Owning a home has been a part of the American dream for many years, but that doesn't mean it's right for everyone. For example, if you move around every few years, you can spend so much on closing costs and other fees that you would be better off renting. Here are four situations where you are probably better off renting.
You don't have a steady job
There is a big difference between making a good living and having a steady job. Sure, you make enough to cover a mortgage payment now, but what about in a year from now? Five years?
There are a lot of American workers who fit into this category. Some people have jobs that are temporarily grant-funded or are otherwise non-permanent positions. And, there are the millions of people who are self-employed or own their own businesses, whose income varies from year to year.
If you happen to lose your job, or are forced to accept significantly less income, it's much easier to downgrade your lifestyle if you're a renter. At most, you'll probably be locked into a year of rent payments, and then are free to move to a smaller or less-expensive apartment without the hassle and stress of selling a house.
An "unsteady" job also refers to one that may require you to move around somewhat frequently. While a lot of people who move every few years do buy homes, consider the additional costs of buying and selling often.
Closing costs on a home generally run about 3% of the home's value. So, on a $200,000 home, expect $6,000 of fees and other upfront expenses. This isn't a huge expense if you stay in the home for 10 years, but if you move every two to three years, these expenses can add up tremendously over time, and eat up your profits when you sell.
You have a great deal on your apartment
If you have a good deal on your apartment, and it meets your needs, why mess up a good thing? Many apartments, especially in cities, are rent-controlled or rent-stabilized.
And, a lot of large apartment complexes will renew a lease at the same price for several years, while raising rent on new tenants. This is especially true in areas where apartment complexes have trouble staying full. I lived in the same apartment for four years after college, and at the end I was still paying my original $900 per month in rent when the same apartment was going for $1,150 to new residents. If you have a deal like that, it's hard to justify leaving.
You don't have a lot of cash in the bank
Now, I realize it's not terribly hard to buy a home without a large down payment, but that doesn't mean it's a good idea.
For instance, consider the most popular low down payment loan option, the FHA mortgage, which allows buyers to purchase a home with 5% down. Not only does this make your mortgage payment more expensive, since your financing more of the purchase price, but it also adds FHA mortgage insurance to your tab.
Currently, FHA mortgage insurance requires an upfront payment of 1.75% of the loan amount plus an annual premium equal to 1.35% of the loan's balance. So, on a $250,000 mortgage, you can expect $4,375 added to your upfront costs and about $280 added to each of your monthly payments.
If you can deal with renting for a few years, it may be a better option to rent an apartment or home and save your money until you have a more substantial down payment. In order to avoid mortgage insurance, lenders want 20% down, and many require a certain amount of cash reserves in savings.
You like simplicity
I have spoken with many former homeowners who decided to rent again, and they simply cannot get over how much simpler life is when renting.
When you rent, someone else (the landlord or property manager) generally takes care of all the maintenance and repairs on the home. If your toilet breaks, or your faucets are leaky, it's usually no more of a hassle than calling the maintenance man, which won't cost you a dime. Instead of spending thousands of dollars when the air conditioner kicks the bucket, when you're renting it isn't your responsibility.
The bottom line is that there are lots of very good reasons to buy a house, but there are also a lot of good reasons not to as well. Your own American dream depends on your particular life situation, your preferences, and your finances.
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