Almost all of us face the decision of whether to rent or buy at some point in our lives – and the answer doesn’t always come easy. Important factors to guide your decision include income, investment capacity, source of payment and lifestyle.
While homebuyers have pride of ownership and enjoy building equity, we have all heard that there are many “hidden” expenses that come with buying a house. Sometimes renting is the better choice. Here are three times you are probably better off renting.
1. You Can’t Afford a Down Payment
Maybe you are aggressively paying off student loans or credit card debt, currently in school or just starting to prioritize saving up for a house. There are many reasons you may not have liquid cash to make a down payment on a home. And while there are more options for getting a mortgage besides the traditional 20% down, if you don’t have the money for a down payment it may be a sign you should rent instead of buy… at least for now.
2. You Won’t Stay Put for Long
If you do not plan to stay in the same area for an extended period of time because you are a graduate student, working a temporary job or are not happy with your current location, you may want to hold off on buying a home. It can often take a few years to recoup the upfront costs of purchasing a home and renting is a great option for people who are unsure that they will remain in the same place for the foreseeable future.
3. Your Credit Is Working Against You
Maybe you have experienced a recent foreclosure or have a high debt-to-income ratio. Even if you can qualify for a mortgage, bad credit will result in higher interest rates. This means you could face high monthly payments and an overall higher home cost. If you are not in the best financial shape, buying is not the right move. Renting, however, can allow you to live comfortably in an affordable way while you work to improve your credit score.
Keep in mind that whether you rent or buy, bad credit can be a barrier to getting into your next home. If you anticipate moving at some point during the next several months — whether to your new home or new rental — it’s important to check your credit. If there are negative items on your credit report that are dragging down your score (especially errors or issues with fraud), take some time to resolve those problems before you get ready to make your big move. You can check your credit reports for free once a year through AnnualCreditReport.com. You can monitor your credit scores for free on Credit.com, where you can get an overview of what’s working for and against your credit, along with a plan to improve it.
Finally, renters have the benefits of no maintenance costs and a no-risk expense. Even when you can afford to buy a house, it is not always the right decision. It’s important to consider your lifestyle and financial factors, the characteristics of your residential area and all investment options before you decide to rent or buy your next property.
More on Credit Reports and Credit Scores:
- How to Get Your Free Annual Credit Report
- How Do I Dispute an Error on My Credit Report?
- How Credit Impacts Your Day-to-Day Life