The buying a house vs renting an apartment debate has been going for ages.
If you’re unsure about whether you should buy or rent the roof over your head yourself, you’re not alone.
Everyone who is naturally skeptical about how to use their money in any situation faces this.
And that’s good. It means that you choose to not subscribe to any school of thought until you look at all the arguments from every side.
After you’re done reading this article, you are going to know exactly what course of action will be ideal in your situation.
After all, I understand that it can be quite unsettling to not know what to do when it comes to the buy a house vs rent an apartment dilemma.
So let’s end this once and for all…
Buying a House
Those who are all about owning the house they live in have some pretty good arguments to make.
For example, paying a mortgage is better than paying rent since the mortgage payments eventually stop and the house is yours.
Others may feel that owning the house they live in gives them more freedom to do with it as they please. Renting an apartment usually comes with abiding by some rules set by the landlord.
Regardless, buying a house without making sure that you check every box when it comes to the following criteria is not such a good idea. Be honest with yourself and see if they describe both you and your financial situation.
Even if you can’t fulfill just one of those, you should probably think about renting until you do.
1. Debt Free
The first criterion in the list is having no debt.
Yes, I said “no debt”! Zero. Nada…
In a world where banks and generally creditors make getting a loan so easy (and appealing), it’s easy for most people to get wrapped up in debt. In fact, according to a study 8 out of 10 Americans are in debt. That’s insane…
I know that this is strict, but it’s such a no-go to spend money on a new house when you’re in debt.
You may object that this shouldn’t apply to you if you can pay with cash for your new house. After all, buying a house is also an investment!
House prices can indeed go up over time in some markets. But most people use that as an excuse to impulsively pay for a house when they have no intention of selling it for a higher price later.
Even if you want to buy a house just as an investment, paying off your debt first may still be the better decision.
Think about it this way. The money you will save by repaying your debt early with your spare cash will save you enough in interest payments to buy a better house in the future.
2. Cash Cushion
Now, let’s say that you are debt-free. Do you go straight ahead and buy the house of your dreams? No way…
Unless you have enough spare money to cover any extraordinary expenses, buying a house is risky.
Make sure you have built an emergency fund first. Buying a house is not a priority here.
Besides, owning a house comes with costs that you just can’t predict. Something goes wrong with your new home and there will be no landlord to help you with it. It will only be you and (hopefully) some cash to help you fix it.
3. The Cash to Buy it and Maintain it (or a pretty good mortgage deal)
Here’s the deal. If you don’t have the cash to buy the house you want and some more for maintenance, then you better start saving until you do.
I know… That’s harsh.
But paying a premium for that house (interest payments) is harsher. Getting a mortgage to buy your house may be the mainstream solution but it is not recommended.
With that being said, most people can’t wait to buy a house with cash for various reasons. If you’re one of those, just make sure that you’re getting a very good mortgage deal.
What does that look like?
Let’s just say that anything else than a 15-year (or less) fixed-rate mortgage doesn’t fall into the category of a good deal.
The money you can save in interest payments with such a deal, instead of with a 30-year (and more) mortgage with varying interest is not pocket change. It can amount to enough to buy a second home in some extreme scenarios.
Speaking of saving money, you should also not get a mortgage unless you are able to provide a down-payment of more than 20%.
That’s because if you don’t, most lenders require that you pay private mortgage insurance (PMI) which can range from 0.5% to 1% of the total loan amount. And believe me, that can be a lot of money in the end.
4. The Right Mindset
Last but not least, you need to have the right mindset in order to buy a house.
Are you ready to put down roots?
Even if you are financially more than able to buy a house, not seeing yourself psychologically ready to commit to staying in a specific corner of the world can hurt you.
That’s because the real estate market is not always liquid. If you decide to move, you will perhaps need to sell your house and buy a new one somewhere else. Selling a house is a slow process and depending on the area, it can be a painfully slow one.
So, if you can’t see yourself staying in your new house indefinitely, it’s usually best to rent until you do. Again, be honest with yourself. Your financial health depends on it…
Renting an Apartment
The answer to the buy a house vs rent an apartment question cannot be one that applies to all.
There are some valid arguments for renting an apartment instead of buying a house but they may not apply in your situation.
Being flexible is definitely one hell of an advantage for renters. On top of that, you don’t have to worry about maintenance.
But before you go the renting route, make sure that at least one of the following reasons for doing so applies to you…
1. Still in Debt
It goes without saying that being in debt easily makes renting an apartment the more attractive option.
With that being said, if you are debt-free and you can find a good mortgage deal, it makes no sense for you to rent.
Of course, you will still need to have enough cash for the down-payment. Which brings us to requirement number 2…
2. Not Financially Ready
If you don’t have enough cash for buying a house or providing a down-payment of more than 20% of a mortgage, then renting is your only option.
But if you do have the cash to buy a house, for example, slowly burning through it by renting an apartment is like throwing away your money.
Unless you want to stay flexible of course…
3. A Need for Flexibility
This is perhaps the most common reason (or the excuse) for those who prefer renting.
Maybe your job requires you to move a lot or you just aren’t the put-down-roots type. Whatever it is, you have a perfectly good reason to rent instead of buying.
The Short Answer to the Buy a House vs Rent an Apartment Question
If you are:
- Debt-free,
- prepared with an emergency fund,
- prepared with enough cash to buy the house without getting into debt or at least setting a down-payment that’s more than 20% of the mortgage, and
- ready to put down roots,
then buying a house is not only recommended but encouraged.
If you don’t check one of these boxes, then you better rent until you do.
Of course, if you want to rent just to be flexible, that’s a perfectly reasonable argument for renting.
I now want to thank you for reading this article. Did it help? If it did, could you please share it using the social media buttons?
Also, let me know what you plan on doing by leaving a comment below!
Take care and good luck with whatever you choose!
Disclaimer: This information should not be viewed as financial advice. You should consult a financial advisor or do your own due diligence before you invest. The owner of this website and author of this article are not to be held liable for any undesired result by anyone who uses this information that is provided here in any way.
