Now is a great time to buy a home. Interest rates are at historic lows, the market appears to have bottomed out, and the supply of homes is high.
So why would you even consider renting? Here are six examples of when it may be better to rent than buy:
1. You need flexibility
Renting allows one to be much more flexible and mobile – which is particularly important in these days of job changes and losses. If you’re not convinced that you are going to be in an area or a job long-term, the flexibility offered by renting can make much more sense than tying yourself to a mortgage.
According to the online real estate clearing house Trulia, owning a home is 45 percent cheaper than renting nationwide over a seven-year time horizon. But if you expect to be in an area for less time – especially less than three or four years – consider renting.
2. You’ll have a hard time selling your home if you need to
No one knows what the future holds. You may find that you don’t like the area or region, or your employment picture may suddenly change.
If you find yourself trying to move, selling a house is a lot harder than leaving a rental. That’s particularly true in regions where sales are still lagging. While sales in the South continue to pick up, the National Association of Realtors says sales in the Northeast declined by 6.3 percent in September.
Another thing to keep in mind is the type of home. Unusual styles can be harder to sell. You may love the openness and efficiency of a geodesic dome, but trying to sell that type of home will be more difficult than a traditional ranch or bi-level.
3. You can’t qualify for a mortgage
While interest rates are low, getting a loan is much more difficult than it used to be.
I’m selling a family home, and the day before the sale was to close, the buyer’s lending institution suddenly put the brakes on, saying the home needed work done before it would be financeable. While that’s tough for me, for the prospective buyers it’s worse: They now have to start over.
Chris Dakoske, a lender with Chemical Bank in Traverse City, Mich., says the real estate downturn, which resulted in tons of foreclosures and short sales, made it more difficult for potential buyers to borrow money.
In addition, the volatile job market has made job hoppers look less desirable to lenders.
“Seasonal employment can also be an issue,” Dakoske says, noting that someone who is regularly laid off but returns to the same job will be looked upon more favorably than someone who takes jobs with different employers.
4. You don’t have time for upkeep
Doug Porter, a Realtor with Coldwell Banker Schmidt Realtors in Traverse City, says people should consider their wants and needs. “It’s based on their lifestyle,” Porter says.
Porter rents out two condos that he and his wife Judy, also a broker/Realtor with Coldwell Banker Schmidt, own. “I have a renter who is never there, he’s on the road all the time. He doesn’t have time to care for a house, so this is perfect for him.”
5. You’re trying out a new area
Kim Pontius, executive vice president of the Traverse Area Association of Realtors, says it’s wise to rent when moving to a new area. That allows you to acclimate yourself to the area, find out just where you want to live and the type of lifestyle you want. In fact, that’s exactly what he was told to do when he moved here.
“It was recommended by our Realtor to rent for a year. That way you find out where to go,” he says.
6. You’re an empty nester
No one’s perfect. Pontius eschewed the advice to wait, and instead immediately purchased a home.
He admits he might have considered other options if he and his wife rented first. “We had kids leaving for college, and became empty nesters after a year,” he says. “As life changes, your circumstances change and your needs change. A lot of boomers are looking at renting vs. buying.”
When the need for a spacious home fades, empty nesters often think about downsizing and relocating. It’s wise for empty nesters to rent before locking themselves into a long-term commitment – especially if they’re considering a major change, like a move from the country to a big city.
Sign up for our free newsletter
Like this article? Sign up for our newsletter and we'll send you a regular digest of our newest stories, full of money saving tips and advice, free! We'll also email you a PDF of Stacy Johnson's '205 Ways to Save Money' as soon as you've subscribed. It's full of great tips that'll help you save a ton of extra cash. It doesn't cost a dime, so why wait? Click here to sign up now.