​​Renting vs. Buying a Home: What to Consider

Takeaways About Renting vs. Buying a Home

When deciding whether to rent or buy a home, think about:

• Your budget.
• Home prices and rental prices in your location.
• Your down payment and loan amount to borrow if you buy compared with rent, deposit and fees.
• Whether you'll qualify and meet requirements for a home loan or a rental.
• The emotional value of each option.
• Your timeline for remaining in one location.
• Mortgage rates and property appreciation in your area. 

The cost of buying a home continues to be high in 2025, but the cost of rent is increasing, too. Is it better to rent or buy?

On one hand, home ownership is a big financial commitment with benefits and costs, even as you build home equity. On the other hand, renting is a short-term commitment that provides flexibility and frees up funds, but doesn't contribute to your net worth.

So how do you decide? To determine which is better for you, start by calculating your long-term financial goals, comparing costs and considering your lifestyle needs.

Compare Costs and Consider Goals

You might be used to hearing that homeownership is a better financial decision than renting, but whether to rent or buy isn't a one-size-fits-all decision. Regional and broad-based housing market trends are important factors. It's also important to consider your current financial situation, short-term and long-term goals and lifestyle.

Buying vs. Renting Process: What To Expect

Homebuying Process

Buying a home involves more steps, a longer timeline and more money up front than renting.

Homebuying process might include:

• Researching neighborhoods and schools (if you have children).
• Getting prequalified for a home loan.
• Finding a Realtor or agent.
• Visiting houses or condos and comparing features.
• Getting the home inspected.
• Negotiating prices with the seller.
• Potential bidding wars.
• Securing financing.
• Paperwork.
• Closing the deal.

In the future, selling the home could require just as many steps.

Rental Process

Renting a home involves some of the same choices that you'd make as a homebuyer, but the process involves fewer steps, less time and less money up front.

Rental process might include:

• Researching neighborhoods and schools.
• Visiting homes.
• Comparing features and prices.
• Apply to rent the home.
• The landlord evaluating your credit history, income and rental history.
• If approved, lease signing.
• When you move in, doing a walk-through to inspect the property and documenting its condition.

After your lease ends, you might be able to renew the lease, or you can choose to move out, typically with only a 30-day notice.

Qualifying for a Home Loan vs. a Rental Lease

To qualify for a mortgage, you'll need to meet many requirements, including:

• A good credit score and credit history.
• Few debts.
• A large enough down payment to ensure a manageable monthly payment.
• A stable source of income that is enough to comfortably qualify for and afford a mortgage payment.
• Documentation for all of the above. 

Traditional advice has recommended that first-time buyers not pay more than 2.5 times their annual gross income on housing and noted that buyers will need five to 10 times as much cash to buy versus renting.

A Bankrate.com study found that, nationally, homebuyers need to earn about $117,000 to afford a median-priced home. In Washington, that number increases to $164,608, and in Seattle, it's $213,984, according to research by Zillow. The median household income is $94,952 in Washington and $121,984 in Seattle, according to the latest Census data.

• A good credit score and credit history.
• Stable work and income history.
• Good rental history.
• Income that meets the landlord's requirements — sometimes two or three times the rental cost — or find a cosigner to meet income and credit requirements.

Requirements vary by landlord. For example, some landlords might allow you to make up for less-than-perfect credit with a larger deposit, while others might require you to have a low debt-to-income ratio similar to the homebuying process.

How much money you'll need to afford to rent a home also depends on housing type (apartment or single-family home) and location.

According to Zillow, the average rent in Seattle is $2,150 compared with $2,100 nationally, for all housing types and number of bedrooms.

Buying a Home Builds Equity

As you pay down your mortgage, and if your home increases in value, you build equity in your home, which (in the future) can be used to secure loans or lines of credit and help you buy a higher-cost home. Over time, the portion of your payment that goes toward principal increases, and you'll build equity faster.

Monthly mortgage payments pay mostly interest in the first years of ownership. Building equity requires holding onto your home for many years, without refinancing or selling. A rapid increase in home value also builds equity.

Refinancing could lower your monthly payments if interest rates fall, but you also need to factor in transaction costs when you evaluate how long it will take for your lower monthly payments to result in savings after you refinance.

Building equity isn't guaranteed. Housing prices could decline or stay flat. You could even end up underwater if you owe the lender more than your home's value. Average U.S. home values dropped from $213,000 to $161,000 between 2007 and 2012 but have more than doubled to $368,000 since then.

For many people, homeownership is a key component of their generational wealth building strategy. Even if the growth in value is slow, home values tend to be less volatile than the stock market, and every mortgage payment is a contribution to your equity. An inherited home can eliminate the cost of housing for your kids, which otherwise would likely be the biggest share of their budget. As home values rise, inheriting a home might be the only way to put this major asset within their reach.

However, with monthly rental costs lower on average than home ownership, you could place more money in other investments that might outperform your home's value.

One-Time Costs of Home Buying: Down Payment and More

Significant upfront costs come with buying a home, including:

• A down payment.
• The cost to move into and furnish the home.
• Fees associated with inspections and appraisal.
• Closing costs.

A down payment alone can equal 3.5% to 20% of the home's purchase price, up to hundreds of thousands of dollars, depending on the market. You'll also need this down payment to achieve a mortgage payment that works for your budget. Additional closing costs could add up to another 2% to 5%.

If you don't have enough for a down payment, or you don't plan to be in the home long-term, you might prefer to use the money for other goals, such as retirement savings or paying down student loans or credit card debt.

Homeowners should also consider the potential one-time costs associated with selling a home in the future, including closing costs and possible capital gains taxes.

In contrast, renters could pay:

• Application fees.
• A refundable rental security deposit.
• A non-refundable cleaning deposit.
• First and last month's rent.
• Pet deposit.

Depending on your monthly rent total, this could add up to a significant amount. For example, if your rent is $2,000, you could pay $4,000 or more upfront. That money is tied up while you live in the home. You'll likely get back some or all of your security deposit, depending on the home's condition, when you move out.

Monthly Costs: Maintenance Costs and More

Tax Benefits of Home Ownership

If you own a home, you'll pay property taxes, which could increase over time. If you itemize, you may be able to deduct mortgage interest and property taxes from your annual tax return.

However, most people simply take the standard deduction, and tax laws can always change.

While you won't pay property taxes directly if you rent a home or apartment, your landlord will. If taxes go up, your landlord will likely increase your rent. You can't deduct property taxes from your annual income taxes if you rent.  

Lifestyle: Living Space vs. More Flexibility

Many home buyers crave the control and independence of owning their own home. With home ownership:

• You aren't subject to a landlord's rules and regulations.
• You can customize and modify your living space.
• You can renovate or add onto the home to boost value and functionality.
• You can choose a home based on many factors, including the indoor or outdoor space offered, or because of its location in a particular school district.

However, stress comes with owning a home, too. You must learn how to maintain your home and sometimes carry out expensive or not-so-fun projects. You can't simply move for a new job in a different location. You may be unable to sell quickly in a down real estate market or due to a job loss.

Rentals minimize many of these financial stressors, including increased flexibility to move for school, a job or other reasons.

Rentals allow people to live in cities or neighborhoods where it's otherwise too expensive to buy a home due to high interest rates or because they don't have enough of a down payment saved to afford mortgage payments.

You'll also have limited flexibility to change your living space, from painting a wall to changing the layout. You'll need to negotiate with a landlord for most changes, rent increases and repairs. Your landlord could always sell the home, forcing you to look for another place.

Rent or Buy: Which is Right for You?

Home ownership may be right for you if you:

• See your home as a long-term commitment, or at least five to seven years.
• Don't have the discipline to invest money you would've otherwise spent on a home.
• Enjoy learning about home maintenance, doing yard work and other home tasks.
• Have a sizable down payment and an emergency fund to deal with unexpected household expenses and emergencies.
• Have good credit, a solid work history and minimal debt.

Renting may be right for you if:

• Living in an area where monthly homeownership costs rise faster than monthly rent.
• Rental costs are much lower than a mortgage or remaining flat (less than 2%) or lower than the inflation rate.
• You don't plan to stay in your area for at least five to seven years.
• You need more flexibility in housing type, bedrooms or other aspects.
• You're uninterested in the responsibility of home maintenance.
• You need to use what would've been down payment money in the next few years.

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