Is It Better to Rent or Own?

One of the biggest questions I get when I talk to people is, “Is it better to rent or own?” I tell them that it is not as simple as a yes or no answer. The cost of living in your area, your area’s housing market, and your financial stability are all factors in deciding if renting or owning is the better decision. For some, renting temporarily is a better option but no matter what I say, I normally get the following rebuttals from those determined to buy a home now:

“I am just throwing money away by renting.” I recently had a few discussions with a young woman who was convinced that she must buy a home today. She looked at me like I was crazy for saying that renting was a better choice for her. She was in her early 20s, was going to college full-time for her master’s degree and was considering moving after she graduated. Considering her situation, I told her to look at renting as a way to control her expenses since the apartment repairs are free and renting gives her the time to invest in her studies instead of maintaining her home.

“It can only go up in value.” I practically choked on my tea when she said this but I realized that she is 22 years old and she was a teenager during the housing crisis. 2008 proved that home prices are unpredictable and they can go down. This means that if you are planning on moving in 5 years, buying a home may not be the best idea right now.

“My mortgage will be the same as rent.” She took me to a calculator that showed her mortgage and interest being the same as rent. The cost of home ownership is far more than just a mortgage payment. It is insurance, taxes, increased utility payments and home maintenance.

The other cost most people forget is sweat equity. You may be responsible for the upkeep of your yard and fixing anything that is broken. Consider the cost of both money and extra time before buying a home.

“I will have a permanent place to live.” Yes, you will as long as you can afford the payments and the extra expenses of the home. If you purchase a home without having a strong financial foundation, your American Dream will quickly turn into an American Nightmare. Consider paying off high interest debts and saving 3-6 months’ worth of expenses (you can estimate the cost of home ownership) before buying a home. The total cost of the home (taxes, maintenance and other costs) should not be more than about 28% of your monthly income or 2.5x your annual income.

Before you jump on the home buying bandwagon, take some time and assess your current financial situation. If you are struggling to pay your bills, imagine what that will look like when you are now responsible for all home repairs. Take the time to pay off high interest debt, build your savings for emergencies, and most importantly, be patient. Consider renting as an investment in helping you build a strong financial foundation to become a homeowner.

 

 

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