November 15, 2024 | by Anna Orendain

Categories: Affordable Housing, First Time Buyer, Homeownership, Rental Housing, Savings

With the rise in interest rates and home prices over the recent years, the path to owning a home is challenging, especially for first-time home buyers.

Given the increasing difficulty of buying a home, many potential home buyers are wondering whether it's still worth it to purchase a home. With this in mind, we weigh the pros and cons of both renting and buying below.

Renting

As stated by Bankrate, rental housing offers its residents a lot of flexibility, with relatively low upfront costs, a lack of property tax bills, and the peace of mind that comes with knowing that maintenance and repairs fall on a landlord. Not to mention, many rental homes come with access to amenities like pools and fitness centers at no additional monthly cost.

However, rental housing brings its disadvantages as well. Tenants have no equity in the home they're occupying, meaning that their monthly rent isn't going towards building wealth for the tenant, but towards the wealth of the landlord. Tenants are also at risk of having to relocate if their landlord raises the rent too high or if the landlord decides to sell the property.

Owning

When it comes to owning a home, one of the most obvious hurdles is the down payment that is required for the mortgage. And while the myth that borrowers need a 20% down payment isn't true, homeownership still comes with an overall increase in costs due to property taxes, homeowner's association fees (if applicable), furnishings for the home, and necessary home maintenance and repairs.

Despite how ominous the upfront expenses may seem, it's important to highlight the freedoms that homeownership brings as well. As homeowners make their monthly mortgage payments, they're building equity, credit, and wealth!

The Urban Institute recently found that owner-occupied homes were often larger and more likely to be a single-family home (as opposed to, for instance, an apartment-style condo) than a rental home. Owner-occupied homes are also more likely to have a higher value and be in better condition and in a better location than rental homes. Their data showed that while renting may seem like the obvious money saver, homeownership is actually still the most cost-efficient option for consumers. Plus, it has the added long-term benefit of building wealth.

Helpful Resources and Tools

If you're still weighing out which housing option is right for you, we'd recommend using Nerdwallet's free Rent vs. Buy Calculator to help you visualize the cost breakdown.

If you're interested in buying a home, we'd recommend searching for down payment assistance programs like our Home Sweet Texas and Homes for Texas Heroes programs.

If you're a first-time home buyer, you won't want to miss learning more about Mortgage Credit Certificates (MCC), which are tax credits that reduce your federal income taxes every year by allowing you to get back a percentage of what you spent on mortgage interest. Not only is an MCC a great way to save money over the life of your mortgage loan, but it also effectively reduces your mortgage interest rate. You can calculate your potential MCC tax savings by clicking here.

On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.