Buying instead of renting isn't the right move in every situation.
We're rather radical when it comes to finances. We live on a cash budget, we don't have credit cards or debt, we just finished up saving up to pay cash for our first home—oh, and we've also rented our entire marriage—all seven years of it so far!
Now, let me reassure you that I'm not here to make the case that everyone should rent, or that you should only buy a house if you can pay 100 percent down. Our circumstances were unique: We had a really good head start—we went into marriage without debt, and we also had all the money saved up to pay cash for law school. Because of these factors and the good income we now have, we have been able to live on significantly less than we make, which has allowed us to save enough to pay cash for our first home.
While I don't expect many people to follow in our exact footsteps, I do think renting gets a bad rap. In fact, I'm going to make a counterintuitive statement: I think renting can be a really wise choice for some situations.
When You Can't Afford the Payment and Expenses
Do the math yourself—don't go by what your real-estate agent or loan officer says you can afford on your current income. (They get a commission off of how much house they sell you, remember?) According to Dave Ramsey, the financial advisor and radio talk-show host, "Your mortgage payment should not be more than 25 percent of your take-home pay."
Also, keep in mind that your expenses could be as much as 78 percent higher pay every month when you buy than when you rent.
When Your Financial Situation is Unstable
If there's a good possibility you're going to lose your job, take a significant pay cut, or move to a different area of the country, buying a home is not always in your best interest. In fact, buying could make you very strapped financially, if you are making payments on a house you can't sell, or which your decreased monthly income can't support.
My husband lost his job unexpectedly after law school, and we ended up moving to another city so he could accept a different position. If we had had to mess with trying to sell a house, it would have added a great deal more stress, and could have thrown us in the hole financially had we not been able to sell.
We've now saved up enough to pay cash for our first home—thanks to the flexibility renting has given us to move where the job market was good—and we're eagerly looking forward to being first-time homeowners. However, we don't regret renting. Not in the least. In our situation, it was definitely a wise choice.