If you are moving to a new city or simply trying to level up your living space, finding the right place may seem daunting. To start, it’s important to create a budget and inventory all of your priorities for your home space. Whether it’s to be close to work, in a good school district or have more square footage, this list will help guide your search.
Before you move, it’s also important to consider if you’re in a position to rent or buy. In the United States, 66% of people live in a home they own‡ and the rest are renters. Both options have advantages and disadvantages to consider.
Pros of buying a home
When looking to buy a house or condo, you can pick the neighborhood, amenities and features that work best for you and your family. You can also customize the design of your home to your personal style and needs. For example, you can make renovations or paint the walls – actions you can’t do when you are renting. For some, this ability to personalize your living space is incredibly important and can be a big factor when deciding whether to rent or buy.
Additionally, a house provides a sense of stability and security, which can help you lay a solid foundation in a new city or community. As an owner, you may feel more connected to your neighborhood and invested in your town because you will be living there for a significant amount of time. From a financial perspective, purchasing a property can be an investment that helps you build equity and provides tax benefits.
Buying a house can also potentially offer more space. Square footage can be limited in rentals, and if you plan to work from home for the foreseeable future, buying could provide more options for home office space. For example, a studio for one person may have been the perfect fit pre-pandemic, but now it can be a tight squeeze to live and work from the same space. Having more room to roam and a dedicated space for a home office can be game-changing. The need for more space also applies to those ready to start families – children have furniture, gear and energy that require more square feet.
Cons of buying a home
One of the big drawbacks to buying a house is the time and financial commitment it takes to get through the process. Finding a house, paying closing costs, and selling your current home if you have one takes time and can be very stressful because you must navigate official paperwork, packing, logistics and taking time off work to coordinate everything. A large con for many is that you have to save enough money for a down payment. After buying, you will also need to budget for unexpected costs, such as fixing appliances when they break, maintenance expenses, and costs like homeowners’ insurance. This is a stark contrast to renting, when you mainly only need a one-month deposit and can call maintenance if something breaks or stops working.
If you are new to a city, buying right away can be stressful because you have to decide on a house and neighborhood when you may not feel like you know the best areas yet. It could also lead to making a hasty decision if time isn’t on your side and gives you less flexibility to pick up and move in the future.
Another aspect to consider when purchasing a home is the current state of the real estate market and economy. Look at the cost of home prices in your area and the current interest on mortgage rates. In May 2024, the median price of a home in the U.S. hit an all-time high of $419,300, according to Bankrate‡. Inflation remains high, with interest rates on mortgages continuing to hover near 7%. Consider monitoring the state of the housing market before purchasing a home and locking in mortgage payments. Perhaps renting for a few years before buying will be a better fit for your finances in the long term.
Pros to renting a home
Renting a home may be a better fit for you if you value flexibility and are working to save money for the long term.
It takes time to learn a city and figure out which neighborhood you’d like to live in. Renting gives you a chance to explore, learn different areas and see where you like to spend most of your time. It also allows for more flexibility and freedom to move around because leases are typically short term. An advantage of renting is that you know what you are getting into in terms of cost, meaning there is little to no fluctuation in monthly expenses.
It is also much easier to rent an apartment or house sight unseen because they tend to be similar floorplans with standard amenities. When you’re renting, there is less pressure on your decision (since it’s short term) and it oftentimes can be much easier to find a rental in today’s housing market.
Renting before you buy can also make you a more informed buyer because you’re more versed in the workings of a home, even if you aren’t maintaining it yourself. Buying a house is a significant investment and commitment so you want to make sure you feel confident in your decision.
Cons of renting
Most rentals are one-year leases, which means you may need to move again shortly or renew your lease with new rental prices. Rent could increase year-over-year depending on your landlord or rental agency, which can be tough on your budget.
If you have pets, renting options may be limited depending on the type of animal, and apartment rentals don’t typically have dedicated lawn space for tenants.
Another drawback to renting is that you don’t build any equity over time like you would as a property owner. And, you may still want to consider renter’s insurance, which is another monthly or annual cost.
Other financial considerations, like the 5% rule
Consider the 5% rule to help determine if renting or buying will be more cost-effective for you. The 5% rule takes the three unrecoverable costs of homeownership into account.
- Property taxes, which are about 1% of the home’s value
- Maintenance costs, which are about 1% of the home’s value
- Cost of capital (debt plus the cost of equity), which is about 3% of the home’s value
If you add these unrecoverable costs, they should total about 5% of your home’s value. Multiply the value of the property by 5% and then divide it by 12. This will give you your total monthly payment amount. If this costs less than renting, purchasing a home may be the better deal.
Renting vs buying approach
Before you move, ask yourself these questions to determine if buying or renting is best for you and your situation:
- Do you want mobility, or do you want to put down roots?
- How long do you plan to live in the same space? If it’s long-term, consider buying. If you only plan to be in that city for a few years, renting may be better to avoid the need to resell a home.
- What’s the cost of renting versus buying? There are rent vs. buying calculators that allow you to put in the cost of rent and the cost of buying a house. It will indicate if it’s financially better to rent or buy based on the number of years you plan to be in that place. However, remember there is more to the decision than finances.
- Consider the risks and take a look at your finances. Are you moving to start a new job? It may be best to settle into your city and new job first. Be sure to use a mortgage calculator to figure out your monthly payments and see if you can afford it.
Moving is a big life change and it can be challenging to determine the benefits and risks of renting versus buying a home. By taking a look at your budget and identifying your priorities, you will be able to figure out what option is best for you.
UMB personal banking solutions offer convenience and simplicity to meet all your financial needs. From home loans to auto financing and everything in between, see how UMB personal banking can work with you to find the right products for your life and lifestyle. Explore our financial education center to learn more about the homebuying process.
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