5 Times Renting Isn’t a Waste of Money, According to Rachel Cruze
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John Schmoll
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Amen Oyiboke
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Buying a home is a significant part of the American dream. Renting is often viewed as wasting money or not having serious goals. Analyzing the renting versus buying dilemma can be challenging for many Americans.
In a recent YouTube video, personal finance expert Rachel Cruze covered the topic and shared instances where renting may be better than buying.
These are five times it makes sense to rent, according to Cruze.
Moving to a New City
Moving to a new city can be exciting. You get to experience new things, make new friends, and have increased opportunities. However, it’s also not without challenges, as it takes time to learn the ins and outs of your new hometown.
“If you’re moving to a new place, you want a good sense of what is going on in the part of the city you’re looking at. Because if you’re going to put roots down, you want to make sure you enjoy that part,” said Cruze. Renting for a year or two allows people to learn about the city before committing to such a major purchase.
If You Have a Big Life Change
Significant life changes are often fraught with emotions and change. For example, a divorce may lead to significant financial changes, new locations, and new realities. Purchasing a house may not be the wisest choice, as you want to get on solid ground before making a permanent assessment of where to go next in life.
Cruze noted, “If you are getting married, going through a divorce, or if you’re fresh out of college, or anything like that, just rent for a year.” Renting short-term gives that time to appraise things before making a more permanent decision.
If You Still Have Debt To Pay Off
Debt, particularly high-interest debt, can be suffocating. Cruze promotes waiting until all debt is paid off before buying a new house. Debt may leave you open to problematic budgetary situations, especially when an emergency arises.
This is of particular importance when considering mortgage payments are still higher than rent. The average mortgage payment is nearly 40% higher than the average rent payment, according to Coldwell Banker Richard Ellis (CBRE). Spending less on rent makes additional funds available to eliminate debt and be in a better position to buy.
If You Don’t Have an Emergency Fund
Homebuyers know that repairs can arise at any time, and often at the worst times. Unless you have the skills to make repairs, an emergency fund is necessary to provide a financial safety net. Cruze recommends having a fully funded emergency fund before entertaining the purchase of a house.
While renting, a landlord will cover any major repairs. That’s not so for homeowners. Most experts recommend having at least three to six months’ worth of living expenses saved for emergencies. Not having this saved can result in possible debt when the unplanned arises.
If You Don’t Have a Down Payment Saved Yet
It’s still possible to purchase a house without a down payment. However, this provides buyers with no equity and requires them to pay private mortgage insurance (PMI), which is particularly problematic for first-time homebuyers.
“If you are a first-time homebuyer, I would have 5-20% down to be able to put down for your down payment,” said Cruze. The personal finance expert doesn’t stop there, she also recommends securing a 15-year mortgage and spending no more than 25% of your take-home pay on mortgage payments. This frees up funds to apply toward retirement planning and other long-term goals.
Renting versus buying is an important consideration in your personal finances. Renting may feel like it’s throwing away money, but that’s not always the case. You don’t want to end up being house-poor or hindering other goals. Renting rather than buying may allow some Americans to excel more in the long term, which is the ultimate goal.
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