DEBT | Apr 19, 2023

Why You Shouldn't Be Ashamed of Renting

When it comes to being an adult, there are very few financial decisions that are at the same level as buying a house. Where you decide to plant roots can determine who your friends and neighbors are, where you go to church, where you work, and more.

So, when it comes to buying a home, how can one know if they’re ready? Art Rainer has an amazing article that covers a lot of different questions that one must ask themselves before doing so.

Owning a home is a huge blessing and comes with its perks. However, if a home is bought when the homeowner’s finances are not in order, it can be a recipe for disaster.

Take my situation for example. I bought a home when I was twenty-three years old with the lowest down payment allowed by the bank. We started the loan application process, connected with a realtor, and before we knew it, we were touring homes.

When we began the pre-approval process, we started hearing about various fees that one needed to pay in the beginning stages of buying a home. Before we knew it, we had paid thousands of dollars in fees before we even moved in. We discovered that with closing costs, appraisal fees, credit report fees, home inspection fees, earnest money, title search fees, and origination fees, the price to get into a home can be costly if one isn’t prepared for it.

Of course, there are common arguments that I get from people who don’t want to postpone homeownership. Here are a few of them and my responses.

1. “I’m tired of my money paying a landlord instead of it being invested in a property I own.”

For starters, the entirety of the monthly payment does not go toward principal. Your payment is usually split up into 4-5 different parts: principal, interest, private mortgage insurance (if you have less than 20% equity in the home), home insurance, and property taxes. In some cases, you can also add HOA (Homeowner’s Association) fees to that if you live in a neighborhood that has such an organization.

If you have an escrow account, these amounts are put together into one payment to make things simplistic. When I started my mortgage on my home, I didn’t realize until a few months later that only 1/9 of my payment was going to principal. When I looked at our payment schedule and amortization table, I saw we would only pay off 20% of the home in the first 10 years of the mortgage.

You’re not any less of an adult for renting. Stop comparing yourself to others. Every person has different budgets, different financial histories, and different financial responsibilities.

The specific percentage for each mortgage will vary and is dependent on factors like interest rate, down payment, and loan amount. However, it’s important to review your amortization table to see how making extra payments can eliminate future interest.

Looking at those numbers, it would’ve made more sense for me to stay in my much cheaper apartment and save the difference toward a down payment. This isn’t to say that 30-year mortgages are bad, but that they aren’t designed to pay off your house quickly.

For those who are tired of paying the landlord instead of paying into a home, realize that it’s only a small portion of your payment that is going towards the house. Often, I find this decision is not financially justifiable for those who have a much cheaper rate in a rental. They can make much more headway towards a home if they save the difference that they would make in payments towards a down payment.

2. “If I wait too long, I won’t be able to ever buy a home.”

This by far is the most popular response I hear from people who don’t want to wait to buy a home. Because the market generally moves upward, people feel that if they wait too long, they will not be able to afford as nice of a home, or for that matter, a home at all.

While I sympathize with this frustration, I equally want to encourage people not to let the market dictate their decisions. Whether it’s the investment market, car market, or even the home market, we should never allow the market to dictate whether we’re ready to move forward or not. Sure, the market can certainly affect certain elements of our decision-making, but it should never be the deciding factor.

When you’re looking at a home, be careful with the “dream home” or “forever home” mentality. The average home buyer only stays in their first home for about 8 years. Whether it’s moving closer to loved ones, getting a bigger home to fulfill a growing family’s needs, or a new job, there are a variety of reasons why one can expect to eventually move. Allow yourself to release the pressure of selecting the perfect home.

3. “I’m tired of my monthly payment increasing every time I renew my lease.”

While my wife and I lived in an apartment for a few years, we always were weary of our lease end date. We recognized that rent was most likely going up, the increase would determine whether we were staying there or not. However, a common misunderstanding with home buying is that your payment doesn’t ever change, and this is demonstrably false.

While it is true that your principal and interest don’t change during your loan (unless you have an adjustable-rate mortgage), other elements of your payment are likely to increase over time. Property taxes go up when your home increases in value. So, while it’s exciting to watch your equity grow, it often means a small increase in your monthly payment will follow. Of course, there are ways to minimize how much your taxes can increase due to something called a homestead exemption, but that amount d epends on the state you reside. While it can’t prevent your taxes from going up, it’s a good idea to apply for one of these to prevent taxes from rising too quickly between years.

Your home insurance policy and HOA fees are also likely to increase over time. So, while I understand the frustration of having to deal with a rising monthly payment, you don’t necessarily escape this problem by owning a home.

4. “Maintaining a home can’t be that expensive.”

Homeowners are on the hook for all property repairs and maintenance. When you’re a renter, that responsibility completely falls on the landlord. These expenses are sometimes unpredictable. Renting can provide you needed stability as you pay off debt, build up an emergency fund, and save for a down payment.

Even for new homes, this can be true. I can’t tell you how many times I’ve even seen people who have brand new homes with frustrating repair costs. Here are some general house cost repairs that we need to consider should you be interested on what these services typically on average cost :

  • Foundation Repair: $2,000 - $7500; up to $25,000
  • Electrical Issues: $100-$400 for minor work; $2,500 for electrical panel replacement
  • Roof Repair: $950; $8,000 for a full roof replacement
  • Water Heater: $600 to $1,700 to replace
  • Water Damage: $2,600
  • Pipe Repair: $600 - $1,600 per fixture; $5,000 for a new sewer line.
  • A/C and Heating: $350 for AC repair; $4,500 for furnace installation.
  • Termite Damage: $575 for treatment; $3,000 for repair damage
  • Mold Removal: $2,350

Home warranties often have their limitations and will not completely protect you from unforeseen expenses. And homeowner’s insurance policies still have deductibles that must be met before insurance kicks in. Those deductibles can be a few thousand dollars, depending on your policy.

Don’t be ashamed of renting.

Because I didn’t know what I was doing in the home buying process, my wife and I found ourselves struggling financially for years as we looked to dig ourselves out of the trench that was our mortgage. We were paying 44% of our income, leaving us completely strapped for anything we wanted to do for the house. If anything broke in the house, we wouldn’t have been able to afford it. In fact, I needed a second job just to make sure we could pay basic bills.

Take it from me, you don’t want to get into a house before you’re ready. The term “house poor” is very real. Don’t make the same mistake I did. By the grace of God, my wife and I are not in that situation anymore financially, but it certainly left a mark on how we make these decisions in the future.

As you consider these points, I hope you’ll begin to feel more peace about the decision to rent. Let’s destroy this notion that renting means one is less successful or less of an adult. Renting is a viable option for those who are looking to better their financial situation, while making sure that they are sufficiently prepared for any emergency or expense that comes their way.

There is nothing wrong with recognizing that renting is better for you. While the goal of home ownership is to free up future cash flow, some people’s financial situations don’t permit them the ability to do this. And that’s okay.

You’re not any less of an adult for renting. Stop comparing yourself to others. Every person has different budgets, different financial histories, and different financial responsibilities.

Homeownership is a wonderful blessing. However, let’s make sure we handle this in a responsible way so that it can stay the blessing that it was designed to be.

*Image used with permission. *

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You were meant for more. Your money was meant for more. You and your money are meant for an exciting, adventurous, and satisfying purpose. You were designed to live and give generously. And deep inside you know this and want this.

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