Is it ever a good idea to rent as opposed to buying a home? Isn’t renting kind of like just throwing your money away? Here are 7 good reasons why sometimes it’s ok to rent at least for a little while.
1. Rental expenses are much more predictable.
You know what your rental expenses will be each month. When you own your home, you know what your mortgage payment will be of course. Taxes and insurance are somewhat constant and may even be escrowed into your monthly payment. So what’s the difference with renting? At least your mortgage payment is producing value for you in the long run when you finally own your home some day, right? Well that is true, but there is one important factor that many people forget in this equation. If I am renting and the water heater dies or the roof starts leaking or a host of other possible problems pop up, I simply call the landlord. If I own the home then I have to make those repairs myself or call someone to do it for me. This leads directly to point 2…
2. If you are not debt free with a good 3-6 month emergency fund.
A home should be a blessing in our lives. It’s a place where we create many memories. It provides shelter. It’s where we raise our families. But buying a home when you are in debt and have very little in savings is a recipe for disaster. Dave Ramsey often says when you buy a home with no savings you are inviting Murphy to move into your spare bedroom and bring his three cousins Broke, Desperate, and Stupid. Sadly there is some truth to this. Just because you can afford the payment doesn’t mean you are prepared to be a homeowner. Things will break or need replaced. That’s life. If you don’t have the margin to handle those bumps in the road of life, your dream house will soon turn into a nightmare.
3. If you are likely to move
Another time it is wise to rent is if you are unlikely to be in the area for the long-term. Military families are a great example of this. If it is likely you will be transferred every 2-3 years, you don’t want to buy a house. Young people fresh out of school or recently married also often fall into this category. Career changes and just getting settled into life makes this a time when many things in life may be temporary. You don’t want to find yourself in a position where you own properties long distances away. Many people think if they have to move they’ll just rent their current house, but long distance landlording is very difficult and rarely turns out well. If you can not be reasonably assured of staying in your current location for at least 5 years, renting is a much better option.
4. If you have had a major financial setback
If you have declared bankruptcy or had other major financial setbacks, you may not be able to qualify for a mortgage. There’s no shame in renting for a few years while you get yourself back on solid footing.
5. Don’t buy a house for the tax savings
It is true that if you are eligible to itemize your deductions on your taxes you can get a benefit by deducting your mortgage interest paid. But it is backwards thinking to get a mortgage to save on your taxes. You will pay far more in interest than you save in taxes. If you already have a mortgage then by all means take advantage of this deduction, but it should never be a factor in deciding to buy.
6. Renting may be better for a busy lifestyle.
Owning a home takes time. There are maintenance activities. Mowing the yard and landscaping. Fixing things that break. Etc. If you have a very busy life, renting may be a better option for you as often those things become the landlord’s responsibility.
7. Avoid the home improvement temptations
The moment you buy a home you immediately start to see things that you would like to change. Some of these might be relatively inexpensive like painting or new carpet. Some can become much more expensive like a major remodel or addition. These ideas aren’t necessarily bad, but if you don’t have the money you might be just digging yourself deeper in debt.
When should you buy
You should consider buying when the following are true.
- You know you will be in your current location for at least 5 years.
- You have a stable income
- You are debt free with a good emergency fund
- Preferably you can make at least a 20% down payment
- You can get a 15 year fixed rate mortgage where your payment is no more than 25% of your take home pay
When you can say yes to each of those criteria you are ready to buy.
Don’t turn the American Dream into the American Nightmare
There are wonderful benefits to owning a home and it is one of the primary investments that most people have. I want you to own your own place someday. But that day should be when you are ready for it and can make sure that your home really does fulfill your dreams. In the meantime there is nothing wrong with renting until you reach that point. In fact it can be a very smart financial move.
Have you or someone you know ever made the mistake of buying before you were really ready?
Photo credit: faul