Homeownership. It's the American Dream, or so they say. While owning your own house brings with it complete autonomy over the place you call home, it is far more expensive than people think. Add up the hidden costs of homeownership and renting may not seem like "throwing money away" after all.
I made the mistake of buying a home before I was truly ready, and I didn't understand what "building equity" truly entailed. I had no business buying a home, and I lost tens of thousands of dollars on that so-called investment. Bottom line: Owning your own home isn't all roses and dandelions. It takes work and lots of money. Be smart and know what you're getting yourself into before you buy.
1. You believe that renting is "throwing your money away."
Source: Stult's Advantage
After years of renting apartments, I believed that renting was a waste of money, assuming instead that homeownership and building equity was what successful people do. Eight years later, I now realize that renting could have saved me a tremendous amount of money compared to the responsibility of owning my own place.
How does this work? Think realtor fees when you buy (and sell). Next, consider the interest paid on your mortgage, which adds up to tens of thousands of dollars very easily. Also, think maintenance costs - the appliances, the floors, the landscaping and general yard care. Maintenance alone can easily set homeowners back thousands every year as appliances break and need replacing, roof and wall repairs, carpet replacement and so much more.
Remember that time is money. Most repairs and renovations require a good amount of time devoted by the homeowner. Consider how much time it takes to mow the lawn, pick weeds, maintain the pool, fix the garage door, etc. What else could you use that time for? I never realized how good I had it until, well, I bought my first home.
Renters have the majority of this taken care of by the homeowner. The rent you pay every month pays for this maintenance, so when the microwave breaks, you aren't on the hook to pay for the replacement.
2. You can't put money down on your mortgage.
Source: Total Mortgage
Homeownership is an expensive proposition from the very beginning. While it's possible to get the seller to pay your realtor and mortgage fees, it's far from guaranteed, and mortgage lenders are less than optimistic about giving loans to people with very little savings, especially after the mortgage collapse of 2008. If you cannot afford to put at least 20% down on the house, renting is probably a better option until your financial situation improves. Remember, the process of buying a home is almost always more expensive than you anticipate.
3. Your job is unstable.
Source: The Divorce Guide
Unfortunately, mortgage companies don't care if you have lost your job. You signed on the dotted line and accepted the responsibility for the full monthly mortgage payment until you sell or refinance the house. Missing mortgage payments can severely damage your credit and limit your ability to purchase in the future, including cars and homes.
Renting, on the other hand, provides the option of moving to a cheaper place once the lease is up. If you were forced to take a pay cut, choosing a lower monthly house payment is only possible if you're renting instead of owning.
4. You like (or need) to move around quite a bit.
Source: A Plus Senior Care
Owning your own home has a way of establishing you in one place. While renters can simply up-and-move once their lease runs out, homeowners are tied to the home. It's true that renting out your home is possible if you need to move, but the same maintenance costs apply as mentioned in #1 above, and management companies often skim 10% off the rent right away as their fee, reducing cash flow in your direction. If you have a mortgage on the house, you may not actually make a profit even if the rent is higher than your mortgage payment.
Once again, you are still responsible for all maintenance costs, property taxes, and headache if you get a bad tenant who destroys the house. Many states make the eviction process long and tedious, adding to the mess of a bad tenant. If you tend to move often, renting is a far better option.
5. You don't like maintenance or projects around the house.
Source: Ochome Inspect
One of the biggest demands on homeownership is both time and money required to maintain the house. If maintenance has never been "your thing," homeownership isn't for you. A home quickly falls into a state of disrepair if the owner is not on top of items that need fixing, proactive cleaning and general attention.
Caulking around showers eventually wears thin. Air conditioning filters need occasional replacing. Water heaters need cleaning. That weird sound coming from your dishwasher probably needs to be looked at. Your backyard needs better drainage after a heavy rain. Sometimes, these maintenance items never seem to end.
Of course, owning your own home isn't always a losing proposition, but it takes the right state of mind and financial situation to pull off in a smart way. It takes work. It costs a lot of money. It's not for everybody.
Don't let the idea of the American Dream cloud your better judgment. The last thing anyone wants is for that dream to turn into a nightmare.