If you're young and have been renting for quite some time, you've likely wondered if it's smarter to continue renting or save up to buy your own home someday. After all, we've all been conditioned to think that owning a home is equivalent to adulthood and success in America.
The numbers show a different story, though. According to the Joint Center for Housing Studies, "the number of renter households is likely to increase by between 4.0 million and 4.7 million in 2013–23." For many, owning a home is not only out of reach, it might also not be the best investment in your future. So, if you're currently renting, you're not alone, and it might not necessarily be a bad thing.
Here are some reasons why renting might actually be better than buying:
If You Don't Have an Emergency Fund
Owning a home can be incredibly expensive, and it's something every homeowner needs to be well prepared for. The expenses associated with owning a home are far more than your monthly mortgage payment. You also have to consider property taxes, maintenance, energy bills, water bills, and more. It's rare that you will go a month or two without having to fix something on your home. The to-do lists can be endless and that's not even including surprise repairs.
For all those reasons, you will need a large emergency fund before you move into your home, typically about 3-6 months worth of expenses. If you don't have an emergency fund of this size or aren't sure you can save up for one right now, then renting is definitely the best option. After all, if something goes wrong, your landlord will simply take care of it, and all you will need to focus on are your rent and possibly your utility bills.
If You Plan to Move Soon
Buying a home is a lengthy and time intensive process. Typically, you will search for homes, make an offer on the one you want, and then hope that you get it. Taking the time to get a loan is a several week long process, and then you have to make sure you have all of your paperwork done properly so you can close on time. It's not worth going through all of this effort only to sell your home a year or two later. Plus, the longer you stay in your home, the more your home has time to appreciate in value. It also gives you time to build equity in your home and make any improvements you want to make.
Remember that when you sell your home you will have to pay realtor fees and more. So, in order to not lose money and do better than break even on your home purchase, you really should live in a home for four years or more. If you only plan on living in a location for two or three years, it's definitely best to keep renting.
If You Live in An Expensive Housing Market
There are many parts of the country when the housing market is too high to even consider buying, at least not while you're young and early in your career. In certain locations, even if you could technically get a loan, your housing costs would make up too big of a percentage of your overall budget to be a wise investment.
Traditionally, your housing costs should only be about 25-30% of your take home pay in order to leave enough room for your other bills, wants, and needs in life. In more expensive parts of the country, like the New York City metro area, San Francisco, or any other large, up and coming city, renting might be a better option, especially if you still have student loan debt or other financial responsibilities to take care of. Don't forget that renting in larger, more expensive areas is actually helpful at first too because it allows you time to get to know a city and its neighborhoods before committing to buying something later in life.
Ultimately, before you rush into buying your first home, consider renting for longer. Renting is not wasting money; rather, it can give you valuable time to plan and save for a home purchase down the line, something that will absolutely take time, consideration, research, and saving.