The decision to buy a house is not an easy one. While there are certainly times when purchasing a home makes good practical and financial sense, the truth is that it is not for everyone. However, many are led to believe that the alternative — renting — is a waste of money. Is this true?
As often touted as the saying that renting is just throwing money away is, it’s also misleading. Although many assume that $1,000 in rent is equivalent to $1,000 mortgage payment, there are many other factors that make that false. In fact there are many things you should consider before ditching the rental life.
The first step is to take a closer look at what owning a home costs. Beyond the mortgage itself, there are homeowners association (HOA) fees, property taxes, and insurances that you’ll also be responsible for. Additionally while many rentals include all necessary maintenance, owning a home means you’ll need to pay for repairs and upgrades to items like appliances that can cost a pretty penny.
One reason people assume they should purchase a house is because of the equity they can acquire as the home value rises. Unfortunately that’s a two-way street and you could run the risk of owing more on your home than it is worth — often referred to as being “upside-down” or “underwater.” If you plan on staying in your home for the entire length of your mortgage or beyond, this might not be such a problem. However, if you plan on moving this could cause a true hardship that those who rent would not experience.
Along those lines one major thing to consider before jumping into a home purchase is how long you plan to live there. In theory you could always sell your home whenever you’d like and move elsewhere, but that’s usually easier said than done. In fact depending on the market, selling your house could be a lengthy process. Because of this, if you’re in a job that has the potential for relocation you may want to give renting a second thought.
Another consideration to make before buying is how flexible your finances are. Owning a home means that your finances will not be as predictable as they are when renting (especially if you opt for a adjustable rate mortgage instead of a fixed rate). Once again it’s important to remember that being able to afford a mortgage and being able to afford a home are not the same thing.
A powerful resource for helping you decide whether buying is for you is this New York Times rent or buy calculator. This site takes into account some of the factors we’ve discussed to give you a (closer to) apples to apples comparison about which may be right for you based on finances. That being said, there are of course personal factors such as location, taste, and lifestyle that may also influence your decision but cannot be easily quantified.
When it comes down to it renting is not just a waste of money. There are many legitimate reasons why renting may make more financial sense than buying despite what some might say. Buying a home is not something you should feel guilted or pressured into, so make sure you consider everything that comes along with owning a house before calling the realtor.