The Surprising Way Renting a Home Could Improve Your Financial Picture
- Renting a home is often less expensive than owning when you account for all of the various costs.
- Continuing to rent could help you build up more financial security.
The money you're not spending could really help shore up your finances.
When you rent a home, the money you spend on housing every month doesn't help you own an asset of your own. Instead, what you're generally doing is helping your landlord pay off their mortgage.
Because of that, you'll often hear that renting is a financially detrimental move. But actually, it could end up being a very smart one for you.
The benefits of renting
In some cases, it's possible to spend less on a mortgage payment to own a home than a rent payment. But often, owning a home is still more expensive than renting when you account for the peripheral costs of ownership outside of a mortgage payment. This includes property taxes, homeowners insurance, maintenance, repairs (which can be very costly), and, in some cases, homeowners association (HOA) fees.
Now you may be in a situation where you can technically afford to own a home. But if you're able to rent one for less money, doing so could help you improve your finances.
Say you're able to qualify for a home purchase with a low down payment, or even no down payment. It may be that you can swing the cost of owning a home. But what if you also have no money in emergency savings? That's not a good situation to be in. And so if renting a home costs $500 less per month than owning one, you're better off renting and sending that $500 into your savings account to build some much-needed cash reserves.
Similarly, let's say you're carrying a balance on a few credit cards, and that debt is costing you a lot of money in interest. If you were to keep renting, thereby spending less than you would to own, you can use the money you're not allocating to housing to pay down that debt. Doing so could not only save you from hefty interest charges, but also, help your credit score improve.
What's the right choice for you?
It may be that you're able to qualify for a mortgage and manage the cost of owning a home. But if renting costs less, and you need to build savings or pay down unhealthy debt, then renting could be the better choice for you.
Remember, while it's okay to look at a home as an investment of sorts, it's not a pure investment. It's also an expense. And until you're in a solid place financially, it's best to keep your housing expenses to a minimum.
Renting could also be a good choice if you're not able to qualify for a competitive interest rate on a mortgage due to not having such great credit. That's because you can work on boosting your credit while you rent to snag a better mortgage rate when you're ready to buy.
Also, while rent payments aren't automatically reported to the credit bureaus, you can arrange for that data to get collected. And if you pay your rent on time, it could help your credit score improve.
All told, there are financial benefits to renting. So before you rush to stop doing that, consider the ways it could help your financial picture improve.
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