Suze Orman Says You Should Rent Instead of Buy in These 4 Situations
- Buying a home can help you build wealth.
- Purchasing a home can also be an expensive mistake in some circumstances.
- Personal finance expert Suze Orman has shared some advice on when it makes sense to rent and delay homeownership.
Becoming a homeowner may not be the right choice for everyone.
Many people are eager to become homeowners as soon as possible. And there's a good reason owning a home has long been considered part of the American Dream. Homeownership allows you to create a place of your own and to set down roots, while also building equity in the property that can grow your net worth.
But buying a house actually doesn't make sense for everyone. In fact, personal finance expert Suze Orman has laid out four specific situations when she believes it makes sense to rent instead of buy. Here's what they are.
1. You aren't confident you'll still want to live in the same place after several years
Orman suggests you're better off renting instead of buying a home unless you're confident you're going to stay put in the house for around five or more years. Otherwise, the costs of selling the house could wipe out any profit.
Although Orman doesn't specifically mention it, there's also a risk you could end up walking away with less than you paid for the home if you're in the house for a short time and property values don't rise enough to cover your fees. It could be hard to repay your mortgage in these circumstances.
You're also more likely to end up having to pay capital gains taxes if you own your home for less than two years, and would have to pay these taxes at a much higher rate if you owned the house for under a year -- although Orman doesn't specifically address this issue either.
2. You don't have the necessary funds for a down payment
Orman stresses the importance of a hefty down payment and suggests renting instead of buying may be a good idea unless you have 20% to put down. She explains that while it's possible to find lenders who accept just 3% down, she believes this is a "dangerous sign that you really aren't ready to own."
A small down payment can also result in added costs in the form of private mortgage insurance to protect lenders, which home buyers have to pay for -- although Orman doesn't mention this issue specifically.
3. You aren't prepared for added homeownership costs
As Orman points out, homeowners end up being responsible for a lot more costs than renters.
For most renters, you'll pay your rent and utilities and that's it for your monthly housing expenses. But homeowners have property taxes, insurance, and maintenance costs to pay, which Orman explains can add 30% to your mortgage payment.
She suggests running the numbers carefully to make sure you have the added funds to pay all these new costs. If you don't, you're better off renting.
4. Owning a home isn't something you aspire to
Finally, Orman says to ignore advice from experts, friends, or family members and to "stand in your truth." While homeownership is widely touted as being a wise financial move and a dream to aspire to, there's nothing wrong with renting if owning your own place is not something you really want.
Orman's advice here makes sense, and it's important to ask yourself whether you want to be a homeowner and can really afford to be, before you make one of the biggest financial decisions of your life and end up with regrets.
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