When it's Actually a Smarter Idea to Rent Instead of Buy

• Homeownership is achievable for millions of people with the help of an experienced mortgage banker and other real estate professionals. We want to help as many people as possible achieve the dream of homeownership, but sometimes it makes more sense to continue renting for a while.

• Buying a home is a big commitment. Even if you qualify for a mortgage program that minimizes the down payment required for closing, you’re taking on a long-term commitment. Paying rent is a big responsibility too, of course - so when is it a smarter move to keep paying rent instead of buying a home?

These are some reasons why you might consider keeping your landlord around for a bit longer.

» READ MORE: Should You Buy a Home in 2021?

You don't currently qualify for a loan option with a low down payment.

Most home mortgages require you to put up part of the purchase price at closing as a down payment. Another way to say this is that few home mortgage programs will cover 100% of the cost of the home.

The down payment could be as low as 3.5% of the purchase price, but that could still be a whole lot of money. If you are buying a house for $301,900 — the median home price in Texas as of September 2021 — you would need $10,566.

Mortgage programs offered by the USDA and the VA may allow you to buy a home with no down payment, meaning that the mortgage loan will cover the entire cost of the house.

Qualifying for these programs are only for certain homebuyers. VA loans are only available to veterans and active service members. The USDA program is only available for properties in designated rural areas.

If you don’t qualify for a mortgage program that includes a low- or zero-down-payment option, you will need to pull a fair amount of cash together for closing. If that is not within your means at the moment, then you might be better off continuing to rent while you save up for a down payment.

Your credit score isn't where it should be.

Home mortgage lenders take a risk whenever they loan money to someone. They want to make sure that a loan applicant is likely to be a good bet before they will approve a loan. To determine how much of a risk a person will be, lenders look at various parts of their finances, such as current income and income history. A person’s credit score and credit history are among the most important factors a mortgage lender will consider.

If your credit score is low, while you might still be able to qualify for a mortgage, it is not likely to be as favorable to you as it would be for someone with better credit. It might be in your best interest to focus on raising your credit score for now. Staying current on your rent and on other debt payments will get your score where it needs to be to make mortgage lenders feel confident.

Higher credit scores help get better interest rates on a mortgage, too.

You need to pay down other debt first.

Mortgage debt can have some benefits that other types of debt do not, to the point that it is not always advisable to pay off your mortgage early. Mortgage interest payments, for example, are tax-deductible. Compare that to student loan debt, which in addition to not being tax-deductible, cannot even be discharged in bankruptcy.

If you already have a mountain of debt, it might be best to work on paying that debt down before you take on a mortgage obligation. This is especially true if paying your current debts is a struggle. Adding a monthly mortgage payment is not going to help in the short term, no matter what benefits homeownership might offer you in the long run.

» READ MORE: Can I Still Buy a Home with Student Debt?

You’re benefiting from certain features of being a tenant.

People often speak of homeownership as freedom from the tyranny of leases and landlords. While we wholeheartedly endorse this view, being a tenant can have its advantages. For example:

• Your landlord is responsible for fixing your toilet if it breaks

• You don’t have to pay property tax

• You can move on relatively short notice - perhaps you’re just embarking on an adventure in a new city for a while

• Your apartment building might have nice amenities, like a pool or fitness room, that are available at no extra charge

Some of these advantages have their own flip sides, of course:

• Your landlord can evict you or raise your rent on relatively short notice

• You have to share the pool and fitness room with all of your neighbors

Learn more!

The Wood Group of Fairway is ready to answer your home mortgage questions, even if you aren’t ready to buy yet. Buying a home is a time-honored, great investment when the time is right. We’ll be here when you need us.

Find out what you qualify for by starting with a 90-second questionnaire.