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Courtesy of Nicole Morong
- Purchasing a home is often seen as the first step toward building wealth.
- Financial planner Nicole Morong says buying a house isn't the best decision for six types of people.
- You might be better off renting if you want to live in a big city, and if you don't have an emergency fund yet.
Homeownership is often touted as one of the most secure paths to building wealth. But financial planner Nicole Morong at Peterkin Financial says buying a house isn't the best financial move for everyone, and most people who feel pressured to do so can't actually afford it.
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"Affordability is more than whether or not you can pay the monthly mortgage," Morong says.
She says first-time homebuyers rarely stop to ask themselves: "What if my property taxes go up? What if my homeowners insurance goes up? What if my roof leaks, or I need to change the water heater?"
Additionally, younger generations are being priced out of an inflated market. Millennials, in particular, are facing a housing market with higher borrowing rates and massive inventory shortages. About 36% of millennials also say that their student loan debt stops them from owning homes.
According to a 2022 study by Freddie Mac, 27% of Gen Z adults said homeownership is out of their reach financially, with 39% of respondents saying their main hurdle is their inability to save for a down payment.
If you're stressed about owning a home, see if you fall into one of these six categories. If you do, Morong says you're probably better off renting than owning a home.
1. You have high credit card debt
"Obviously, there are people who have credit card debt that buy houses," says Morong. "But I think high credit card debt is usually a symptom of overspending and not planning your money well."
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If you have trouble doing things like saving for a vacation or paying for a car repair, these are telltale signs that you're not ready for homeownership yet, Morong adds.
"Buying a house is just going to compound those issues," she says. "If something super expensive happened related to a house, where do you get that money from?"
2. You prefer to have predictability in your monthly costs
Morong points out that homeownership can come with more unpredictable costs than renting.
For example, if the roof of your new home leaks, and it costs $10,000 to fix it, consider where that money is actually going to come from. "You might have to finance that, and it might add $200 to $400 a month in your budget," she says.
In contrast, renting a home guarantees a fixed expense each month for the length of your lease. You won't have to budget for emergency repairs, increased home ownership association (HOA) fees, property taxes, homeowners insurance, and other costs associated with homeownership.
3. You don't have an emergency savings fund
An emergency savings fund is three to six months worth of living expenses, typically kept in a high-yield savings account so that it's easily accessible in case of an emergency.
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Morong says not having an emergency savings fund is another sign that you might not be financially ready to buy a house, especially when you factor in the unpredictable costs mentioned above.
4. You love living in big cities
If you prefer to live in a big city, Morong says you shouldn't sacrifice that preference just to buy a home in a suburb that you don't like.
"I'm not talking about people who want to live 30 or 45 minutes outside the city. I'm talking about people who want the city lifestyle, who want to be able to take public transportation, walk places, be able to take an Uber everywhere and not have it cost a million dollars," she says.
Morong says that rent is usually cheaper than buying homes with "a million-dollar mortgage" in those same areas.
5. You see homeownership as control
Morong says some people want to buy a home because they're frustrated with the limitations of renting. Sometimes, you're not allowed to paint walls, make holes in the walls to hang up art, or build anything new in your rental. Buying a home might be more appealing because you get to have full control of what you want to do to your space.
However, says Morong, "If you wanna put an addition on your house, or do a renovation, you need to pull permits. You need to get approval from the town or the city that you're in. If you have an HOA, you can't just paint the door red, or park on the street. There's rules."
6. You're buying a home to increase your net worth
Many people want to buy a home to build equity and increase their net worth. However, Morong warns homebuyers to consider their mortgage amortization schedule.
A mortgage amortization schedule shows you how much of your mortgage payments go toward the principal balance of the loan versus the interest paid to the lender.
"In that first year, if you're paying $3,000 a month, maybe $300 of it is going toward the principal, which goes toward the equity," Morong says. "The other $2,700 is going to interest at the bank. The bank basically owns the house more than you do."
Morong has run the numbers for her own clients who felt pressured to buy homes in places where they didn't want to live. She found that some are better off finding rentals in their desired area that were significantly cheaper than what they were willing to pay for a mortgage. Morong advised those clients to invest the difference instead to start their wealth-building journey.
"I'm not anti-homewnership," she says. "I feel like most people don't run the numbers."