Okay, you could argue that you don’t know if you want to stay in an area because you might move for your job or your family. Or maybe you want to explore a town to decide exactly where you want to live. Or maybe you are currently fixing your credit and can’t get a mortgage. In these cases I agree that renting is the best option. Other than that, in my opinion, renting a home is a money pit – and you don’t just lose today’s money, but tomorrow’s equity! Let me explain.
1. Paying your landlord with nothing to show for it. Your landlord loves you. You enable him/her to pay their mortgage payment with your hard-earned dollars and build their net worth through owning investment properties. You, on the other hand, are dishing out money with no gain. For example, if your rent is $1500/month, that’s $18,000 a year. In five years, you’ve tossed away $90,000. That’s a lot of money!
2. Rent increases are inevitable. According to the Bureau of Labor Statistics, rent for primary residences in the United States has grown 22.25 percent since March 2020. Unlike a mortgage payment that basically stays the same (taxes and insurance can increase), your rental payment keeps increasing. You have no control over this and your landlord can raise your rent whenever he/she wants to.
3. Rent prices go up for less of a house. You end up paying more and more for the same home. Chances are, if you have to find a new rental for the same amount you are currently paying, you will find less of a home for that same rent amount. For example, you had a three bedroom, but now you can only afford a two bedroom because rental prices have gone up.
4. You can’t make changes to your property. Not only are you paying someone else to live in their property, you can’t personalize it. You may need a fence for your backyard, or wish the paint colors on the walls were different. In most cases your landlord will not allow you to make changes without permission and will not pay for things that aren’t repairs.
5. Your landlord doesn’t fix things. I’ve heard a lot of tenants complain about their landlord not taking care of the property. The tenants end up doing little fixes just to get them done. They often put up with broken items, or old and outdated home features. The landlord lets things go and there is nothing you can do, but move out at the end of your contract.
6. You can’t have pets. Your landlord may have several restrictions, including a no pet policy. You don’t have the freedom that you would have in your own home. Things you would choose to do, like having a pet, are not allowed. This can be very frustrating when you’ve always wanted a pet or your child is begging for one and you have to say no.
7. You lose out on years of equity growth. This may be the biggest loss for a renter out of all the negatives with renting a home. Home values have surged 47.1 percent since 2020 according to Case-Shiller. By not owning a home, a renter has lost thousands and thousands of dollars just in equity (on top of lost money in rental payments). This could easily double your financial loss.
I hope all of these points are really sinking in. If that’s not enough, consider that a study showed that homeowners build a net worth 40 times higher than that of a renter! And look at these numbers – the median net worth of a homeowner is $396,200 while a renter’s is only $10,400. Wow, that’s crazy. All from owning a home rather than renting!
Ready to stop renting and buy a home? Here are 5 steps to get you started on your homeownership journey.
1. Fix your credit. Check your credit at annualcreditreport.com. First of all, bad credit will keep you from getting a home loan. Good credit will help you get the best terms. Aim to get your credit score at least over 720. Pay your bills on time, keep credit cards below 30% of the limit, and don’t open/close any new credit lines.
2. Reduce your debts. Your debt-to-income ratio is another big factor in getting a mortgage. If your debt is too high, you will not be able to get a home loan. Having high debt also tightens your budget, making it hard to afford a mortgage payment. Pay down your debts and don’t take on any new ones.
3. Build your savings. There are a lot of little ways to save that add up. Plus many people pick up a side hustle to earn extra bucks. Do whatever you can to start saving toward your home purchase. Open an account for your house fund and deposit any extra you can. You will need money for closing costs and you should also have extra in savings for the unexpected.
4. Talk to a realtor. It’s important to understand the homebuying process and what all is involved. Starting a year or more before you want to purchase a home is a good move. This gives you time to get everything set up, make any changes you need to, and prepare for the process. This could include timing the end of your lease, when to get your pre-approval, and when to start your home search.
5. Talk to a lender. Please start early on this! There are so many people who talk to a lender when they are ready to start looking for a home, only to find out they have to fix their credit or reduce their debt. This could take months or years. Talk to a knowledgeable lender who can guide you in any steps you need to take.
I hope you have been motivated to own a home rather than rent, even if it takes years to get there. I had one client who started talking to me while in college. It took him five years to get to the point where he was able to purchase a home, but he never lost sight of it! He was able to make wise decisions to keep moving toward homeownership. Now he owns a remodeled four-bedroom home perfect for his family. You can do it too!
(Study cited: https://www.directorsmortgage.com/blog/the-soaring-net-worth-of-homeowners-a-compelling-case-for-homeownership/)
By Launch Kits