The money goes in; what comes out?
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For many of us, purchasing a home is the biggest financial decision weâll make in our lives. In fact, your home can be more than just the place you liveâit can also be your most important asset. For generations, people have invested in their homes, taken out loans against their homes, and sold their homes to support themselves in retirement.
Your house can be where you plant your roots and the place your family calls âhome.â But if youâre more of a rolling stone, renting might be the way to go, as buying and maintaining a home can be expensive and unpredictable.
Key Points
- Buying a house can be a long-term investment and a chance to make a place truly your own.
- Renting your home can protect you against repair costs and downturns in the housing market.
- The decision may depend on how long you plan to remain in the same place.
Itâs all about how you weigh the pros and cons to buying a house, vs. the pros and cons of renting.
Buying a house comes with many expenses over many years. To buy and own a house, you will have to pay:
- Down payment. This is paid up frontâ20% is a typical amount.
- Closing costs. These typically range from 1.5% to 6% of the cost of the house.
- Monthly mortgage payments. These vary depending on the price of the house, interest rates, and the length of the mortgage.
- Real estate taxes. They vary widely depending on the state and municipality.
- Maintenance and repair costs. Maintaining the house and yard will be up to you. You will also need to keep an emergency fund for the unexpected.
- Homeownerâs insurance.
- Condo or homeowner association fees. Some homes require membership in an association.
When you buy a house, youâre accepting the risk that the house might lose value over time. Plus, if you like to keep up with current trends, owning a home might mean periodic remodeling, refreshing, and landscape development.
The benefits of buying a home
Despite all those costs, buying a house is still an attractive financial proposition for many people. Although actual home price appreciation varies by location, historically, home prices have gone up an average of 3.8%. For example, the chart below shows median home values from 1961â2022.
Figure 1: APPRECIATE THIS. Although the housing market has seen its share of downturnsâtypically in and around recessionsâmedian home prices have appreciated over time.
Sources: U.S. Census Bureau; U.S. Dep't of Housing and Urban Development, Median Sales Price of Houses Sold for the United States [MSPUS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MSPUS#, August 12, 2026
Aside from the potential for value appreciation, there are other benefits to home ownership:
- Mortgage interest deduction. You can typically deduct some or all of your mortgage interest payments on your tax return, depending on your tax situation.
- Long-term predictability. Fixed-rate mortgages lock in a steady payment. So, in a way, a mortgage offers protection from inflation. And if youâre diligent about paying off your mortgage, eventually youâll have no monthly payment (but youâll still have the other costs outlined above).
- Personalization. You can renovate and update your home to your tastes and preferences.
- Home equity. This can help build your retirement nest egg, or you could borrow against the equity in your home.
Buying a home means planting roots, letting them grow, and pruning and shaping as you wish.
Once youâve assessed the pros and cons of home buying, do the same exercise for renting. You may have heard conflicting reports about whether itâs cheaper to rent or buy.
In an apples-to-apples comparison, the rental should cost more. After all, a place youâre renting is owned by someone, and that person or entity is on the hook for property taxes, maintenance, hazard insurance, and any association fees. Plus, because owning and renting property is a profit-seeking business, the landlord expects to earn a profit. Theyâre going to mark up the costs before passing them on to you, the renter.
A big difference shows up in the maintenance department. A landlord might be more likely to patch (rather than replace) a leaky roof, and less inclined to upgrade those countertops to keep up with trends. If youâre willing to sacrifice those bells and whistles, a rental might be cheaper for you. But there are a few unavoidable costs of renting:
- Security deposit. This could be at least one monthâs rent, but sometimes as much as three monthsâ rent. Although the landlord will return a security deposit (or a portion of it, depending on whether youâve damaged the place) at the end of the lease, if you rent somewhere else youâll need to post another one with the new landlord.
- Brokerâs fees. In some cities, these are the norm. They can be as high as 10% of a yearâs rent.
- Unpredictability. The landlord could raise the rent at the end of the lease, sell the building, or simply decide to rent to someone else.
- No inflation protection. Rent will rise over the long term (versus fixed mortgage payments), and youâll never pay it off.
According to the Census Bureau, between 38 and 42% of renters change their address each year, compared to just 9 to 12% of owners. Frequent moves might not be a big deal when youâre youngâyour buddies might help you move for the cost of a cooler full of beer and a few pizzas. But the older you get, and the more stuff you accumulate, the more moving costs add up.
There are certain key benefits to renting instead of owning, particularly if you might be relocating in the next few years:
- Mobility. When you rent, youâre not tied downâyou can move with relatively short notice and few costs.
- Financial flexibility. Because you wonât be on the hook for the repair and maintenance of the propertyâand you arenât required to fork over a hefty down paymentâyou can keep more of your emergency funds in longer-term investments and retirement savings.
- No real estate risk. If the property declines in value, the owner takes the financial hit.
Renting means flexibility in your location, finances, and time. How do you value flexibility versus the benefits of owning?
In the end, the decision whether to rent or buy your home comes down to your personal situation. Do you have money for a down payment, or do you need to save for a few years? Is relocation in your future, or would you like to test out a few locations before you pick one? You might want to rent, at least for a while.
Alternatively, do you want to plant your roots, start a family, target a specific school district, or stay close to family? Do you have a dream home you canât wait to create? It might be time to buy.
Youâll also want to evaluate the real estate market. Some communities have pockets of value, with decent schools and low property taxes, while others have a vibrant rental market with a lot of turnover. Be sure to compare the options in your area before deciding, and weigh the pros and cons against your short- and long-term goals.
This article was most recently revised and updated by Colin DoddsThis article was most recently revised and updated by Doug Ashburn
