Since World War II, the conventional wisdom has been that owning a home is always superior to renting, which is often equated with “throwing money down the drain.” But conventional wisdom can and should change with the times. Under current economic conditions, renting can actually provide more flexibility than buying. Sometimes it even makes more financial sense.
That’s not to mention that there’s a serious flaw in the argument that a home is a “good investment.” An investment is something you make for one of two purposes: either you expect it to generate income, or you hope that it will appreciate in value so that you’ll be able to sell it for a profit. Generally speaking, people don’t buy homes for either of these reasons — they buy them because they want to live in them.
In spite of this, nearly all Americans desire to own a home. No matter what the cost, most attempt to buy one as soon as they can. Creative financing, longer terms, equity-sharing arrangements, and the like have made home ownership possible for many people. But there are several issues to take into account before rushing into a purchase of this magnitude. Depending on your economic condition and vocational situation, renting can sometimes be a smarter option. Here’s how the two compare in terms of some very basic considerations:
| Buying | Renting |
| A portion of mortgage payments go toward building equity. | Flexibility in moving later – no waiting for a house to sell. |
| Owner keeps any price appreciation. | No maintenance worries. |
| Pride of ownership. | Low amount of initial savings needed to move in. |
| Owner can make home improvements and keep the benefits. | Rent payments may be lower than mortgage payments with interest, taxes, and home insurance. |
Our advice to young couples and others who are new to the housing market is this: resist the urge to jump immediately into a house before having an emergency fund and a significant down payment. A good goal is to pay at least 20 percent of the purchase price as a down payment. This probably means that you should save a little longer to buy that first house than you expected — or than is even typical.
If you’re renting, rent should not exceed 25 percent of your gross pay. However, this rule of thumb is not as important as a mortgage payment guideline because rent is usually short term — if you’ve overcommitted to a rent payment, you can usually change your circumstances fairly quickly. By way of comparison, you are usually better off to buy a house only if you expect to live in it for at least two years — and the longer you stay, the more cost-effective your investment will be.
When deciding whether to buy or rent, you should also take into account the nature of your occupation, the location, and your needs and goals. If your vocation requires you to move every two to five years, renting would probably be just as wise as purchasing. If, on the other hand, your family wants to establish roots in a neighborhood and minister to others through your home, owning a house may be more appropriate than renting.
In sum, you need to evaluate the purchase of a house with a long-range perspective and also in the light of your vocation and lifestyle desires. Owning a home may be an important part of the “American Dream,” but use wisdom in deciding whether it’s best for you.
For additional help and information on this topic, we’d encourage you to consult the resources and referrals highlighted below. Or if you have relationship concerns and challenges associated with this situation, please don’t hesitate to give our Counseling department a call.
Resources
If a title is currently unavailable through Focus on the Family, we encourage you to use another retailer.
The Total Money Makeover: A Proven Plan for Financial Fitness
Family and Personal Finances (resource list)
Other books on Money and Finance
Referrals
Articles
Money and Finances
