Attention Newlyweds: Rent a House
I know a guy who just got married and has already started the obligatory house-hunt exercise with his new bride. He asked me about the timing of a house purchase in the context of overall market conditions and I asked him if he was financially prepared for homeownership. “Not really, but we’re married now and I just hate throwing money away on rent.”
Photo by: Fr Antunes
“Renting is like throwing money away every month.”
This is a fairly popular idea sold by the anti-rent crowd, including realtors, mortgage brokers and banks. In fact, there are many times when renting makes the most financial sense, particularly when you consider the costs and added risk of mortgaging a house. My newlywed friends have some debt to pay off, and have very little in savings. Just because they technically qualify (according to a bank) for a mortgage loan doesn’t necessarily mean they should take one.
“If I rent I won’t be building equity.”
Building equity in a home is not the only way to grow your net worth - there are plenty of other investment opportunities. Some could make the argument after the recent housing bubble burst that real estate is no longer a “sure” investment, even though I believe over the long term it is certainly safer than others. Think about it - there will always be new companies, new technologies and new services created over the years, but as far as I know we haven’t figured out how to invent new land. It is this limited supply that causes real estate to appreciate at a fairly reliable rate over the long term.
So renters cannot participate in this appreciation. Worse things could happen if you buy without adequate savings established. You could buy more house than you can afford and eventually be forced into foreclosure. You could buy a house that requires costly repairs at your own expense (versus passing the repair bills on to a landlord). You may be required to buy private mortgage insurance on top of your payment, homeowner’s insurance and taxes, making for a costly monthly payment. The potential negative consequences for premature homeownership are endless. Conversely, renting frees you from many of those consequences. You do not need to worry about large repairs, taxes, PMI, and homeowners insurance (although renter’s insurance is a good idea to protect your contents).
“Homeownership is the American dream.”
I know it is, and a noble one. However, it is not wise to dig too deep a financial hole for yourselves early in a relationship. The first couple years of marriage are tough enough without struggling to meet a mortgage payment. The average homebuyer commits thirty years to a mortgage payment of nearly $1,000 a month. Thirty years is an awfully long time to commit $12,000 a year (or more). Consider renting the first six months to a year to get to know each other, and the area where you decide to settle.
“Rates are at an all-time low.”
True, but even the lowest rates don’t make sense if you are really stretching to take on a mortgage payment that you cannot afford. Consider lowering the bank’s suggested 28/36 debt-to-income/obligations ratio to a more comfortable level based on your income. In the book The Ultimate Cheapskate, author Jeff Yeager advocates “buying a starter home and staying there.” Over time you may make improvements to the home, or expand if necessary, but your goal should not be to trade up every few years, a practice that continues to push your mortgage payments further into the future. I personally think this is great advice, and something many newlyweds should strive for. If you cannot initially buy a starter home, look for a starter rental and move up when you can, but then stay put and pay off your mortgage early to speed up your plans for financial freedom.
If you liked this article, please consider subscribing to Frugal Dad for free via RSS feed or email delivery. Subscribers also receive my free eBook, The 7-Day Turnaround!
Get daily updates for free by RSS feed or email delivery. Sign up today and also receive my free eBook, The 7-Day Turnaround!
My wife and I got married four months ago and a friend-couple of ours got married not long before us. They decided to buy a trailer and we decided to rent. They’re paying homeowners insurance, a plot to put the thing on, and dealt with all kind of repair issues including a hole in the floor. On the other hand, our landlord has always come the next day to fix things and our renters insurance is 25 per YEAR. We actually plan on staying here, living off of her salary, and saving mine until we can pay cash for a house.
As someone who is about to get married, it’s very tough not to fall into the stereotypes of what a “husband” and “wife” are “supposed” to do. Things like buying a house, being “responsible,” and “growing up” are all things that I think I should be doing because — hey — isn’t that what married people do? Since I’m going through it all for the first time, it’s kind of a security blanket.
I’m a pretty big advocate of home ownership, but you shouldn’t leap in just because you got married. Don’t do it until you’ve got at least the 20% down payment and your debts cleared up.
You make a great case, but I tend to agree with Trent.
I think it depends on where you live. There are some areas of the country where it really does make a lot of sense to buy instead of rent. I bought a house on my own (as did my fiance before he met me) and have never looked back. But I live in part of the country where you can still get a very nice home for less than $200k.
Other variables that impact this decision are age (I assume that you’re addressing the “under 30″ set in this piece), income & job stability, family situation (is this your second marraige? do you have kids?), etc.
I have so many friends who got married in college and bought houses right after school - it always amazed me b/c I know their incomes weren’t THAT high, and they didn’t have much to put down.
Some of them are really suffering right now, simply because they rushed in too soon.
BTW - slightly OT, but what’s the deal with the lenders getting all the blame for the mortgage crisis? Why isn’t anyone talking about how the borrowers didn’t read the fine print? Geez.
[…] For more information about whether to rent or buy, you might want to check out Lynnae’s post There’s No Shame in Renting or FrugalDad’s post Attention Newlyweds: Rent a House. […]
I’m not married, but I feel like the first few months of being married and living together for the first time are probably crazy enough, with all the changes and adjustments, without adding in house hunting and all the financial talks and meeting with lenders. I think I’d wait a bit just so I could enjoy the newlywed period without the added stress!
We moved into our house 2 weeks after we got married. But we plan on living here until our kids are out of the house. We get some strange looks sometimes when we mention that but it’s expensive to move. I want this house paid off asap.
My husband and I get a lot of grief from family and friends for renting, but the bottom line is (1) we’re not sure how long we’ll be in the area; (2) the DC housing market is overpriced and unstable; and (3) we want to save up enough to make a BIG down payment so our mortgage payments will be lower if I decide to quit work when we have kids. Thanks for the reassurance!
thanks for the guest post on my site today! i really appreciate it!
I’m thrilled with our home. We bought it a couple months before we actually got married and it’s been wonderful. We didn’t put any money down because we got a VA loan but it worked for us and we are responsible home owners. Most of the time.
And we plan to stay here - not grow out of it with all our crap - for many years until we’re ready to build our own home.
I see nothing wrong with renting. And I loved the apartments I rented in the past. It’s nice not to have to worry about repairs and yard maintenance.
I agree. buying is not for everybody and the timing is crucial. I live in Mexico City which is a very different economic situation, but my husband and I waited 5 years before buying our apartment. We were quite broke when we get married with no savings.
As we get established and with decent savings, we thought it was the right time. And I still think it was!
We rented the first two years of our marriage and I have no regrets about that. It gave us extra time to research before making an investment into an area that we were not familiar with. I would encourage all newlyweds to rent before jumping into that type of commitment. Great topic!
Agreed. Right now, there’s no way we could afford a house. We have no money for a downpayment and would have to go subprime anyway. Then there’s maintenance, taxes, all that. We rent because it’s simpler. And cheaper just outside DC…this is prime real estate.
The other big reason newlyweds should rent—mobility. How many young couples know they’re going to be in a place for at least 3 years? The amount of money that goes to interest up front as well as all the fees and whatnot associated with the house mean you end up paying a lot and not getting much equity for it. Then you have to sell if you want to move…and you end up losing some 6% in realtors’ commissions, but the house may not have appreciated that much yet.
Thank you Frugal Dad! Even though we pay only $250 per month for our 1500 square foot apartment with a yard and garage, I still take a lot of flak for “throwing money away”. In our area (2nd highest property taxes in the country), property taxes alone on most homes would cost more than we are paying in rent. Additionally, with only one income in an unsteady economy, we are not ready to take on the additional risk of a mortgage. Yet I’m constantly fighting off well-meaning relatives and coworkers who insist that I should buy a home. Thanks to our planning, we should be able to buy a home in cash in another 3 or 4 years - even while “throwing money away”. Nice to get a little agreement from someone!
As a former lender, I agree completely with the 20% down advice. Just because you can buy a car, and commit to 5 years of payments, with no money down, doesn’t mean it is smart. And, especially when you’re talking about 30 years of payments. The “everyone should buy a home today” crowd has hurt a lot of people, and will cost everyone in the long run.
That being said, property is my favorite investment I’ve ever made (b/c I can live in it !).
This is a great post; I’m glad you wrote it. There seems to be such pressure out there to buy a house, and you really don’t need to overburden yourself. Buy when you’re ready!
After I wrote my Early Retirement post, I got a lot of emails asking why I hadn’t figured a house into my calculations, and my answer was simple: I’m not planning on buying yet. *shrug* When I plan to, I’ll adjust accordingly.
I totally agree with you. My wife and I (married for about 8 months now) have been talking about buying a house. But, I did the math, and our rent is WAY below what a mortgage would rack up in interest per month. We don’t need extra space or “piece of mind”, so it really doesn’t make sense to take it on, especially considering the addition risk of that amount of debt.
Good post.
I completly agree. We were married for more than 10 years before we bought a home. We have friends who have been married a few years now and they are buying a new house for way more than what we paid and they make way less than we do. I don’t understand why someone would put themselves in that position. At 21 you just can’t have everything your parents have after working for it over the years. There is something missing when it comes to money that kids are just not learing. Maybe it is just nothing comes easy and you have to work for it. “shrugs”
I have to laugh at the throwing money away. What about food we eat… we poop that out, is that also throwing money away? LOL
I totally agree with you, and a huge number of very smart folks do too. Around here it’s easy to rent a really nice place for two or three hundred dollars less than an equivalant sized home mortgage, and when the roof caves in, someone ELSE gets to pay for the repairs.
MillionaireMommyNextDoor.com is an example of someone who has done the number crunching and blogged it on this very topic.
[…] Frugal Dad shares his thoughts on renting vs buying for newlyweds. […]
[…] the benefit of other readers, this is a good example of why I stress that there is no shame in renting. I’m not sure it was even an option in Tracy’s case, but assuming her and her husband […]