Common Money Myths - Myth # 4
Myth: Renting is just throwing money away.
Home ownership may not be the best choice for everyone. There are a number of factors to consider before you start shopping or working with a realtor to see what you can afford.
First, home ownership usually requires a long-term commitment to the location where you plan to live. If you work in a job where you need to move every few years, home ownership may not be the best option. If you need to sell your home within a few years of buying it, you may end up taking a loss, especially if homes in your area have not increased in value during that time. At best, you might break even, especially if you paid closing costs when you made your purchase.
Second, you may not be able to afford the down payment. Even though there are now a number of programs that don’t require a sizable down payment to buy your home, you may pay more over time for your purchase because the interest rate on your mortgage might be higher and/or you may also have to pay private mortgage insurance (PMI) every month.
Third, you may not have the time and/or skills to maintain your home. Wouldn’t it be wonderful to buy a home that’s in perfect condition! But, let’s be realistic, repairs and improvements are often needed, especially if you purchased an older home. If you’re not that handy, you’ll need to be prepared to hire and pay experts for their work (i.e. plumbers, electricians, masons, etc.).
Fourth, you may need flexibility to move quickly. If a problem develops with your home, and you’re renting, the landlord is responsible for making the repairs. But, if you own the place, and don’t have the resources to fix it, you may end up being unable to afford to make the mortgage payments in addition to keeping your house in good condition. If you own, you’re “stuck” with the repair scenarios, whereas if you rent, you have the option to move elsewhere if need be.
A monthly mortgage payment could be considered the same as “forced savings.” But, in this case, you’re expecting your monthly mortgage payment to “convert” your home into an equity earning investment which will likely translate into a profit when you’re ready to sell. But, there’s no guarantee that property values will continue to rise over time or that your repair bills will not exceed the price you paid for your home.
By contrast, if you put the equivalent of a mortgage payment ($1,500) into the stock market each month, you could become a millionaire in less than 20 years! Of course, this option has its own risks and pitfalls as well. Something to think about…
Information about home ownership taken from Generation X Finance - http://genxfinance.com/owning-a-home-isnt-necessary-for-building-wealth-make-sure-you-buy-a-home-for-the-right-reasons/
Information about home ownership myths taken from the CUNA Financial Counseling Certification Program (FiCEP) – Module 2 – Controlling Living Expenses; Chapter 1 – Reduce Housing Costs.
Information about saving to become a millionaire taken from The Balance - https://www.thebalance.com/how-to-be-a-millionaire-453692
Information about Common Money Myths was taken from a study recently conducted by Lending Tree - https://www.turnto23.com/lifestyle/over-90-of-americans-believe-in-at-least-one-money-myth