How to know when it makes more sense to rent?
For most people, buying a home is the largest financial decision they will ever make.
Whether you pay with cash or take out a mortgage, you'll probably spend hundreds of thousands of dollars on your living situation over the course of your lifetime.
When it comes to buying a home, the key is knowing when it's actually the right time to buy one. Sometimes you'll be better off renting for a few years to prepare yourself for the financial reality of a mortgage.
Here are some scenarios when it might make more sense to rent.
- When you're fresh out of college. It's simply not smart to buy a house when you're right out of school. You have too many unknowns to think about — like where you'll work, whether or not you're in a relationship, and if you even have enough money for a mortgage in the first place. You have so many transitions and changes right out of college that the last thing you need is to be tied down to a house.
- When you're moving to a new city. I can't tell you how many times I've heard of people who move to a new city and buy a house right away, only to realize later that they would rather live in another part of town. By renting for a year after you move, you can learn about all the different areas of town and decide which one best fits your needs and budget.
- When you're a newlywed. I always recommend waiting a minimum of one year after you're married to buy a house. Just like the other situations, newlyweds have a lot of transitions in their lives. Job and income situations change from year to year at that point in life, so locking into a mortgage probably isn't a smart idea.
Now, are there exceptions to these situations? Of course!
If you're an older newlywed who has owned a house for a while, then it makes perfect sense for your spouse to move in after you're married.
If you're already familiar with the town you are moving to, and if you've already saved up a down payment, then there's nothing wrong with buying a house after your move.
There are always exceptions. The key is to make smart long-term decisions with your hard-earned money.
Is Renting OK?
Don't buy into the perception that renting is somehow a bad idea. You're not wasting money you could use on a mortgage. Instead, you're showing patience, discipline and good stewardship of your income.
Remember, your goal is not just to buy a house — it's also to make a good investment. You should never buy a house simply because you can. You want to find the situation that works best for you.
If you jump into a mortgage before you're ready, you could make a major financial mistake that could set you back years.
What about the market? If it's a buyer's market, shouldn't you jump right in and buy a house? Only if you're financially prepared.