Buying vs. renting a home: How do they compare?

Start by identifying your financial lifestyle goals. Whether you're aiming for long-term stability or short-term flexibility, understanding your priorities will guide your housing decision.

For some people, owning a home is the right fit. But for others, being able to move easily and the lower costs of renting can free up time and money for other goals.

Let's look at how you can evaluate buying vs. renting a home in a way that's truly in tune with your needs, your circumstances and the financial future you want to build.

The core distinction between buying and renting brings both benefits and drawbacks. Buying a home allows you to build equity. While there's no guarantee you'll profit, real estate has a history of growing in value. It's one reason real estate investing is popular. But homeownership also can mean maintenance costs and property taxes, which means less cash on hand for other priorities.

Renting a home allows you the flexibility to move with far fewer financial hassles and can give you a more predictable cost for housing with fewer responsibilities of upkeep. However, rent doesn't help you build equity.

In deciding whether to rent or buy, start by clarifying your financial goals. Ask yourself these questions:

• Do you need the flexibility to move within a few years or less because of your lifestyle, work or other priorities? Are you ready to settle into a home for 5 to 10 years? Your short-term financial goals matter for this choice.
• Do you prefer knowing exactly what you'll need to pay from the start? Or are you open to spending on maintenance and upgrades as needed to improve your home's functionality and value?
• What are your long-term priorities? Homeownership is usually a long-term investment. Spending less up front by renting may mean giving up potential equity in trade for supporting other important plans—such as starting a business, eliminating debt or paying for higher education.

Both renting and buying a home have valuable aspects. To determine what's better for you, list the benefits you think are most important and work with your current lifestyle and priorities.

Here's what you can expect when you choose to buy:

• Equity. As you make mortgage payments, you own a little more of your home. Even early on, you're nurturing an asset that helps grow your overall wealth, and making mortgage payments on time can improve your credit score.
• Appreciation potential. If your home's value goes up over time, you could end up with something worth more than you paid. Appreciation isn't guaranteed, but home values tend to rise in the long run. This can mean recovering what you've put into the home—and possibly even making a profit.
• Tax benefits. Certain tax strategies can benefit homeowners, including the ability to deduct mortgage interest and property taxes from your federal taxable income. These tax benefits have limits and restrictions, but no similar benefits exist for renters. You can't deduct rent from your taxes.
• Stability in changing times. While insurance and property taxes can fluctuate, fixed-rate mortgages generally provide predictable monthly payments even as rent prices rise, leases change or landlords decide to no longer rent.
• Customization. Homeowners can make their home their own and often add value by renovating and completing projects on the property. A home equity loan may allow you to leverage your equity to enhance your home, building on the value by using a secured lending product that may offer lower interest costs than an unsecured personal loan.

For people who value these benefits, buying a home can be worth it. That said, buying a home always has risks. You could see a significant market downturn or be surprised by the amount of repairs needed to make the home safe and livable. You also generally need to have more money saved up front. Even if you opt for a no-down-payment mortgage, repair costs are much easier to handle with an emergency fund so that you don't take on more debt.

Who homeownership is best for: People with a stable income and a willingness to own a home for at least five years, especially if you want to build a long-term real estate investment.

As a renter, you pay for the privilege of not holding the risks and responsibilities homeowners take on. Instead of paying a lot upfront in the form of a down payment, you'll generally pay a higher monthly cost. However, you benefit from greater flexibility and less upkeep. Renting can be a strong option if you value:

• Lower upfront costs. A rental contract may require a deposit and some fees, but it's typically less expensive than making a down payment and paying closing costs when buying.
• Flexibility to relocate. Renting tenancy often goes month by month or a year at a time rather than locking in for several years. If you need to move for career or lifestyle changes—or you just want to live somewhere else—it's easier to give a landlord notice and pay rent through a move-out date than it is to list and sell a home.
• Less responsibility for maintenance. With rental properties, the landlord usually takes care of upkeep and repairs of major appliances and structural aspects at no cost to the tenant. If the heater goes out, the roof is damaged in a storm or something else happens through no fault of yours, it's often not your responsibility to fix it. 
• Access to amenities. Not all rental properties come with added perks, but some include common gathering areas, outdoor spaces, storage, pools, gyms, security services, trash service and more—usually at low or no cost and with no responsibility for tenants to maintain them.
• Financial prioritization. While renters aren't gaining equity, the money-saving aspects can free up capital for a renter to apply toward debt reduction, business investment, retirement savings or other financial goals.

As a renter, your main benefit is convenience. But renting your living space doesn't earn you equity that can grow your wealth. This can make it more challenging to build net worth, although you can make gains by investing wisely in your other financial goals.

Who renting is best for: People who aren't committed to a location or want to stay flexible while transitioning between careers, who want less responsibility for structural property maintenance and who have other long-term financial priorities than owning a home.

Before deciding whether renting or buying a home is the better option, it's worth asking: "Is now the right time to buy?" Purchasing a home can come with major costs, and if you need to sell within a few years, you might not recover them. So the real question is whether this is the moment to commit to owning a home for several years, or if it makes more sense to rent.

Here's a checklist to firm up your choice:

• When might I need to move again? If you anticipate needing to move in 3–5 years, many homes won't have gained enough value in that time to offset the costs of homeownership (initial repairs, closing costs and interest costs). Renting may make more sense.
• What is my particular housing market like? In higher-cost-of-living areas, renting may be the more manageable option. Consider what you want from a long-term home—some areas simply have low-quality housing inventory in your price range, and you may not have a path to owning something you'd be happy with. Other areas qualify for particular housing assistance programs that make homeownership more accessible, so factor it all in.
• Am I ready to handle the real estate purchase process? Both renting and buying typically involve some searching for the right place that's available for the right price. But the real estate process also can involve bidding negotiations, scheduling inspections, verifying property records, meeting with realtors and bankers, and coordinating timing with the selling party. It can be stressful and take time. If you need to get into a place quickly, renting may be the better choice.
• Do I have enough saved for a down payment, closing costs and unexpected expenses? If you haven't been saving money for a house, homeownership can be riskier. The upfront investment plus unexpected costs can add to your debt if you don't have a plan.
• Is my income stable enough for a mortgage? Whatever your mortgage costs are, it is harder to quickly downsize or leave a homeownership situation. This can be complicated by other sources of debt, so make sure that student loan debt and credit card debt are accounted for as you assess your financial picture.
• What are your preferences? Are you in search of flexibility so you could move quickly if needed, or does stability and staying put appeal to you?

Consider plugging in some of the real data for your area into a rent vs. buy calculator so you aren't just imagining how much you'd save or spend in renting or buying scenarios. Your local market often impacts what makes the most sense.

One of the most empowering moves is to proactively choose your housing situation and not feel like life has stuck you in a particular situation. Yes, circumstances affect your choice, but you also get to make the best with what you have.

Every decision starts with clarifying your desires and expectations in your current circumstance. This applies in your personal life, work life and your financial life. Are you ready to opt in to higher responsibility? Is it worth the long-term investment, or do you need more time to get your financial footing before making a big commitment like homeownership? There's no right or wrong answer; it all depends on your preferences and needs.

A Thrivent financial advisor can help you crunch the numbers and avoid making a decision based on what you feel you should be doing during your current life season. Homeownership absolutely can be a goal with major rewards, but you shouldn't feel hemmed into one way of building wealth if you want to prioritize flexibility, mobility and less time spent on home maintenance. Explore what's realistic and what's beneficial while designing a roadmap toward your own personal and financial goals.