6 Reasons to Keep Renting Instead of Buying a Home

Don't rush into buying a house if there are good reasons to remain a renter.

Buying a home can have huge benefits. You can begin building equity as you repay your mortgage and can eventually own your own place outright. You'll benefit from rising property values and have much more control over what you can do with your space.

Despite these advantages, however, purchasing a property isn't the right choice for everyone. Here are six reasons why you may decide that continuing to rent is the best choice -- at least for the time being.

1. You don't have an emergency fund

Before buying a home, it's important to have an emergency fund set aside. Your emergency fund can help you cover home repairs, which will become your responsibility once you no longer have a landlord to handle them. And it can save you from foreclosure if your income declines.

If you don't have the money to cover several months' worth of expenses, you may want to wait until you've built up enough in a high-yield savings account before purchasing a property.

2. You haven't saved up a down payment

The ideal down payment when purchasing a home is 20%. Putting this much down helps you qualify for loans from more lenders and get a better rate. Plus, it can help you avoid having to make an additional monthly payment for private mortgage insurance. This is a fee that protects lenders from losses in case of foreclosure when smaller down payments are made.

Even if you aren't able to make a 20% down payment, most mortgage lenders require a minimum of 3% to 10% down. So if you don't have the money saved to put down on a home, you'll either need to wait until you do or potentially accept a more expensive mortgage from a more limited pool of lenders.

3. Your credit score needs work

It's possible to qualify for a mortgage with a credit score as low as around 500, but you'll have a very limited supply of lenders. You may also have to accept a loan with more upfront fees or a higher interest rate.

If you don't have a credit score of at least 620 -- and ideally a score above 700 -- you may want to keep renting until you've improved your credit rating and can get a better mortgage.

4. You've recently changed jobs

A job change can make mortgage lenders nervous about the continuity of your income stream. As a result, it will be harder to qualify for an affordable mortgage loan after a very recent career move.

Ideally, you will want to rent for a little while after switching careers so you can build the type of stable employment history lenders prefer. It's best if you've been at your current job for at least a year and closer to two years before you buy a home.

5. Buying would put you over budget

If your monthly housing costs would be above 30% of your income -- or would be well above what you're currently paying in rent -- then you may not want to rush into buying. Committing more than that percentage to housing payments could leave you struggling to accomplish other goals.

6. You aren't sure if you'll be staying put for at least a few years

Finally, if you aren't confident you'll stay in your home for a minimum of two years -- and ideally longer -- then you may be better off renting. Otherwise, you run a big risk of losing money after covering transaction costs, or owing higher capital gains taxes if you manage to sell your house at a profit.

If any of these six signs apply to you, consider renting until your financial situation has improved -- or until you're likely to remain in one house for a while after making your purchase.