You’re supposed to want to buy a home, but maybe that’s not everyone’s dream. At least not yet. For Nadia and William McGovern, their only option as newlyweds was an apartment, even after they celebrated the birth of their first child. For them, the benefits of renting included being able to afford a large, airy space that overlooked the bay in a village outside Providence, Rhode Island.
And like many renters before them, they were able to live in a gorgeous neighborhood while they strategized their next move.
“We always wanted to buy a home,” McGovern said. “We were able to save enough for a down payment.”
After saving for a few years, they finally found a deal on a ranch style house across town.
Some people bide their time while they save, like McGovern. Others prefer the mobility of renting and being able to chase the next job in a new city, or of saving on fees like mortgage interest payments and homeowner insurance. As you can see, there are advantages and disadvantages to renting versus buying an apartment or house, so please read on to learn more.
“Homeownership is a central component to the American Dream and because of that it is often equated with success,” said Matthew Kreamer, manager of data public relations at Zillow, a real estate website. “I think this is a potentially harmful idea. Each person’s situation is different, and owning a home might be a point of pride for some, but that does not mean it will necessarily make that person better off.”
Renting Can be More Affordable
You can spend less as a renter, depending on the ratio of home prices to monthly rents in your area and the interest payment on your loan. There are also a host of other potential fees that determine the true cost of ownership, such as property taxes and HOA fees, said Kreamer.
It’s important to do your homework in your area to really decide how much buying will cost and whether you can and want to afford it. Talk to realtors and other professionals to learn about what you face in your city.
Like for many Americans these days, McGovern attests that while he loves having a yard and play space for his family, his new lifestyle is not without extra expenses, a down side if you will. There’s also a seemingly endless list of chores.
McGovern also recommends having extra money saved up if you’re planning to buy. Because there’s always a pipe ready to burst, a branch ready to fall on one corner of the house.
“Sudden expenses can come up,” he said.
Renting is More Flexible
Whether you get a call out of the blue from a recruiter with a killer opportunity in a new city or are just aching to plan a yearlong adventure away, owning a home can take some of the joy out of hitting the road. Otherwise, you may worry: How much can I get for my old place, and how soon? Is that amount enough to buy something comparable somewhere else?
In addition, mortgage fees are an expense that can really add up for frequent buyers.
“Where do I see myself in five years?” asked Kreamer. “If you think you’re going to want to move back home or try life in a new city, then maybe buying a house right now is not in your best financial interest.”
There is also an added benefit to renting, at least a bit longer, if there is a pricing bubble ready to burst or an inventory shortage.
Home prices are likely to fall when the economy is poor, which could mean better deals in the near future, said Kreamer. In addition, it is easier to move out with a lease than to sell a home in a slowing economy. And in a really tough economy, being able to easily go where the jobs are may be more of a necessity than a luxury.
“I think buying is good if you are ready to put roots down and make a long term investment,’ McGovern said.
Renting Lets You Save for a Down Payment
Waiting to buy could give you time to save, what you really want, and how much home you want to afford. And you won”t be alone, said Jessica Lautz, vice president of demographics and behavioral research at the National Association of Realtors.
“Inventory is very tight right now,” says Lautz. “It”s especially restrictive to entry level buyers, so going to the market today, it could be difficult to search for a home.”
Apartment listing service Apartments.com found that for every rise in home mortgage interest rates, thousands of renters who may be looking to buy homes are priced out of qualifying for a loan.
These rising mortgage rates are keeping millions of renters in their apartments for prolonged periods of time, forcing them to save more money for a larger down payment. However, the desire to own a home in the future remains, said Lautz.
“What would drive people to enter homeownership is a change in their financial situation,” she said.
Giving up being a renter was a welcome change for McGovern. Though has no regrets about his time renting, he loves being a homeowner today.
“We have had plenty of room for our two kids,” McGovern said. “I was able to turn the basement into a business that allows me to be home for the kids.”