Thank you to Dave Ramsey’s ELP program for sponsoring this post. Check out who Dave recommends for residential real estate help in your area! All thoughts and opinions expressed in this post are 100% mine.
Have you been dreaming of owning your own home but don’t know if you are ready to take the leap from renting to buying? I’m hoping today’s post will give you some insight that helps you weigh your options and make a more confident and informed decision in regards to whether you should rent or buy a home.
My husband and I decided to leave renting behind around the time he completed graduate school. So in 2009 we began the hunt for our “dream” home in our budget. I’m not going to lie. Looking for our first one-bedroom apartment was far easier than purchasing a home.
Homebuying was a stressful process over many months. It’s a really huge financial decision. Remember not to get excited about the “monthly” payments. Lots of people focus on the fact that they can make the monthly payments. But all it takes is for you to not be able to make those monthly payments and your situation shifts dramatically. Focus on the fact that you are borrowing thousands to hundreds of thousands of dollars that has to be repaid.
In the end we found a home we liked, in our realistic budget. Two years into home ownership, I found Dave Ramsey’s Total Money Makeover book. The book proposed paying off debts one by one, but at the time the only debt we had was our home mortgage so we got really “gazelle” intense and in less than two years we paid off the rest of our $93,000 mortgage. It was a great decision and I’ll talk about why later in the post. Right now I want to dive into renting!
Here are some of the pros to renting:
- No homeowners insurance
- When something breaks, you call the property manager.
- You sign leases for shorter periods of time giving you greater flexibility.
- You aren’t in debt to a lender for your rental property.
- Rent payments can be less than house payments.
- In some cases your rent payment also covers some utilities.
Renting might be a good option if you:
- Need a very flexible lifestyle.
- Haven’t secured a steady job/income.
- You don’t have much in your savings account for at least a 10% down payment.
- You have other debts to pay off.
- You haven’t built up an emergency savings fund yet.
Here are some of the pros to buying:
- It’s a great way to grow your family wealth.
- It’s something that you own and can change, paint, decorate or remodel how you want to.
- Owning a home makes your payments each month work for you. Every time you pay down your mortgage principal your net worth increases. It’s sort of like saving your money without even realizing it. Rent payments just forever go out of your pocket into the property owner’s pocket without any return. This is why I believe it was a great idea for us to pay off our mortgage!
- There are tax deductions for mortgage interest and property taxes.
Interesting fact: It’s said the average net worth of a homeowner is 45x greater than that of renter!
Buying might be a good option if you:
- Have a stable job/career where you live.
- Plan to stay where you want to buy for several years.
- You don’t have debt.
- You have a fully funded emergency fund.
- You have enough money in savings for a 10% down payment.
- Have researched the housing market and understand what you can actually afford. You should check out this really awesome calculator from Dave Ramsey to help you determine how much house you can afford.
If you think you are ready to go through the buying process:
- Thoroughly check your finances. I recommend sitting down and doing a budget to make sure that what you are bringing in is covering the expenses that you are already have.
- If you don’t have the cash sitting around to buy the home outright, you need to get pre-qualified for a mortgage.
- Educate yourself on the homebuying process so you are ready to handle the business of this investment! Check out Dave Ramsey’s free homebuying guide for a starting point.
- Pick a good agent.
- One rule my husband and I live by is that we don’t hire people we know personally as agents. It may seem appealing to “help out” or work with a person you like but remember that this is a business transaction. Personal relationships and business rarely mix well.
- One of the best things you can do is find a top-rated buyer’s agent in the area where you want to live. Buyer’s agents can help you find houses in your price range. Dave Ramsey has real estate agents across the country who will work with you to find a home that fits your needs and their budget.
- Know what your price range is and don’t let any agent try to up-sell you.
- I would recommend not even walking into a home that isn’t in your realistic negotiable price range.
- For example, if you are looking for $130,000 homes, don’t let your agent take you into $160,000 homes.
- $30,000 may not seem like much but in the world of homebuying it is, and it can take you from buying something you can afford to something you can’t. Think about it like this, $30,000 extra over 30 years at 4.5% interest means you are actually spending an extra $54,722!
- Be careful when signing any kind of exclusivity agreement with an agent. These types of agreements can make it awkward for you to “break up” with an agent you feel isn’t a good fit and can prevent from hiring another agent for set period of time.
- Hiring an Inspector to go over the whole house can give you a heads up to any issues, problems or items that should be fixed/negotiated in your contract.
I hope that you have found this post helpful in deciding whether or not home ownership or renting is better for you and your family! I’d love to hear some of your own tips in the comments section below!
Kim Anderson is the organized chaos loving author behind the Thrifty Little Mom Blog. She helps other people who thrive in organized chaos to stress less, remember more and feel in control of their time, money, and home. Kim is the author of: Live, Save, Spend, Repeat: The Life You Want with the Money You Have. She’s been featured on Time.com, Money.com, Good Housekeeping, Women’s Day, and more!