Renting a House Smart Move For Newlyweds

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 buying a house 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.” Renting a house is one of the smartest things you can do early in your marriage.

“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 home ownership 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. If you did a poor job planning for your wedding on a budget, you may already be in debt when you take your vows.

The first couple years of marriage are tough enough without struggling to meet a mortgage payment. The average home buyer 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.

Comments

  1. 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.

  2. 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.

  3. 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!

  4. 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.

  5. 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.

  6. 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.

  7. 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!

  8. 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.

  9. 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!

  10. 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!

  11. 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.

  12. 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!

  13. 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.

  14. 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”

  15. I completely DISAGREE I am a Realtor in downtown Chicago and 90% of my buyers are couples getting married and taking advantage of today’s market. Keep in mind now with the huge FIRST TIME HOME BUYER TAX SAVINGS of $8000 in FREE MONEY you can take advantage of the window of opportunity to get into a home! If you wait, you’ll miss the boat! Check out my real estate blog at http://www.vanessamoses.com, you’ll for sure regret not taking advantage of what you can afford TOGETHER!

    Also, financing can be done almost 100% of the time with an FHA government insured loan – these loans only require you to put 3.5% – 5% down. You can get all closing costs paid for and negotiate to your heart’s content.

    So you add it up, get up and do it or wait until the “I told you so market” when you should have bought. Consider ALL OPTIONS!

    Oh did I forget the LOW INTEREST RATES…

  16. What good does it do to get $8,000 off the year AFTER you close on the house if you can’t make your payments because you’re BROKE? If you have debt and are just starting out (like my wife and I). $8000 just doesn’t cut it. We both make 40,000. If we live off of 30K and put the rest in savings, in two years, we’ll be able to buy a 100K starter home CASH! No payments, the lowest interest rate you can think of ;)

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