- There are financial benefits to owning a home over renting one.
- In some cases, renting makes the most financial sense.
- If you’re worried about your credit score or job security, renting could be the better choice.
It could pay to rent if these things apply to you.
At this point, a lot of would-be buyers are getting frustrated with their lack of progress on the homeownership front. Home prices have been inflated since the latter part of 2020, and that alone has been a deterrent for buyers on a budget.
Compounding the problem is that housing inventory has lacked in a very big way. That's put buyers in a position of having to overbid on homes and still risk losing out. And, there's been a limited supply of starter homes on the market, which has been a particular problem for first-time buyers.
Still, you may be tired of renting and itching to buy a place of your own. But if these three things apply to you, renting could make the most sense this year.
1. You don't have a 20% down payment to put down
Home prices today are very expensive. Plus, taking out a mortgage has gotten more expensive. That's because mortgage rates have been rising sharply since the start of the year, and they're likely to continue climbing.
That means you probably can't afford to make homeownership any more expensive for yourself. And if you don't have 20% to put down on a home, then you can bank on your mortgage costing you more.
You'll be hit with private mortgage insurance, a costly premium that gets tacked onto a conventional mortgage, when you don't make a 20% down payment. As such, you may be better off renting this year and waiting to buy until you can save more money to buy a home with.
2. Your credit score recently took a hit
As just mentioned, borrowing for a home has recently gotten more expensive. And if your credit isn't great, it could end up being even more expensive for you.
The lower your credit score, the more interest a lender might charge you for a home loan. That's because a lender is apt to feel like you're more of a borrowing risk with a lower score. As such, if your credit score recently dipped, it pays to spend some time boosting it before applying to borrow money for a home. And that could easily take you into 2023.
3. You're worried about losing your job
Many financial experts are sounding warnings about an impending recession. And that's a possibility it's important to brace for.
Now if you work in a fairly recession-proof field (for example, if you're a pediatrician or teacher), then you may not have to worry so much about losing your job during periods when economic conditions sour. But if you work in an industry that's more likely to feel the impact of a recession (say, you do something creative or work in travel or retail), then your job may be less secure during a recession. If that's the case, you may want to continue renting this year and putting plans to buy a home on hold.
Eager as you may be to own a home, it's important to do so when the timing is right. And if these things apply to you, you may be better off sticking to a rental this year.
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