Buying a home is one of the top life goals for many people. Growing up, the idea that buying is better than renting has probably already been ingrained in your head. Buying a home is also likely an image of success for you, as it is for many other people in today’s generation and the generations that came before you.
However, buying a home should only be done if it makes financial sense — and this is not the case for everybody. So before you start shopping around for a property for sale, here are the signs that it might be better to keep renting for now.
Your credit score is lower than 740
When applying for a mortgage, one of the first things that lenders evaluate is your credit score. This number represents your financial capability, as well as your level of responsibility as a borrower. A low credit score paints you as a risky borrower and will garner higher interest rates from lenders. Thus, it is recommended to have a FICO score of 740 or higher to increase your chances of getting the best deal on your mortgage possible.
If your credit score is below 740, raise your credit score before buying a house. It can save you thousands of dollars in interest as well as private mortgage insurance.
You’re a frequent long-term traveler
Do you jet-set around the globe and stay in different places for weeks or months at a time? If this sounds like you, then renting may make more financial sense than buying a home.
But wait, what if you want a home base that you can come back to in the middle of your trips? Sure, buying a home can give you a permanent place to stay when you’re not traveling. But is it the smartest move for your money? If you buy a home, you would have to pay the mortgage, utilities, taxes, and maintenance, even if you’re not using it. That’s a lot of money taken out of your travel funds. Unless your income can support all of your expenses without compromising your travels, then renting makes much more sense.
You might move within the next five years
Five years is the amount of time it would take to gain enough equity to offset the costs of selling a home. So even with the slightest gut feeling that you might move within the next five years, keep renting for now.
Evaluate your current life situation, particularly your career, relationships, and lifestyle. Do you feel secure enough in your job to stay where you are for the foreseeable future? Is your relationship stable enough to warrant buying a home together with minimal risk of being forced to sell too soon because of separation? Can you settle down in one place for the next five years and beyond?
If the answer to these questions is ‘no’, stay put. When you are sure that there is little chance that you will be moving in the next five years, that’s the time you should take the plunge and buy a house.
You’re not ready for the commitment
A home loan takes a very long time to pay off, perhaps even half of your remaining lifespan. For some people, the idea of committing to that huge financial responsibility is enough to put them off the idea of buying a house. Even if it’s the norm, a lot of people fail to realize what it means to part with 20-30% of their income every month for the next few decades.
Maintaining a house also requires the commitment of time and energy. As a renter, you just have to call the landlord or building maintenance to fix a leaky pipe or a clogged gutter. As a homeowner, you have to do almost everything yourself — and you would always try to do it yourself because having someone else do it for you also costs money.
You can’t afford the 20% down payment
There are lenders who can offer you a loan with as little as 3% down payment, but putting down almost no money on a mortgage will have you paying a lot more in the long run. Contributing at least 20% down payment eliminates the need to pay for mortgage insurance and can help you avoid losing money in case you have to sell too soon.
If you don’t have at least 20% down payment yet, keep renting. If the rent takes up a big chunk of your finances, consider moving to a cheaper place and downsizing your expenses so that you can save up faster.
Even if buying is your end goal, there are certain situations wherein renting makes more financial sense. So if you notice these signs, you are likely better off renting for now.