Renting vs. Owning Are You Better Off Taking Out a Mortgage and Buying a Home

For many people, the decision to rent or purchase a home can be difficult. There are definitely pros and cons to each option. Before committing to a home loan, make sure you understand the differences you face as a home owner versus a renter.

Benefits to Renting a Home

The biggest benefit to renting a home is that you don't have to deal with maintenance and repairs. If your rental home develops a problem like a leaking roof, broken pipe, or clogged septic or sewer pipe, it's your landlord's responsibility.

Another benefit to renting a home is that you don't have to save money for yearly property and school taxes, water bills, and association fees if you are in a master-planned community, condo, or townhouse. Your landlord pays these fees and adjusts your monthly rental price to accommodate them.

Downfalls of Renting a Home

When you rent a home, you pay a monthly payment to your landlord. There is uncertainty, however, in how long you will be allowed to remain in that home. Your landlord may decide to put the home up for sale, leaving you to hope the new buyer allows you to stay. If not, you face packing up all of your belongings and moving to a new home.

Renting a home also leads to uncertainty over your monthly rent payment. If your landlord's expenses increase, he or she will pass on the increases by raising your rent. Unless you're very lucky, at the end of your lease, often six months to a year, you do face rent increases.

If there is something you dislike about your rental home, such as the carpeting color, paint work, or older fixtures, you must get your landlords permission to make any changes. Some landlords will allow you to make the upgrades and deduct them from your monthly rent, but you must have your landlord's approval prior to any work being completed.

Benefits to Owning a Home

Owning a home gives you the freedom to make changes as you see fit. If you hate your carpeting and want to put in wood flooring instead, you can do that. If your kitchen is outdated and you want to start from scratch with new counters, flooring, and cabinets, you can do that too. The only caution to this is if you purchased a home on a historic registry. In that case, you must meet the requirements set forth by the historic association.

As you pay your mortgage, you gain equity in your home. Say you took out a mortgage for $200,000 and you've made mortgage payments for 10 years. The amount that's gone towards your principal becomes equity. You can use this equity to take out loans for home upgrades and repairs.

Downfalls to Owning a Home

Homes do require regular maintenance, and that maintenance can become costly. If your home has a septic system that fails, you are required by law to have a working septic system. Providing you don't need to upgrade to a mound system, a simple leach field replacement costs upwards of $8,000 (per 2014 prices in Vermont) when you add in costs for an engineer to design the system, permit fees, and excavation and installation costs.

Every two or three decades, you will need new shingles on your roof, depending on the type of shingles currently installed. Windows wear out after a couple decades, basement foundations may start to develop leaks, and insulation may need upgrading over time. Major appliances like a furnace, oven, refrigerator, and water heater will also need repairs or replacement. All of this is an expense a homeowner must pay to keep a home in working order, and it can get expensive.

Finally, many homeowners pay yearly property and school taxes. As school costs increase you'll find that these taxes can strain your budget. When you are looking to purchase a home, pay close attention to the current tax rates and ask what the tax rates were a few years ago. This gives you a good idea of how fast they are increasing in the area where you wish to live.