty late fee, a negative report by the lender to the three major credit bureaus (damaging your credit), and potential foreclosure if multiple months are missed.
- Maintenance. There’s always something to do around the house. Most of the issues that would be the landlord’s responsibility in a rental agreement all fall on you when you are the owner of your own home. If a sprinkler breaks or the stove stops working, there’s no middle man. You’re in charge, and that can often be a headache.
The Pros of Building Your Own Home
Constructing your own home from the ground up offers customization as far as your budget will stretch. It means the ability to create your dream backyard and focus on curb appeal from the very start. While there are certainly plenty of challenges to building your own home, there are a number of very significant advantages. Here are some of the pros of building your own home.
- Complete control. When you buy a pre-existing home, you’ll often have to compromise on a few things. Very rarely will you find a home on the market that perfectly meets every single expectation you have. When you build your own home, you have control over exactly how you want the layout and the features you want inside and out.
- Flexibility on timelines. If you build your own home, you don’t have to worry about coordinating any timelines with previous homeowners as to when they need to be out and when you can move in. You can finish the home at your own pace and move in when it’s ready. Also, if you need to and your budget allows, you can take your time selling your old home with the security that you have another one waiting for you.
- No time spent house hunting. Building your own home eliminates the often arduous house hunting process. Instead of searching for your dream home, you can create it from scratch!
The Cons of Building Your Own Home
Don’t think that building your dream home will come without headaches of its own. While there are several advantages to creating your custom abode, there are quite a few reasons that it’s not for the faint of heart. Here are some of the cons of building your own home:
- The long process. While the prospect of building your dream home can seem invigorating and exciting, the whole process can also be incredibly exhausting. When starting from scratch, you’ll need to determine everything from the lot you want to buy and the size and layout of your home, all the way down to the type of light switches you want. There are countless decisions to be made.
- The difficulty of staying within your budget. When house hunting, the prices are more cut and dried. Alternatively, when building your own home, there are so many small decisions along the way, that costs can quickly begin to add up. Ask any general contractor, and they’d tell you that staying under budget, while doable, can be a real challenge for first-time home builders.
- The challenge of trusting the process. From foundation to framing to finished, you’ll see your house go through many stages. It can be hard to see the end from the beginning, and there may be things the workers do that can be frustrating. Maybe they’ll leave empty soda cans around, or play music rather loudly. Sometimes the best thing you can do is just back away and let the process unfold. The end result will usually be a beautiful home.
Determining the Right Route For You
We’ve outlined a few of the pros and cons of renting vs. buying or building. So is it better to rent or buy a home? Or is building your own home the way to go? The answer is, it depends. What’s right for one person may not be ideal for the next. There are a number of factors you should take into account when deciding whether to rent, buy, or build. Some of the factors to consider include:
- Your income and financial situation. This is one of the most critical factors. Quite simply, you need to determine whether it’s possible to make monthly mortgage payments, or if a cheaper rental option would suit you better.
- Your credit history. If you want to purchase a home, your credit is absolutely critical. Your mortgage rate and the sum of money a lender will be comfortable loaning you will depend greatly upon how responsible you’ve been with lent money in the past. A longer credit history will help you qualify for a good loan as it shows a clearer picture of how reliable of a borrower you are. Lenders also want to see that you’ve avoided excessive credit debt.
- Your marital status. Often you can qualify for a larger loan if your spouse also works. If you’re younger and getting into your first home, you may wish to co-sign with your spouse in order to give the mortgage lender more confidence that you’ll be able to consistently make your payments.
- Your stage of life. If you’re in a less stable time of your life, it makes more sense to rent than to be tied to a home long-term. Young college students often prefer to rent because they are only in school for a short time and don’t know the experiences that each new year will bring. Other people prefer simply to not be tied down and opt to rent for several years or even their whole life.
- Your patience level. While finding a place to rent within your price range can be difficult, finding a home to buy can prove even more challenging. Building your own home is an entirely new ball game. If you need something quick and lack the patience to see out an entire process of buying or building, renting will usually be your best option until you are ready.
- Your priorities. Your choice of housing situation might be different depending on what you value most. If you value stability and security, you may choose to buy a home. If you want flexibility, you may opt to rent. If you’re looking for luxury and ultimate customization, you’ll likely prefer to build your own home.
Do Your “Home” Work
Yes, if you’re looking into homeownership vs renting, or deciding whether you are in a stage of life to build from the ground up, there are several challenging questions you need to ask yourself. Fortunately, there are a number of resources available. If you’re looking to see if renting or buying makes more sense for you financially, for instance, here is a good renting vs. buying calculator. There are also specific calculators that show you how much house you can afford. If you are considering building your own home, there are websites where you can put in some of your specifications and get a general idea of how much you would be spending. Choosing whether to rent, buy, or build a home is a pretty big decision. Don’t rush it. Be patient, do your research, and enjoy the journey. We hope this article has given you a good place to start in your housing journey. Happy planning!