There’s an age-old debate about whether owning or renting a home is cheaper. With both options come quite a few costs to consider.
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Homeownership, for example, typically comes with more upfront costs than renting. The monthly payment can also be higher than rent, though that depends on quite a few factors. Renting, meanwhile, tends to be cheaper at first but comes with the added risk of rent hikes and other apartment or community add-ons (like a VIP trash pickup service or pet rent).
If you’re debating whether to buy or rent a home next year, here are some things to consider. Not sure where to live? Here are some affordable ideas.
Renting a Home Could Be Cheaper
The cost of rent in the United States depends on factors like location, construction quality, square footage, number of rooms and whether you’re going for an apartment or a house.
According to Rentcafe, the average cost of a 901-square-foot apartment is $1,748. In some places, like New York City or many parts of California or Washington, it can be much higher. As for house rentals, Zillow found that the median rent in the U.S. is $2,015, slightly up from 2023.
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“Renting is the cheaper option, especially in today’s market. Renting costs about 38% less than buying a home on average across the U.S.,” said Mike Roberts, a mortgage broker, loan originator, and co-founder of City Creek Mortgage. “This gap is even wider in major cities like San Francisco and Los Angeles, where mortgage payments can be over double the rent for comparable properties.”
Take rent prices in San Francisco, California as an example.
“In San Francisco, you might pay around $8,486 monthly on a mortgage compared to just $3,024 for rent,” said Roberts. “It’s a staggering difference of $5,462 every month that’s hard to justify. Especially if you’re a first-time buyer, renting is not just easier but way more affordable right now.”
Cost of Buying a Home in the U.S.
The Federal Reserve Bank of St. Louis put the national average sales price of homes at $501,100 (as of Q3 2024). In comparison, the average sales price of homes sold in the country was $498,300 a year prior — that’s a $2,800 difference.
While the housing market has had its ups and downs, home prices tend to rise over time. The same can be said for most rental markets, but the difference is that homeownership comes with more costs than rent.
“You have to look beyond just monthly payments. There are so many other costs of homeownership right from property taxes, maintenance, insurance, and HOA fees. All of these can add up quickly,” said Roberts. “You might find yourself spending an extra $500 – $600 monthly when these costs are factored in. So, make sure to calculate those additional expenses into your budget.”
When buying a home, be prepared to pay certain upfront fees that don’t come with a rental. Two of the most common expenses according to the U.S. Department of Housing and Urban Development are:
- Closing costs: Closing costs are typically 3% to 4% of your home purchase price. If your home costs $400,000, that means you can expect to pay $12,000 to $16,000 upfront in closing fees. This typically covers things like appraisal fees, tax service and title fees, certain taxes, and prepaid expenses like homeowners insurance and property taxes.
- Down payment: The minimum required down payment depends on a few factors, including the mortgage loan type. Putting at least 20% down can help you avoid private mortgage insurance, which is an additional monthly expense. Most loans still require a down payment of 3.5% or more of the home purchase price. The higher the down payment amount, the less you need in financing — and the lower your monthly and overall interest charges tend to be.
If you decide to get a mortgage loan, you’ll also have to pay interest. As of November 2024, the average interest rate on a 30-year, fixed-rate mortgage is 6.81%. Here’s an example of what that might look like:
- 6.81% interest rate on a 30-year, fixed-rate loan
- 20% down payment on a $400,000 house (total financing amount of $320,000)
- Estimated monthly payments (without insurance, taxes, or other fees): $2,088.29
- Total interest charges without prepay: $485,324 (total loan amount of $728,142)
Take that same loan but change the interest rate:
- 7% — $2,128.97 monthly payment ($537,887 total interest paid)
- 6.5% — $2,022.62 ($408,142 total interest paid)
Cost of Renting a Home in the U.S.
Of course, you’ll still have to pay for certain things as a renter, too. Many landlords require a deposit which, depending on the property and your credit score, could be quite high — often at least one full month’s rent upfront, if not more.
You may also have to pay for things like trash service, reserved parking, pet rent, and a whole host of other small fees. Some renters have to pay certain “junk fees” that increase the overall cost. This could include repeat application fees that, over the course of searching for a rental property, can end up being hundreds of dollars. Junk fees may also include things like mail sorting or “January fees,” which are charged at the start of the new year.
While you won’t have interest to worry about, rent can still add up. Say you rent an apartment for 30 years. Assuming you pay $2,000 a month and the rent never changes, you’d pay $720,000 in total rent payments. This doesn’t include any additional or junk fees. You also won’t build equity.
Weighing Your Options
Ultimately, renting might be the cheaper option — even if it doesn’t seem like it at first.
“I think there are circumstances in which renting can be more expensive than buying, and vice versa. One is not always less expensive than the other. But, I would probably say that renting often turns out to be less expensive,” said Seamus Nally, CEO of TurboTenant.
“When you rent, there are lots of things you are not financially responsible for. Oven breaks and needs replacing? That’s on the property owner. If you are the owner, that means it’s on you,” Nally continued. “When you rent, most maintenance and upkeep costs are in the hands of the property owner and not you, and that can result in you being able to avoid paying thousands of extra dollars per year.”
That said, you might also want to look beyond the numbers.
Renting a home can be beneficial if you’re not ready to settle down yet, or you’re unprepared for the upfront and ongoing costs of homeownership. But buying a home gives you the chance to build equity without the fear of rent hikes. You might still have to deal with increasing property taxes and insurance premiums, so be sure to budget those in.
If you’re still debating, run the numbers a few times.
“I suggest creating a simple spreadsheet that lists all possible costs associated with owning a home, versus what you currently pay in rent,” said Roberts. “It’ll give you a very accurate picture of your financial situation and help you make an informed decision.”
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This article originally appeared on GOBankingRates.com: Renting Vs. Owning a Home: Which Will Be Cheaper in 2025?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
