6 financial reasons to never buy a home
Homeownership used to be part of the American dream, but times — and costs — have changed.
Although only about 37 percent of households in the U.S. are renter-occupied, more that 55.9 million Americans under 30 live in rental housing, according to the National Multifamily Housing Council's 2015 American Community Survey. One reason millennials lean toward rental properties could be due to high costs in the housing market. Eighteen percent of county housing markets are less affordable than at historically normal levels, reported RealtyTrac, a housing and property data provider.
On the other hand, more people might choose to rent instead of buy simply because they want to, said Todd Barton, CEO of property management company Renters Warehouse Atlanta. "The American dream has changed," he said.
Between high maintenance costs, insurance premiums and property taxes, you might not be interested in ever owning a home. Here are six reasons why you should be a chronic renter.
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1. Your mortgage payment could cost more than rent.
One reason to opt for a rental is simply because it's cheaper than owning a home. In fact, a recent GOBankingRates.com study of rent and mortgage costs found it's cheaper to rent in eight states across the country, plus the District of Columbia.
If you're weighing your options, Barton suggested totaling all rent costs — including the monthly rent payment as well as any deposits, pet fees and service charges — and then comparing that figure to the total mortgage payment on an equivalent property. That will help you determine whether owning a property is more affordable.
2. In some states, property taxes are sky-high.
If you live in a state with high property taxes, homeownership could be less affordable than renting — even if average mortgage costs are lower than average rents.
In Connecticut, homeowners pay 1.98 percent on average, the fourth-highest rate in the country, according to a GOBankingRates study on the cost of living in the U.S. New Jersey, Illinois and New Hampshire have even higher rates, with New Jersey seeing an average property tax rate of 2.38 percent. Meanwhile, Hawaii has a tax rate of 0.28 percent but a median home price of $577,500, the highest in the country.
Keep in mind, though, that renting might not save you completely from high property taxes, since some of those costs likely will be passed on to you by the owner of your unit. Luckily, as a renter, you can often find a cheaper place to live if your landlord bumps your rent too high.
3. Homeowners insurance is often required but never free.
Homeowners insurance costs vary depending on what insurance company you use, how much your home is worth and claims history in your area, among other factors. But whatever your situation, insurance will cost something — and it's just another cost to tack onto your cost of living.
"Homeownership is a long-term financial commitment," said Jose Tijam, a realtor with Grand Avenue Realty & Lending in California. "Your lender requires you to insure your property, and typically you have to pay insurance premiums along with your mortgage payment."
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4. The real estate market is volatile.
Is the U.S. on the verge of another real estate bubble? Maybe not, but in 2007, many homeowners found out the hard way how variable housing prices can be. Homeowners who bought at the peak of prices in 2006 faced huge losses in 2008.
Home values and costs are variable depending on market fluctuations. That means you might spend more money on your home than it will be worth when you're ready to sell.
"There's no guarantee that your home will increase in value over time," said Tijam.
5. Maintenance is a costly proposition.
Will you be able to pay to replace the furnace if it breaks? Can you afford to repair or replace the roof if it leaks?
Some experts recommend you set aside 1 percent of the purchase price of your home each year to pay for maintenance and repair costs. That amounts to $3,000 every year if your home cost $300,000. If your home is older though, you'll want to set aside even more.
Renters, on the other hand, get to call their landlords to handle repairs around the unit. When you sign your lease, you can even ask for a fresh coat of paint, which, for the average home, costs $1,670, according to HomeAdvisor.com
Although some of these costs might be passed on to you as a renter, it likely won't be until it's time to renegotiate your lease. But the cost isn't necessarily the worst part of required homeownership maintenance.
"If you don't want to do yard work, renovations and upkeep, renting may be the best option for convenience," said Barton.
6. Selling a home isn't always easy — or cheap.
Nobody wants to be saddled with an extra mortgage or home they can't afford. Renting allows the flexibility to leave if your financial or life situation changes. But if you own a home and have to leave it for any reason, you'll end up having to pay for that home — mortgage, taxes, maintenance and all — until you're able to sell.
If you're not planning to stay in the same place for more than a few years, you should rent instead of buy to avoid serious financial problems, said Deb Tomaro, a broker associate with RE/MAX Acclaimed Properties in Bloomington, Ind.
The worst time to buy is when your job or life situation is unstable. For example, Tomaro said she worked with a client who was going through a divorce and was set on buying a new home immediately after moving out of the marital home. An unstable time like that isn't the time to make such a huge financial decision, she said.
"I know he's going through a tough time in his life, but he doesn't have the same excitement about the home-buying process that most people have, and that is disappointing to me," she said. "That's usually a sign that it's not quite the right time to buy."
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