Some people continue to rent homes or apartments because they believe it is the better option. Except for a few cases, renting is rarely the better option. Here's why.
Myth #1: Renting is cheaper
Renting a small apartment probably is cheaper than purchasing a 4-bedroom house. However, if we compare apples to apples and look how much it costs to rent a 3-bedroom townhouse VS buy that same 3-bedroom townhouse, monthly rental prices are usually much higher than a mortgage would be. Last year I sold a landlord's property to his tenant. While renting, the tenant paid $950/month. After buying, his mortgage payment was only $750! Same house, but now he owns it and can build equity and wealth - for $200 less a month.
Myth #2: Renting requires less money up front
Typically to move in to a rented property, you will need to pay first and last month's rent, plus a security deposit. I recently rented a 3-bedroom townhouse for $1300/month. The tenants had to pay $3,900 up front before getting their keys. Compare that to a single, 3-bedroom house I sold recently ($165,000 purchase price). The buyer took advantage of the 0% down USDA loan and also got a few thousand dollars seller's assist. His total due at settlement was under $2,000. By taking advantage of loans that require minimal down payments, as well as seller's assist, you too could buy your own home for not very much money!
Myth #3: Renting is the only option if I plan on moving again
It's a good rule of thumb that you should plan on occupying your home for at least two years before you sell. Just think: if you've been bouncing from apartment to apartment renting for the past six years, you could have owned a home that entire time! And typically, when you go to sell your home, you walk away with some money, whereas when you leave your rented apartment, you walk away with nothing. Usually the longer you stay put in your purchased home, the bigger the check you end up with when you sell, but you need not wait until you've found your "forever spot" to buy some property.
So, when IS renting a good option?
If you are in a very transitory stage of life, staying somewhere for less than a year or two
If you just relocated and want to get to know the area first before you decide where to buy
If you need some time to get your credit score up to get a mortgage (above 620 is the goal, but the higher, the better)
If you haven't been at your job very long or need more employment history to qualify for a mortgage
To summarize, renting CAN be a good option, but usually buying is the better option. I'm always amazed to find out how many renters are only renting because they think they aren't able to qualify for a mortgage. An easy way to find out is to contact your bank or a mortgage lender and ask for a pre-approval. This will tell you if you qualify for a mortgage and if you do, what price house you can afford. If you don't quality, lenders will also be able to give you advice on what you need to do (save money, get credit score up, etc.). Find out more about pre-approvals here.
