Renting Vs. Buying: 5 Considerations in 2025
For 78 percent of Americans, owning a home is the most essential element of the “American Dream.” However, after property values and interest rates skyrocketed at the end of 2020, many prospective homebuyers are asking themselves, “Is it better to rent or buy?” To help you make a wise decision in 2025, here’s what you should consider when making your decision.
1. Is It Cheaper to Buy or Rent (In Your Area)?
If affordability is a key factor in your decision, you’ll want to crunch some numbers to determine if renting or buying is cheaper in your area. Currently, renting is more affordable in America’s 50 largest metros. However, you can still find places where buying a home is cheaper than renting one.
For instance, in Erie, Pennsylvania, the average rent for a home is $1,500 per month, and the average price to buy a home is $181,256. At first glance, the house may seem more expensive. However, even at today’s interest rate of 7.04 percent, the monthly payments on a 30-year conventional mortgage with a standard 20 percent down would be around $1,393.
Key Takeaway: Meet with a lender to work toward pre-approval for a mortgage. Doing so will help you determine how much you can spend and how much monthly payments will be. If affordability is most important to you, then a rent vs mortgage payment comparison can guide your decision.
2. Do You Have A Nest Egg?
In the current market, having money for a down payment is incredibly helpful. It’ll save you hundreds of dollars monthly on mortgage payments and help you avoid needing private mortgage insurance (PMI). When considering the entire term of your mortgage, you’ll likely save tens of thousands of dollars in interest payments.
However, your nest egg needs to be bigger than just your down payment. You need to have money for various home expenses, such as:
- Property Taxes
- Homeowners Insurance
- Maintenance and Repairs
- Homeowners Association (HOA) Fees
Many industry professionals suggest having three to six months of living expenses squirreled away in addition to your down payment funds. To manage your finances, there are a variety of rules to help guide you:
The 28% Rule
Further, your monthly mortgage payments should be no more than 28 percent of your monthly gross income. For instance, if you made $10,000 per month, your monthly mortgage payments should not exceed $2,800.
The 28/36 Rule
It’s more than likely that you’ll have debt payments beyond just your mortgage, such as student loans, auto loans, and credit card debt. Following the 28/36 Rule means keeping your mortgage payments less than 28 percent of your gross monthly income and your total debt payments below 36 percent. By following this rule, you’ll be less likely to become over-leveraged.
Key Takeaway: Buying a home that’ll make you cash-poor can be financially risky. If a mortgage payment and other monthly debt payments exceed 36 percent of your monthly gross income, opt for renting; if not, opt for buying.
3. Do You Have Bad Debt?
Buying a home is certainly more than just an investment. However, it is a massive financial step for most people. Therefore, you want to make sure you're not strapped with “bad debt” before buying a home. If you’re unfamiliar with the term “bad debt,” here is a good way to think about it:
If your debt grows your net worth (e.g., buying a home), it’s good debt. If you’re using debt to purchase items that immediately lose value after taking ownership (e.g., buying a luxury car), then it’s bad debt.
Not only does bad debt, especially credit card debt, bring down your net worth, but it’ll likely make it more difficult to get approved for a mortgage.
Key Takeaway: Focus on paying down all high-interest credit cards, auto loans, etc., before buying a home. Not only will you save a significant amount of money in interest payments, but you’ll also get approved for a mortgage with better terms.
4. Do You Have The Time To Care For a Home?
Deciding to buy or rent also depends on your lifestyle. Whether it’s your career, passions, or social commitments, not everyone has the time to care for a home. While you can hire out housework, yardwork, and maintenance, many people do it themselves.
On the other hand, many rentals are managed, meaning the property owner handles tasks such as snow removal, landscaping, and general maintenance. With fewer tasks on your to-do list, you’ll have more time for what you want or need to do.
Key Takeaway: Consider what chapter of life you’re in. If you have the time, caring for a home can be one of the most rewarding ways to spend your time. But if free time is sparse, renting can be the better option.
5. Are You Staying Put For A While?
People in the United States move an average of 11.7 times in their lifetime. But moving can be stressful. In a recent survey, 45 percent of respondents said moving is the most stressful event in life.
The stress is undoubtedly worth it. Buying a home allows you to build equity, create a living space that matches your lifestyle, and put down roots in your community. But if you’re in a nomadic chapter of your life, renting may be a better option.
Key Takeaway: If you plan on living in a particular area for a while, say three or more years, then buying a house is definitely worth it. If you’re moving frequently for work or just to travel, we recommend finding a rental.
Finding What's Right For You
When determining the best option for you, consider the affordability of the area you live in, your current financial situation, your debts, your time, and your plans. If you live in an affordable area like Erie, PA, have solid savings, don’t have credit card debt, want the reward of caring for a home, and want to put roots down, then buying a home is the best option.
Conversely, if you’re in a high-cost area, don’t have a nest egg built up yet, need to pay down some debts, don’t have the time or capacity to work on your home, and are moving around a lot, renting is certainly the better option.
Whatever the decision may be, reach out to Maleno. Whether you work with our seasoned agents to find your dream home or our property management staff to get set up in a luxury apartment, we’re here to help you live better.