I was a renter from the time I left my parents’ home until I was 38
From that point forward I’ve owned. As of 3 years ago, I’m also a landlord, leasing out my previous home.
Based on that experience from all sides of the issue, I’m a firm believer that in most cases (when you can), buying your own home is a far better financial proposition than renting.
However… as I often say, personal finance is just that — personal — which means there are people who should avoid buying a home.
If any of the following apply to you, don’t buy…
A Comprehensive List of Reasons to Avoid Buying a Home
While I tried to make this list exhaustive, you may come up with one or more reasons I missed. If you do, please leave it/them in a comment so we can make this as complete a resource as possible for later readers.
We’ll start with the most obvious reason, and proceed to the less-obvious.
- The most obvious reason — you’re living rent-free somewhere that works for you. This may be your parents’ basement, a friend’s couch, or military housing (that last was true for me for a few years). Or someone else (your parents, the military, your employer, etc.) is paying your rent but wouldn’t cover mortgage payments.
- Your living arrangement works for you, and while you do pay rent, it’s substantially below market. This could be because your home is rent-controlled, you’re splitting the rent with house-mates, your landlord has no idea she could charge much higher rent, or you’ve made an arrangement with your landlord to take care of maintenance in return for substantial discount on the rent (that was me when I was a grad student).
- You’re living someplace you wouldn’t want to buy and live for the long haul, and thus paying much less in rent than you would need to pay for a home you’d want to buy. This lets you save money toward buying in a few years.
- You’re planning to move in 2–3 years, so you can’t justify the cost of buying and selling.
- While you have no current plans to move, you prefer the flexibility of renting over the potential long-term financial benefit of buying a home.
- You can’t find a mortgage that would allow the too-small down payment you can come up with.
- You can find a mortgage that lets you borrow nearly 100% of the cost of buying the house, but including the private mortgage insurance (PMI) increases your monthly payment far above the rent for a similar property.
- You can afford the down payment you need for buying, but it would leave you house-poor and at financial risk should any emergency come up.
- Your income isn’t stable, so you can’t take on the long-term commitment of a mortgage. If you did, you’d risk losing your home and what you paid upfront for it.
- Your credit score is too low and/or you have too much debt, so you can’t get approved for a mortgage. Or if you can, the interest rate would be exorbitant, making payments far more expensive than rent for a similar property.
- You’re in an unstable relationship, so buying together (or buying solo and having your current partner move in with you) isn’t appealing.
- Your local real estate market is so hot that you’d end up in a bidding war that will drive the price you have to pay far above what makes sense.
- Your local real estate market is expensive and home values are dropping. It may be better to hold off buying until prices stabilize.
- Your local real estate market temporarily favors renting over buying. This may be because interest rates have recently spiked and the rental market hasn’t caught up yet.
- You aren’t ready to spend the time and effort it takes to buy a home and/or maintain it. This includes applying for and getting approved for a mortgage, looking for (and finding) the right home, making an offer (and possibly getting in a bidding war), moving in, making any and all repairs and/or improvements you’ll want or need to make, buying furniture and décor items to fill your new home, etc. etc. etc.
But If None of These Are True for You…
If none of the above apply to your personal situation, buying is most likely going to benefit you in as short a time as 2–3 years.
Contrary to what many bloggers out there may think, rent is unlikely to be cheaper than the cost of home ownership for a similar home in most cases.
While those bloggers claim mortgage, taxes, insurance, repair bills, etc. end up higher than rent, in most cases this just isn’t so. This for the simple reason that we landlords are in it as a business — we want to make money, and maintain a positive cashflow.
Thus, we charge high enough rent to cover our mortgage payments (including the principal part), real estate taxes, insurance, repair bills, etc. and still have a few hundred dollars extra income each month.
And who gets to pay for all that? You, the renter!
If you’re ok with that, please keep renting. You help power our bottom line.
The Bottom Line
I can’t think of many financial rules that have no exceptions.
The claim that you should always buy a home over renting certainly isn’t such a rule. In fact, the above are 15 sure reasons and situations to the contrary.
However, if none of these are true for you, you would be better off buying.
This article is intended for informational purposes only, and should not be considered financial, investment, business, or legal advice. You should consult a relevant professional before making any major decisions.