At the beginning of 2016 I decided it was time to upgrade my apartment and move to a place that wasn’t on the corner a busy intersection. While my old apartment was nice and I did enjoy it, the constant flow of cars cutting through my street, lack of on-street parking (joy of city living) and the sound of the public bus stop through my living room window at all hours of the day and night, left me longing for a quieter place. After only a few weeks of looking, I found a 100 year old four family building that was newly renovated about 5 minutes away from my old place. It had everything on my apartment wish list, put me a little closer to work and only cost $45 a month more in rent then my last place.
Where do I sign? A couple weeks later I was moving in.
Although the first month after moving in to the new place was a little rocky (since there were still some renovations being done), I quickly started enjoying the perks of a quiet neighborhood, quick access to the highways and a park a couple blocks away. I started making this new place our home with the hope this would be the place I stayed in until I decided it was time to purchase a real home.
A few months in to our new place I received an email from our new landlord asking us if we plan on renewing the lease when it expires later this year… yes of course, this place is great…but there was a little catch. The new rental rate will be $30 more than what I am previously paying, bringing my rent from $695 to $725. While I had no problem paying $45 more than my old place of $650, the new rental increase had me frustrated. (Note: I have a “roommate” so I only pay half of what that total rent is.)
After receiving this email, I started venting (okay, let’s be honest I was complaining) to a respected older friend who I often turn to for life advice and explained to her my new 1st world problems. Her reply and our conversation left me with more questions than answers.
The conversation went a little like this:
Me: Venting about rent increase.
Friend: “For that amount of rent you could own a house and have a mortgage.”
Me: “I’m not in a position to buy a house right now with paying my debt off and I don’t have 20% down payment saved. I don’t want to pay Private Mortgage Insurance.”
Friend: “Nobody has a 20% down payment.”
Me: (Comment took me by surprise) “Eh, that makes me really uncomfortable. I already have a large amount of debt. I don’t want to make it worse.”
Friend: “My first house cost $30,000. And everyone has some type of debt, whether it is student loans, credit card, car payment, etc.”
Me: “Besides the logistics of buying a house, I don’t feel comfortable buying now since jmr and I are not married. It’s a lot different than sharing a lease. And I don’t want to rush into a wedding just too buy a house. I also don’t want to purchase one by myself.”
Friend: “Yeah that makes sense.”
I left the conversation feeling very confused – and slightly uncomfortable. Confused because up until this point I thought I was being financially smart. Uncomfortable because the thought of buying a house right now, unprepared, makes me want to slightly vomit. The financial question “should you rent or buy?” (especially when in debt) seems to be a question as old as “the chicken or the egg.” But what is the right decision?
In my search for answers, I recently came across an article called “How to Buy a Home When You’re Saddled with Student Loan Debt,” this article, along with my recent conversation with my good friend had my thoughts going in a million directions.
The author states, “student loans affect whether or not [borrowers] pursue homeownership,” while I do agree with that statement (because if I did not have student loans, instead of paying off debt I would be saving for a large down payment), my reasoning for not pursing homeownership is slightly different than the ones stated in this article. One of the biggest concerns the author has in purchasing a home is whether or not he can qualify since he has a mass amount of student loans.
I believe if I walked into a bank today, I could probably qualify. The only debt I have remaining is my $21,679.01 in student loans. I also have a great credit score. My decision not to buy a home is solely based on wanting to be financially smart in the process. I think instead of finding ways to push off paying your debt, like the author’s advice of “setting up an income-based repayment plan,” (been there, this is a trap do not do it), I believe it is best to work your way towards debt freedom – so things like having a 20% will be easier to obtain.
I know personally I plan on having a 20% down payment, even if that means staying in an apartment for another 5 years, although I don’t think it will be that long. I would much rather wait to buy a home in order to be financially stable then rush into something I know I am uncomfortable with just because homeownership is something people are told they need to have as an adult and that renting is a waste of money – because in my experience renting is actually saving me a lot of money that I can use to pay off my debt. I want to have money for the closing costs, covering lender fees, title insurances and home inspections. While things like the possibility of rent increase can be frustrating, I think there are a lot of great parts of renting that I enjoy for the time being like – not having to maintain a yard or do maintenance on our apartment, freedom to move easily if the rent happens to increase to a level I am not comfortable with, not having to pay a water, sewer, trash bill, and the freedom to throw $1,600+ a month towards my student loans (because I don’t have house expenses), which will turn into money I will be saving monthly once I am debt free sometime next year.
I am in no way a financial expert. While I do spend a lot of time reading financial advice and discussing things over with jmr, who does have a finance degree and works for a bank, the answer to the question “should you rent or buy,” in my opinion, is solely based on what works for you. You know best what fits your wants and needs. Right now my gut is screaming DO NOT BUY A HOUSE and luckily my heart and brain both agree. I have no desire at this point in my life to buy a house. You may have read my future dreams stating I want to own a home one day, while I can definitely see homeownership in my future – I will only purchase a home when I feel 100% comfortable in both my mind and wallet. My thought process is – if I can throw $20,000+ this year towards my debt repayment, just imagine what I will be able to save for a down payment or other things like retirement in the future. All it takes is a little patience.
What are your thoughts on renting vs. buying a home?