Everybody needs a place to live, and most of us have two options: rent or buy. Plenty of people aspire to own their own homes, but some people feel pressured to buy even though they may not be interested in homeownership. For others, renting may be the better choice due to their current circumstances.
So, when does renting make sense? It depends on a lot of factors, such as your comfort level with home maintenance and repair, your finances, your career, and your lifestyle. If any of the following circumstances apply to your situation, renting may be the better option for your finances and lifestyle.
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You May Need to Move within the Next Few Years
There are lots of hidden costs and fees associated with buying a home, including closing costs and inspection fees. Because of these, you need to live in your home for a certain number of years to break even.
If your circumstances are such that you can stay in the home for at least five years, it might make more financial sense to buy. But if you can’t stay that long, you will lose money on closing costs, inspection fees, and the realtors’ commission when you sell. Use a rent or buy calculator to figure out how long you’ll need to stay in a home to make purchasing a good financial choice. If you can only stay in your home for two or three years, it might be cheaper to rent.
Of course, if you think you’ll have to move cities within the next few years, it also makes more sense to rent. Renters can pack up and move whenever they want. Homeowners have to sell their homes before they can move. Otherwise, they may have to pay two mortgage payments or pay rent on top of a mortgage until the house sells. If you need flexibility for your career or you’re simply not committed to staying in your current city, renting is the best answer.
You’re Not Yet Familiar with Your City
You’ve just moved to a new city – let’s say, Houston. You don’t yet know much about which neighborhoods in Houston you might want to live in. Your choice of neighborhood should match the lifestyle you want to live. A house in a quiet suburban neighborhood with good schools might be the best choice if you want kids, while a house in a walkable neighborhood close to entertainment and shopping might be best if you’re young and childless. Instead of committing to purchasing a new house in Houston before you’ve had a chance to get to know the city, look for new homes for rent in Houston and try to rent for a time in each neighborhood that interests you, so you can see which one feels like the best fit.
You Can’t Afford Home Ownership
Unfortunately, many people these days are priced out of home ownership. If you can’t get together the money for a down payment or a mortgage payment is out of your financial reach, or both, it makes more sense to rent. But don’t assume you can’t afford a down payment just because you’re not rolling in cash. It depends on the cost of living in your area. In many areas, you can make as little as $35,000 a year and still afford a house. There are also many programs available to help first-time homebuyers get downpayment assistance grants and loans with little or no money down. Look into options like FHA loans, USDA loans, or VA loans.
You’re Not Prepared to Maintain a Home
Owning a home is a lot more work than you might expect. You have to clean the gutters twice a year, keep the grass cut, trim the shrubs, repair things that break, and upgrade things that are getting old. It can take a lot of time, money, and work to keep a home in good condition, and failing to do so can lower your home value and leave you in poor living conditions. If you want a lifestyle free of home maintenance, renting makes sense – as long as you find a good, responsive landlord who keeps things in good shape.
You Have Bad Credit
If your credit score is in the dumps, you may not be able to qualify for a mortgage. In that case, it makes sense to rent, at least as long as it takes to repair your credit. Focus on disputing bogus items, settling bills that have gone to collections, and making payments on time to bring your credit score up so you can buy.
Homeownership may be held up as something for every American to aspire to, but it doesn’t always make financial sense to buy. There’s no shame in renting – and it can even be the more financially savvy choice.
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