8 Reasons you Should Keep Renting (Instead Of Buying a House)

Everyone around me bought a home in the past 2 years or is in the market for a home in the next 2 years. It is crazy!  Although we may be at that stage in life, purchasing a home isn’t for everyone.  Personally, I did a ton of researching before I realized that it was time for me to buy a home instead of continuing to rent.  I weighed the pros and cons, read lots of articles, and asked a ton of questions!

In order to help others that may be considering buying a house, a created the following resources:

If you are on the fence about renting versus buying, check out these 8 reasons you should keep renting (instead of buying a house).

8 Reasons you should Keep Renting

You’re Trying to Keep up with the Joneses

The first reason you should keep renting is that you don’t really want to buy a house.  You just see all of your friends buying a house and feel like you should too.  I am here to tell you.  Keeping up with the Joneses will leave you broke and regretful.  Just don’t do it!  Make sure you are ready to own a house and ready for all of the additional costs and responsibilities that come with owning a home.

If you aren’t sure if you are ready to purchase a home, try renting a home first.  If you are already renting a home, keep renting for a while longer!  Although that will not be the perfect window into homeownership, you may be able to see some of the responsibilities that go into the regular upkeep of a home.

No Down Payment Saved

Typically, the down payment for your home should be 20% of the home purchase price in order to get the best interest rate and avoid additional costs (like PMI or MI).

20% can be a lot of money!  All is not lost if you have not saved that amount.  FHA (Federal Housing Authority) loans only require a 3.5% down payment (you would need a credit score of at least 580 to qualify).

Make sure to check with your local housing authority.  They may have additional resources to assist you with the costs of homeownership.  For example, in Indiana, there are down payment assistance programs as well as additional grants.

Related: How to Save More Money This Year

You Have a Down Payment but no additional Savings

Congrats!  You have saved enough for your down payment which is awesome!  However, just because you have the down payment saved doesn’t mean it is automatically time to purchase a house.  There are quite a few additional costs with purchasing a home other than the down payment.  Some of the costs include:

  • Closing Costs – although the seller may pay the closing costs on your behalf, it typically is 3% of the home purchase price.  Closing costs are the costs required to close the real estate deal.
  • Earnest Money – earnest money is typically $500-1000.  It is used when you find a home you like to let the seller know that you are serious about the purchase.  In a competitive housing market could even be 2-3% of the purchase price.

In addition to the costs associated with purchasing a home, a home comes with added responsibilities and repairs.  If anything breaks, you are responsible for the costs.  It is estimated that home repairs will be about 1% of the purchase price each year.  Therefore, don’t completely empty your savings account for your down payment.

Related: 10 Costs of Homeownership (that you haven’t considered)

You’re Forgetting About the Additional Costs of Homeownership

One of the main reasons that I decided to purchase my first home was because my mortgage payment would be much less than renting the similar amount of space.  Although that ended up to be true, there are a host of other costs associated with homeownership even after closing on the home.  Some of those costs include:

  • Homeowners Association Fees
  • Grass Upkeep/Snow Removal
  • Increase Utilities
  • Property Taxes
  • Pest Control

Similarly to the previous point, make sure you have plenty of money saved in addition to the down payment and closing costs in the event of an emergency.

Related: 10 Costs of Homeownership (that you haven’t considered)

Your Credit Score isn’t Good

Another reason that you should continue to rent instead of purchasing a home is that your credit score isn’t good.  Depending on how low your credit score is, you may not be able to qualify for a home loan.  The FHA (Federal Housing Administration) has some of the lowest credit score requirements at 580.  The higher your credit score, the better interest rate that you will get on your home loan saving you thousands of dollars in interest.

Check out the below infographic generated with a cool tool on MyFico.com.  The infographic illustrates the monthly payment and total interest paid for the national average of a 30-year fixed loan for $150,000.

8 Reasons you Should Keep Renting Instead of Buying a Home

If you are able to raise your credit score from between 620-639 to 680-699, you should save an extra $106 on your monthly payment and $38,398 over the course of the 30-year loan.  As your credit score goes up, the monthly payment continues to go down and the amount that you are able to save over the live of the loan continues to go up.  (Please note the monthly payment above is only taking into account the principal and interest of a loan and not any additional costs.)

All is not lost on your credit score though.  Continue to keep renting while you improve your credit score.  It could potential save you thousands of dollars. Check out these resources for more information about your credit score:

Related: 6 Surefire Ways to Increase Your Credit Score

A Home Isn’t Always a Good Investment

I see many millennials purchasing homes because it is a good investment.  While that may be true in some situations, it isn’t always true.  Think about 2006-2012.  The housing market was at a peak in early 2006 and houses were going for record values.  Values started to decline later in 2006 and 2007 and hit record lows in 2012.  Therefore, if you bought a home in 2006, your home was worth much less if you attempted to sell it in 2012.  Due to the housing market and increased foreclosures, home values dropped at least 10-20% (and even up to 50% in some situations).

Of course, I am not saying that 2006 will happen again; however, it is important to be aware that a home isn’t always a good investment.  If you are interested in purchasing a home for your primary living dwelling, make sure it is more than just a good investment.  Ensure it is something that you love and/or think you will be able to rent in the event that you can not sell the home in a reasonable amount of time.

8 Reasons you Should Keep Renting instead of buying a home

You Plan to Move Soon

The next reason that you should keep renting instead of purchasing a home is that you don’t plan to stay in the home very long.

If your biggest concern is the amount of time that you will spend in your house, check out this awesome calculator by Zillow.  The calculator looks at the cost of purchasing versus the cost of renting.  Also, it lets you know how many years it will take for the cost of buying to equal the cost of renting (i.e. the breakeven point).  If you plan on staying in your house longer, then it makes more sense to purchase.  If you plan to stay in your house for less time, then it makes more sense to continue to rent.  Of course, the calculator makes a few estimates.  Also, it doesn’t take into account true opportunity cost but it is a great starting point.

You Haven’t Considered the Opportunity Cost

Speaking of opportunity cost, another reason you should keep renting is that you haven’t considered just that – the opportunity cost.  Opportunity cost is defined as the value of something that is lost because you choose an alternative choice of action.

Let’s look at the opportunity cost associated with purchasing a home.  Although you may have found an awesome deal and a home that you love, typically you are tied to the home longer than you are an apartment.  If you find your dream job out of state and you are renting an apartment, you can typically break your lease or find a subletter to take over the remainder of the period.  However, if you own a home you will have to find someone to buy the home (which can take time and additional home upkeep) or you can find a renter.  If you find a renter, the home is still yours and your responsibility.

 

Ultimately, it is up to you whether you decide to rent a home!  There are a plethora of other reasons why it may be in your best interest to purchase a home (like building equity, being able to rent out a portion of the house, etc…).  I hope you take into consideration these 8 reasons why you should keep renting while making your decision.

Check out these other posts to help you on your quest to homeownership:

 

For those of you that have purchased a home, are there any other reasons a millennial should keep renting instead of buying a home?

 

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8 comments

  1. The time cost is as big as the financial cost when owning a home!
    We purchased our 3rd home recently and did a major renovation that made me absolutely insist that we would never buy a home ever again and would rent forever and ever if we ever moved.
    But…I’m a numbers person so in a decent real estate market, it really does make sense financially to buy for us, so for now we do.
    I think it’s a greater mistake in general to rush into buying a home than to rent instead forms while.

    1. You are right! Time is a big cost. A home is definitely something that should be purchased with careful thought.

  2. Thanks for sharing. I agree with some points, but the problem with stuff like this is it’s really tough to make absolute statements because everyone’s personal finances are so different. I’m not big on being house rich cash poor either. But I think there are many benefits from owning one’s own home. In fact, I wrote an article on my blog a few days ago about it. Check it out when you get a chance. As for the wife and me, we own a place. We’re up something like $135,000 in appreciation in the past 4 years. So if we sell today, that’s an extra $135K we didn’t have due to leverage. There are a lot more reasons why there’s pros on the other side of the fence, but I won’t list it all here =)

    1. Thanks for stopping by! I agree, personal finance is personal and everyone’s situation is different. Sounds like you are in a great situation just based upon the appreciation of your home! I was mainly looking to shed light on many of the reasons you shouldn’t buy a home that aren’t considered.

  3. I just had to read this post after seeing the title because I was like, “No! Why is Tia suggesting people keep renting instead of buying?!”

    But of course, your reasons were perfectly valid for pointing out why now might not be the best time in some people’s financial journeys for a property purchase.

    Yeah, if you’re stretched too thin or need time to build your credit or emergency savings, now is not your time to buy. But I love real estate as an investment and love seeing the next generation leverage smart debt to increase their assets. It scares me to think of a generation of renters retiring in a few decades with no debt-free property assets to use during retirement.

    Oh, one last thought: Even when we hit these scary recessions like 2009, as long as you are always living below your means, you should be able to ride it out til the market recovers, even if that means renting out the property at a loss for a few years.

    Thanks for a thought-provoking post!

    1. Great points, Michelle! I love how you mention that living below your means is key to riding out times with the market is suffering. Living below your means is def a fundamental to ensuring your financial ready for anything that may go on.

  4. We are definitely not ready to buy a house either. I understand buying a house is an investment, but I hate when people try to make it seem like it’s the way to acquire wealth. Yes renting is expensive but so is owning a home if you don’t have the money for it. Even if we do have enough for a down payment on a house we’d like to save more so that if something were to ever happen to us we would have a safety net to last us at least six months.

    This was an very well-written article. Kudos!

  5. I need to move soon and I’ve been curious if it could be the right time for me to buy a home. What you mention about how long you plan on staying really spoke to me. While I’m not sure how long I’ll need to stay in the new place, it definitely makes sense that it might be much more cost effective to simply rent until I have a definitive answer given my location history. Thanks for the tips; these will help me whenever I need to move because considering the cost of a home given the amount of time I’ll spend there would be good.

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