Whether you should buy or rent a house depends on your financial situation and personal goals—nothing else. Show You’re ready to buy if you’re debt-free, have a full emergency fund and enough cash for a down payment, and know your mortgage payment won’t cost more than 25% of your take-home pay. We’ll talk more about that a little later. If you’re working to pay off debt or expect to move for a job, it’s smarter to rent. You may have heard the myth that paying rent is throwing money away each month. It’s not true. Housing is an essential expense. Now, buying lottery tickets—that’s tossing money out the window. Life is all about taking control of your finances and making smart choices! Is It Better to Rent or Buy?Whether it’s better to rent or buy is all up to you. There’s good and bad to both. Buying a house gives you ownership, privacy and home equity, but it’s expensive when it comes to repairs, taxes, interest and insurance. Renting an apartment is lower maintenance and more flexible, but you may have to deal with rent increases, loud neighbors or a grumpy landlord. Find expert agents to help you buy your home. There’s no doubt that owning a home comes with a lot of satisfaction and pride . . . but it also comes with extra costs and stress. That’s why you want to be absolutely sure you’re ready to buy a house. Real Estate Advice Directly to Your InboxEnter your email to get monthly resources that’ll help you navigate the market with confidence. Enter Your EmailSubmitBy submitting this form you are agreeing to the Ramsey Solutions Terms of Use and Privacy Policy. Pros and Cons of Buying and RentingNow, these pros and cons don’t change the answer to the question, Should I buy or rent? They just help you prepare for the right type of housing. Because let’s face it: Even if you’re financially ready to buy a home, you may not be thinking about repairs down the road. And that trendy apartment you love might come with some nosy neighbors. So, let’s see what’s great (and not so great) about buying and renting. Buying Pros
Buying Cons
Renting Pros
Renting Cons
There you have it! Whether you’re ready to buy or you want to keep renting, now you’ve got a better idea of what you’re getting yourself into. Is Renting Always Cheaper?Renting an apartment is usually cheaper than buying a house. But renting a house instead of an apartment could cost more than the mortgage payment on that same house. A lot of it depends on location. If you look at monthly costs alone though, homeownership usually tips the scale to the pricey side, since you pay for maintenance, taxes and homeowners insurance on top of your mortgage. Renting an apartment could be way cheaper if you live in a market where houses are super expensive (we’re looking at you, San Francisco). But there’s a tipping point: If you rent for decades, you could actually end up paying more than if you’d just bought a house. That’s because a house payment will stay the same while rents go up (unless you have an adjustable-rate mortgage, in which case your mortgage goes up too). So if you’re going to stay put for the long haul, it’s better to buy—especially when you pay off your home. Am I Ready to Buy a House?Before you buy a house, you need to make sure your financial house is in order. That starts with getting out of debt. Next, save an emergency fund of 3–6 months of expenses, and after that, start saving for a down payment. For first-time home buyers, we recommend at least a 5–10% down payment on a 15-year fixed-rate mortgage. (Steer clear of FHA and VA loans.) If you can save 20% for a down payment, you won’t have to pay private mortgage insurance (PMI)—which could save you a couple hundred bucks a month. When deciding what you can spend on a house, make sure your mortgage payment (including principal, interest, property taxes, homeowners insurance, PMI and HOA fees) will be 25% or less of your take-home pay. Find expert agents to help you buy your home. Three Reasons You Shouldn’t Buy a HouseWe talk to a lot of home buyers, and unfortunately, many of them regret their purchases because they bought for the wrong reason. We don’t want you to fall into the same trap as those people did! So here are some reasons not to buy a house. 1. It’s a “great” deal.You found the perfect house, and the sellers are practically giving it away. It just might be the deal of the century. Even though Sallie Mae’s still clutching your pocketbook, you’d be dumb to walk away—right? Wrong! With real estate, you’re way better off buying the right home at the right time—not buying a house based solely on the market. When you do that, you run the risk of getting in over your head with a house you can’t truly afford. Have some patience. And remember, good deals are like buses: Another one will come along soon. 2. You feel pressured.Many home buyers in their 20s and 30s feel a ton of pressure to buy a house because they think it’s the “grown-up” thing to do. The truth is, taking control of your money is the most grown-up thing you can do. So if you’re 25 and feel like you’re behind the curve because you haven’t bought a house yet, relax. Don’t rush into a big purchase just because your broke friends (or broke family) keep telling you that you should. Real grown-ups know homeownership isn’t the money-smart choice in every situation. It’s way smarter to wait to buy when you’re financially ready. And trust us, no one has ever regretted waiting until they were ready for anything—especially a house. 3. You plan to move in a couple of years.If you’re not crazy about where you live, why would you buy a house there? And in the same vein, it doesn’t make sense to buy a house if you know you’re going to relocate for work or family reasons in the next year or two. Make sure you’re really ready to put down roots before you buy. Three Times When You Should RentReal quick, let’s get something straight. Renting is not a waste of money. Sure, you’re giving your money to the landlord. But you’re paying to live somewhere. And as long as you’re paying for a place to live, your money is well spent. While we don’t recommend renting as a permanent way of life, there are a few times when it’s better to rent than buy. 1. You’re paying off debt.If you have student loans, credit card bills or any other debt to stomp out, consider your apartment your stomping ground. You can hang out there with your cheap renters insurance, letting the landlord pay for all the maintenance, while you knock out that debt. If your rent is devouring too much of your paycheck, find a cheaper apartment where you have a better opportunity to get out of debt and save. 2. Your job requires you to move around.If you’re in the military or you don’t plan to stay long in an area, it’s smarter to rent. In most areas, you’ll need to stay in a house for two to three years to make buying worth the up-front costs. 3. You need time to make a plan.Buying a house is a long-term commitment. As with any relationship, acting impulsively is never a smart move. So, if you just got married, graduated from college, or aren’t sure which neighborhood you want to live in, the smartest thing you can do is rent for a while. We recommend waiting at least a year—that gives you time to decide how close you want to be to the in-laws. Buy or Rent? Make Your Best Choice With a Pro.Deciding whether or not to buy a house isn’t an easy choice. That’s why it’s smart to partner with a pro who can help you navigate your options. If you’re looking for a local real estate agent who will offer you trustworthy advice no matter your budget, give our real estate Endorsed Local Providers (ELPs) a try. Our RamseyTrusted ELPs understand the financial path you’re on and won’t push you to overspend on a house just so they can bring home a bigger commission check. They’ll even help you look for a great rental if that’s what you need. We only endorse the top agents in your area, so you can trust your ELP to negotiate the best deal on the house that’s right for you. About the author Ramsey Solutions Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More. More Articles From Ramsey Solutions
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