Whether it's cheaper to buy or rent a home is one of the most hotly debated topics in housing. Many argue that renting essentially throws money away, while borrowing to buy a home involves building equity over time. However, with the need to cover the cost of repairs, maintenance, upkeep, homeowners insurance, and real estate taxes, homeowners have to budget for a lot more than just their monthly rental payment. In much of the country, it turns out that it's cheaper to buy than to rent. However, there are specific individual issues that can make the answer much different for you than for your neighbor, and you need to consider those to make your best personal choice.

The numbers from a simple survey

From a purely economic standpoint, you can compare costs of renting and owning and come up with answers about which is cheaper in a certain location. That's what GOBankingRates did last year, and what it found was that ownership costs were substantially higher than renting in only five states: Colorado, Hawaii, Idaho, Montana, and Utah. Nine more states had roughly equal costs, and in the remaining 36 states, it was cheaper to own than to rent.

Some will take issue with the methodology that the study used. For the most part, the analysis only compared monthly mortgage costs based on typical homes against the rent for a similar home. The assumption, therefore, is that the equity you gain from making mortgage payments roughly cancels out the added costs of home ownership, most of which are already baked into what renters pay in monthly rent. Your own experience will vary, but many homeowners would say that what they've put into their homes for maintenance and upkeep is greater than what they've gained from equity, especially in the early years of their mortgage loans. However, similar studies have come to the same general conclusions even when they add in maintenance and purchase-related costs.

Model house with keys, calculator, and money.

Image source: Getty Images.

Rent or own? The factors you need to consider

More importantly, there's no one-size-fits-all answer that will adequately answer the rent vs. own question for your particular situation. Some of the things that can dramatically affect the comparison include the following:

  • How long you're going to live in the home. If you're on a temporary assignment with your work and expect to be somewhere for just a year or two, the upfront fixed costs of purchasing and selling a home -- such as mortgage closing costs and real estate agent commissions -- will typically dwarf any savings from lower mortgage payments compared to rent. Only in real estate markets that are experiencing explosive growth in home prices does such a strategy work well, and even there, you'll lose a lot of profit to those frictional costs even if everything goes perfectly right. For longer stays, home ownership starts to make more sense, as those upfront costs get spread out across a longer time frame.
  • The availability of rental properties of the type you want. If you're single and just need a one-bedroom apartment or condominium, then you'll typically find a lot of supply of such homes either to rent or to buy, especially in major urban markets. However, families looking for larger homes often discover that the supply of potential rentals is quite limited. That makes home ownership more of a necessity than a financial option.
  • Your desire to make changes and improvements. With rentals, what you see is what you get -- and often, landlords will be reluctant to let you make dramatic modifications to the property, even if you pay for them and commit to returning the home to its original condition if you leave. Homeowners have full latitude to make whatever changes they want, and that's often a key factor in quality of life for many homeowners.
  • Your ability to get financing or approval. In some markets, home shoppers find that their ability to get adequate financing to afford the sort of home they want is limited. In those situations, renting can be the only way to get into a similar home. On the other hand, some would-be renters might find that their applications get denied on financial or other grounds, and that can push one back toward a purchase decision.

Consider the big picture

Finally, one last thing to keep in mind is that owning a home involves opportunity cost. The money you sink into a down payment is money that you can't use elsewhere, whether it's to invest toward other long-term financial goals, spend on education, or simply improve your standard of living. Home prices tend to go up modestly over time, but in most markets, real estate won't provide the returns that the stock market and other investments have produced over the long haul.

Deciding whether to buy or rent a home is partly a financial decision, but it also involves plenty of additional factors as well. By considering all of the issues that go into the buy vs. rent decision, you'll improve the odds that you'll find the best option for your particular situation.

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