Could renting be a better option than a mortgage?
About a year ago my wife and I decided to purchase an acre of land to build a home. We currently live in a three bedroom 2 and 1/2 bathroom home with an almost finished basement. It’s plenty of room for our family of four, but we wanted to have more land than .125 acres.
My best friend also decided to build a new home too, and is currently renting a 3 bedroom 2 bathroom house. They too have a family of four and he tells me it’s plenty of room to accommodate all their needs. They only have a one car garage, but we most people use their garage for storage anyway.
Their rent is about $600 less than our house payment. Our new house payment will probably be several hundred dollars more than our current payment. Do we really need a house that nice, do we need a house that big? The obvious answer is no, and it would even be more financially smart for us to rent a house for $900 – $1000 per month.
We always hear it’s better to own a home than waste money paying someone else’s house payment, but is this really true? I’m sure there are certain circumstances where buying is better than renting but before you make a final decision you may want to check out all your options. There are many incentives to owning a home such as major tax breaks, but make sure the good outweighs the bad.
Another alternative is to rent a home for several years, saving the extra money to pay down on a home. The shorter term you finance the home for the more money you will save on interest. If we were to save $1,000 a month for 5 years we could pay over $60,000 down on our home, greatly reducing the amount of money we “throw away” in interest.
We are planning on putting our house on the market in the next year or so and finding a house to rent. Hopefully we can stay in the rental house long enough to save a decent down payment. We probably won’t wait the 5 years, but hopefully we will have several thousand dollars to pay down.