Keeping your home or buying a new home in retirement is one of the biggest financial decisions that you will make as you set your budget for your version of chapter two. While it can feel good to own something rather than rent, it’s not for every retiree and can come with continuing costs and limitations.

If you’re having a hard time deciding which option is best for you, consider the pros and cons of owning a home versus renting. 

Advantages of Homeownership

Owning a home is a hefty goal for many people, but it can come with several important advantages. 

#1: Long-Term Investment

It’s important to think long-term during the home staying or homebuying decision. You may be someone who has paid off their home and doesn't feel need an upgrade lifestyle, that selling your home may provide. Maybe you love your home regardless and simply don't mind living on existing spendable assets.   Perhaps one goal is to pass this asset along to heirs eventually.

Plan on maintaining or improving the condition of your property, as this is what makes for a good long-term investment. Even if the value of your home depreciates over time, it’s possible the land could become more valuable. 

#2: Stability & Consistency

Obtaining a fixed-rate mortgage means that you will pay the same amount each month for interest and principal until the mortgage has been paid off. Conversely, rent can increase with every lease renewal or move. Having a stable mortgage can help you avoid increases in your housing expenses.

#3: Customization

Since you own the property, you can renovate it however you want. Renters do not enjoy this benefit, meaning any landscaping or home alterations wouldn’t be up to them. Being able to renovate and update your home gives you the potential to increase its property value and overall satisfaction while living in your home. 

Disadvantages to Homeownership

There are some notable disadvantages to homeownership that any potential home buyer should keep in mind.

#1: Upfront Costs on a New Retirement Home.

Closing costs on a mortgage generally run between two percent and five percent of the purchase price. Depending on the price of the home, this can be a significant amount of money.

Some closing costs include:

• Property taxes
• Mortgage insurance (if less than a 20 percent down payment is made)
• Home inspection
• First-year insurance premiums
• Title search
• Title insurance

While a  down payment is important, it’s not the only cash you’ll need upfront in order to purchase a home. If you’re purchasing a $300,000 home, closing costs could easily range between $6,000 and $15,000. Will this adversely affect my nest egg? Is it getting too expensive to make a change?

#2: Maintenance Costs

If something breaks in your home, you are the one that has to pay for the repairs. There is no property manager or landlord involved when you own your own home. 

#3: Property Values Can Fall

If you do not maintain your home - or if the housing market takes a downturn - your property value may fall. There is no guarantee that your home’s value will increase. There are a number of factors both in your control and outside of it that could affect this.

#4: Home Costs Lack Liquidity

While houses do have value, they usually do not sell as quickly as stocks or other assets. Even if you are in the process of trying to sell your home, you still have to maintain your home and make mortgage payments.

Advantages of Renting a Home in Retirement

Depending on what you are trying to achieve, renting may be the right option for you. 

#1: Costs May Be Lower

Depending on your living needs and current financial situation, it may be more cost-effective to rent a room in a shared home or a modestly sized apartment. You may also find rentals already furnished, meaning they already include furniture.

#2: You Aren’t Responsible for Repairs

If you are maintaining a budget, then you won’t need to factor in-home repairs, as that is paid for by the property owner or landlord. 

#3: Flexibility

Relocation for something such as a job change can be much more difficult with a mortgage. If you do not sell your house as quickly as you would like, you will be paying a mortgage at your old home plus the new one. With rentals, you have the freedom to leave once your lease is up, or your landlord may allow you to find someone to take over your lease for you.

#4: Lower Upfront Costs

In order to secure a rental, you’ll likely be asked to put down a security deposit. This is usually equivalent to first month’s rent or several months' worth of rent. Unlike obtaining a mortgage, you don’t have closing costs and you may avoid other fees like HOA dues, painting supplies or other renovation costs.

#5: More Money to Spend

Perhaps the best reason to rent may be the additional flexibility it gives you to either upgrade your lifestyle or have added funds for emergencies. That along with not paying property taxes as well as the other items I mentioned is appealing to many retirees and offers additional peace of mind. 

Disadvantages of Renting

While there are many advantages, there are some things to keep in mind if you are looking to rent.

#1: No Renovations or Alterations

Even if you would like to make updates or additions to the rental property, you are not able to since you don’t own it. Some landlords may allow you to paint or make minor adjustments, but these would need to be approved beforehand.

#2: Your Rent May Increase

If you have been budgeting and factoring in a certain amount of rent each month, this amount may change when it’s time to renew your lease. Landlords have the right to increase your rent when it’s time to renew your lease, although you may be able to renegotiate the terms.

#3: It Won’t Improve Your Credit Score

Paying your mortgage on time every month can be an effective way to improve or maintain your credit score. Paying your rent on time each month is important, but it won’t necessarily improve your credit score.

#4: Your Home Isn’t Building Value

Because the home you are renting isn’t yours, the money you pay in rent isn’t working toward building equity.

Every individual has a situation that is unique to them, so for some people, it may make sense to purchase a home while others will benefit from renting. The pandemic has certainly changed the way that we live, so this can come into play when trying to decide what your next move should be.