Compare the cost of renting vs. buying a home

Are you thinking of moving from renting to buying a home? While both come with regular monthly payments, it’s important to know the breakdown of each, as well as any additional costs you may incur, so you can feel confident your budget is ready for homeownership.  

Buying a home has potential long-term benefits versus traditional renting. As a homeowner, you could build equity if the value of your home increases over time, which could give you a return on your investment should you decide to sell in the future. But unlike renting, buying means you’re responsible for additional expenses, such as maintenance and repairs, which is why it’s important to budget for additional costs. 

Let’s take a look at some key differences in costs. 

• Upfront costs: The main upfront cost of renting is the security deposit, as well as a potential first month’s rent paid to the property manager. 
• Renters insurance: Typically, renters insurance covers the value of the items in your residence in the event of damage or theft. 
• Utilities: Depending on your rental situation and contract, utility expenses may be covered by you or your property manager. Utilities can include water, electricity, sewer, trash collection, gas, and more. The information for your specific rental should be detailed in the lease. 
• Taxes: As a renter, you’re not responsible for property taxes directly, but generally, the property tax costs are included within the overall rent you pay. In some states, renters may qualify for a tax deduction or refundable credit when filing tax returns, so be sure to consult a tax advisor for more information. 
• Maintenance: In most rental situations, the property manager or landlord covers all necessary repairs, as well as general maintenance and emergency repairs. 

• Upfront costs: When you purchase a home, you’ll need to make a down payment. While a down payment can be as low as 3% on a fixed-rate mortgage, you can also choose to put 20% or more down. Along with a down payment, you’ll also be responsible for closing costs, which are fees for obtaining a mortgage and are typically about 3% to 5% of your loan.
  
  Note: Keep in mind that with a low down payment, mortgage insurance will be required, which increases the cost of the loan and will increase your monthly payment. Talk with a home mortgage consultant about loan amount, type of loan, property type, income, first-time homebuyer, and homebuyer education requirements to ensure eligibility. 
• Insurance: Homeowners insurance covers specific aspects of your property, as well as the belongings you keep in your fixed structure (home and attached garage). It may also financially protect you if a person is injured on your property. Flood insurance is only required if your home is in a Special Flood Hazard Area. It can financially protect your house and belongings in the event of a flood. Private mortgage insurance (PMI), which is figured into your monthly mortgage payment, is typically required if you make a down payment less than 20% on your home.  
• Utilities: If you own your home, you’ll likely pay for all utilities yourself. To ensure you know the full cost for a home’s utilities, research the average utility costs for homes in your area. 
• Taxes: As a homeowner, you’ll be required to pay property taxes based on the appraised value of your home. If you have escrow, these will be part of your monthly mortgage payment. In some cases, mortgage interest or property taxes could be tax-deductible, so be sure to consult your tax advisor regarding the deductibility of interest.  
• Maintenance: For a single-family home, you’ll likely be responsible for all maintenance expenses and upkeep, such as fixing or replacing a leaky roof or HVAC system, lawn maintenance, and more. Condominiums and townhouses may have some maintenance costs and labor covered with homeowners association (HOA) dues.