After getting married three years ago, my wife and I thought [briefly] about buying a home. We decided that renting was our best option at the time, and I’m really glad we did. Mobility was our biggest factor since she was applying to medical school; and this summer we ended up moving to a new city since she was accepted to a med program.
“But you’re throwing your money away if you rent!” I don’t know if people say it as a reflex or just to convince themselves, but I don’t feel like we’re throwing money away at all.
Let’s face it, having a roof over your head is a good/service just as hiring a plumber, buying clothes, or food is a good/service that we spend our money on. It’s an expense that everyone has to pay some way or another. Whenever I hear someone say that renters ‘throw away money each month,’ I have to disagree. The rent I pay for having a roof over my head was hardly a waste! It kept me dry, comfortable, and clean – well worth the money I spent to have these amenities.
Besides, when you think about the actual payments made on a mortgage, a lot of it is ‘thrown away’ towards interest. Use any mortgage amortization calculator and you’ll see that approximately 80% of your monthly payment goes towards interest for the first five years! Between years 6 and 10, you’ll see about 70% of your monthly payments go towards interest. We can easily say that both renting and buying are ways to throw away your money – but that would be wrong because we find value in having a roof over our head for that month.
Deciding to Rent or Buy a House
We still have a few years until she’s done with medical school and residency, so buying a home probably isn’t in our immediate plans. BUT, it’s still something we’ll be looking at in the close future and here’s what we’ll be thinking about when the time comes to make that decision:
Pros of Buying a House
– Good Homes at Great Prices
There are a lot of great homes at excellent prices. Some have even said that the housing market may take a double dip. That’s great news for renters looking to buy a home. While it’s a pro to buying a home, it’s not a factor that will cause us to jump the gun on buying a home.
– You Get Tax Deductions
Yes, it’s true that you can deduct the interest you paid as well as the property tax IF you don’t take the standard deduction. For us, we just get the standard deduction, so this won’t really be a factor in our first home purchase.
– You’re Building Equity
We certainly hope so, right? I have no idea what the housing market will do in 5, 10 or 30 years, so I’m not counting on home equity for anything. I view housing as an expense, and not an investment. That’s what investment accounts are for.
Cons of Buying a House
– You’re Stuck
If you need to make a move quickly because of a job, family issues, or other life changes, you could be making two house payments. You’re at the mercy of the market and if you can’t sell your house, it might cause you to miss opportunities.
– Property Tax, HOA, PMI
There are certain costs that directly affect homeowners. While property tax and other qualified expenses can be considered tax deductible, they’re still an expense that YOU have to PAY. Homeowners association dues, private mortgage insurance, and other expenses can really add up, so don’t forget about these when you think about that monthly mortgage.
– Interest Eats Your Payments
We discussed the ‘throwing your money away’ phrase that affects both renters and buyers. I don’t consider it a waste, but if you do, it’s important to consider it as a con of buying a home.
Pros of Renting A House
– You Maintain Flexibility
This is our reason why we still rent. If you want to have flexibility to accept a job across the country, start school three states away, or move closer to family, renting might be for you.
– You Don’t Have to Fix Things
When you rent, your contract often (and should) calls for the owner to fix any problems. This includes appliances, structural issues with the home, or really anything else that needs repair in the rental. I’ve heard it said that you should save at least 10% of your mortgage payment to cover home repairs and other house related emergencies.
Cons of Renting
– You Don’t Make the Rules
If your landlord doesn’t want pets, you won’t have a pet. If your landlord doesn’t want your walls painted, you can’t paint the living room. Be prepared to follow the rules made by your landlord, it’s that simple.
– You Don’t Build Equity
To be fair, I’ll include this point. As a homebuyer, some of your money (though it’s really a small amount) goes towards your home’s equity. You don’t get this luxury as a renter because all of your payment goes to the landlord.
Important Questions for Renting Vs. Buying
You shouldn’t make a decision simply based on these pros and cons listed above. The decision to buy or rent a home is much more involved than that. You need to factor in these questions:
How Long Will You Be There?
Experts say that you really shouldn’t buy a home unless you plan on staying there for 5-7 years. If you don’t see that happening, you probably should consider renting.
Is Your Family Growing?
Why would you buy a home with two bedrooms if you plan on having a few kids in the next couple of years? It sounds too simple to even mention, but it’s a question you need to think about.
What are Your Professional Goals?
Thinking about graduate school? What about starting a business or joining a larger company? Will those things cause you to move to another location? One year of renting to think through those possibilities can really save you headaches in the long run.
Can You Afford It?
Aah, yes. The ultimate question…can I afford a home AND all the costs associated with it. When you rent, you have the flexibility to downsize quickly in case you lose a job or need to adjust financially. If you own a home, you might find yourself in a world of hurt if you can’t afford to make your monthly payments. That’s why it’s so crucial that you have an adequate emergency fund and do everything you can to keep your mortgage payment reasonable.
I hope I covered both sides of the issue and encourage you to really do your research before deciding on buying or renting. To help your research, consider this awesome rent vs buy calculator from the New York Times – it’s really a great visual to help you think about the pros and cons.
We’ve decided on renting for a while, but you might feel differently. Are you in talks about renting or buying a home? What factors are most important to you? I’d love to hear your comments!