The Disadvantages of Renting
Becoming a homeowner can be scary. If you’re on the fence, we’ve broken down the disadvantages of renting so you can make your decision confidently. Speaking of fences, wouldn’t it be nice to have one surrounding your very own yard?
Disadvantages of Renting a House or Apartment
From upstairs neighbors who moonlight as professional cloggers to rent that rises faster than the living dead, rental life has some definite downsides. Everyone’s got their own reasons for becoming a homeowner, but we’ve rounded up five key disadvantages of renting that we’re betting you can relate to:
- Can’t build equity
- Can’t build credit score
- No tax benefits
- Lack of stability
- Lack of control
If reading that list sends chills down your spine, you’re not alone. Let’s dig deeper into each disadvantage of renting a house or apartment and dispel some mortgage phobias while we’re at it.
Can’t build equity
Monthly rent might cost less than a mortgage (then again, it might not), but what are those payments going towards? When you rent, there’s no end in sight. In fact, your rent will probably increase each time you renew your lease. And that money helps pay for your landlord’s mortgage, community repairs that will be used as an excuse to raise your rent even higher, and the upkeep of amenities you might not even use.
With mortgage payments, you’re building equity. Equity is the amount of your home you actually own, i.e., how much of your mortgage you’ve paid off. So, every payment not only gets you closer to owning your home but also builds equity. That equity can be leveraged when you refinance your loan or sell your house down the line.
Can’t build credit score
While your history of making rent payments on time is impressive, it doesn’t contribute to your credit score (unless you pay a fee to have it reported to credit bureaus).
Paying off your mortgage, on the other hand, can help you build your credit. As your credit score improves over the life of your loan, you can use that to get better terms or a different mortgage type when you refinance.
No tax benefits
Taxes can be confusing, but one simple truth about them is that owning your home makes you eligible for write-offs that renting doesn’t. You might not qualify for all of them, but some of the most common tax breaks for homeowners include:
You might consider interest rates a reason to avoid buying a home, but you can actually deduct them when you file your taxes. This write-off applies to the interest paid on the first $750,000 of your home loan. You can find the full IRS explanation of how it works here.
Depending on the type of loan you have, you might have to pay mortgage insurance* each month. If you’re paying mortgage insurance, a VA loan funding fee, or a USDA loan guarantee fee, those are all considered tax-deductible by the IRS. The catch? This tax deduction might expire, so check that it’s still available before filing.
*Mortgage insurance protects the lender against losses in case the borrower defaults on their mortgage. It’s typically required if your down payment is less than 20% of the purchase price or with certain loan types, like an FHA loan.
Points are pre-paid interest on your mortgage. When you take out your home loan, you’ll have the option to purchase these points to get a lower interest rate. One point equals one percent of your mortgage, and these points can be written off as itemized deductions when you file your taxes.
As a homeowner, you’ll pay state and local property taxes. If you file jointly with a spouse, you can deduct up to $10,000 in property taxes. If you file as an individual, you can deduct up to $5,000.
Home Office Deduction
Deductions for home office expenses only apply if you’re self-employed and operating your business from home. If you’re not self-employed but work from home, you can’t deduct those expenses from your taxes.
This deduction only applies to medically necessary home improvements (sorry, but that man cave doesn’t qualify). This includes modifications like installing ramps, widening doorways, and lowering counters for accessibility.
Lack of stability
Another disadvantage of renting a house or apartment is the lack of stability. You’re likely renewing your lease every 6-15 months, with an increase in rent each time. With a mortgage, you’ll be looking at terms from 10-30 years. If you choose a fixed-rate mortgage, you can rely on having the same monthly payments until your mortgage is paid off or you refinance for a new rate and term.
Lack of control
If you’re tired of pricy pet policies, limited decor options, and all the other community guidelines that renting entails, it might be time to buy a house. You may still have to deal with an HOA, but you’ll have a lot more freedom over decorations, landscaping, and your space in general.
When you buy a house, you also get more control over the type of community you move to, whether you’re looking for LGBTQ-friendly neighborhoods, locations with fun educational opportunities that fit your kids’ needs, or a dog-friendly environment for the furrier members of your family.
Ok, you convinced me. How do I buy a house?
We’re so glad you asked. To start the purchase process, you’ll get a free rate quote. From there, you’ll connect with a loan originator who can walk you through your home loan journey from start to finish.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before making the decision to buy or refinance a home.
Don’t let mortgages spook you away—when you rent instead of purchasing your home, you miss out on opportunities to build equity, qualify for tax benefits, and grow your credit history.