If you answered “no” to any of these questions, renting may be the best route for you right now. And that’s nothing to be ashamed of—you’ll likely be better off renting than jumping into the significant responsibilities of homeownership before you’re ready.
2. You’re focusing on other financial goals
After serving in the U.S. Navy, Erwin and his wife bought their first home, a triplex. They lived in one unit and rented out the other two with the goal of launching careers in property investment. “We’ve created new careers and generated this passive income while building something we believe in to support our family,” he says.
But before Erwin was ready to invest in real estate, he had to accomplish some other goals first—starting with building up his credit. Whatever your situation may be, some financial goals should always come before buying a home, like improving your credit score and setting up an emergency fund. Without emergency savings to fall back on, you may lack the financial security you need. Aim to save enough to cover three to six months’ worth of living expenses.
Even with good credit and a proper emergency fund in place, you may have other goals you want to achieve before buying a house. Paying off debt—even if it’s “good debt” like student loans—is a common goal, and it can be a significant hurdle to overcome in your journey toward homeownership. Depending on your values and priorities, you may also simply want to focus on other things, like spending more on experiences and travel.
3. You’re not ready to settle down
There are many non-financial reasons why you may prefer renting over buying right now. Maybe the idea of being a homeowner just doesn’t excite you at all—especially if you consider yourself more of a free-spirited, go-wherever-the-wind-takes-you sort of person. Or maybe you’re focused on your work and know that a job change or career leap might take you to a new place.
Where you live can also have a major impact on your decision to rent vs. buy. If you work from home and enjoy having a little space, buying a roomy house in a suburb with a relatively low cost of living may be right for you. But if you work downtown, value a short commute, and thrive amid the bustle of a major city, it might be better—and more cost-effective—to rent closer to your job. Plus, apartment living can come with its own perks, like a gym, pool, or other communal spaces that you may value.
For some, renting may make it easier to live the way you want, which could help you increase your happiness and boost your mental well-being.
“If you can afford homeownership, but your values point you in the direction of renting, that’s OK. Just know you may want to find other ways to build your net worth,” says Truist head of financial wellness Brian Ford. “Picture yourself 10 years from now. If you realize your friends who bought homes have built up anywhere from $100,000–$200,000 in home equity, will you be OK with not having that yourself?”
So if you plan to rent long-term, Ford suggests coming up with a savings plan and investing so you can continue building your net worth. The longer you rent, the more you should consider increasing your savings as a way to build wealth and financial confidence.
Opening the door to homeownership
If you’re excited by the thought of owning a home, it’s probably a sign you’re mentally ready to buy a house. But make sure your financial situation backs up your mental readiness.
Bright Dickson, co-host of “Money and Mindset With Bright and Brian,” shared her thoughts on steps to take before buying a home: “Talking to people who are homeowners about their experience is probably a really good way to go. Choose people whose lifestyle is similar to yours, because they’re going to be able to tell you what they’ve encountered. That can help you decide if you’re ready or not.”
In line with the National Association of Realtor’s estimates of first-time home down payments averaging at roughly 9%, Ford’s advice is to have at least 10% saved for a down payment He even prefers a more traditional 20% down payment, which is the minimum required to avoid paying private mortgage insurance—an extra monthly cost that would otherwise be tacked onto your mortgage.
Ford also recommends not buying unless your job is stable and your emergency fund is healthy. And if your credit score isn’t stellar, look for ways to improve that, too, which can help you get a lower mortgage interest rate.
When your money habits match up with your mindset, you’ll know that regardless of whether you’re a renter or a homeowner, you’re doing what’s right for you. There are many ways to build financial confidence aside from becoming a homeowner, so don’t let FOMO or comparing your situation to others get you down. Having confidence in your plan, whatever that may be, will pay off in the long run.
Next step suggestions:
- Talk with friends or family members who have bought a home within the last few years. What did they learn from their experience?
- Look up real estate listings in your area and check current mortgage rates. Then you can use the rent vs. buy calculator on this page to see what may fit your budget.
- Connect with a mortgage professional to find out whether you qualify for any home down payment grants or assistance.
