If you’re considering renting or buying a home, then you are making an important life decision. Renting a property before you purchase a home has many advantages that we personally have experienced. You can use the time renting below your means to save for a down payment, improve your credit, get to know your partner and much more. Read on to find out why renting before buying is a necessary life step.
Money Management
Renting allows you to learn how to be responsible with your money because if you aren’t, you’ll be evicted or have your power or water shut off. This is a better alternative than learning how to manage your money with a mortgage because if you are irresponsible you can get your house foreclosed on by the bank. After renting, if you decide to buy a house with a mortgage, the mortgage lender may contact your landlord to see if you paid rent each month on time and if there were any issues. It’s important to always pay rent on time if you plan on getting a mortgage down the road.
Get To Know Your Habits
If you live alone, then renting will allow you to get to know yourself and your habits at home. Renting with a significant other gives you great insight about the other person’s cleanliness and lifestyle. On a personal level, we recommend that every couple rent before buying a home to ensure that you are truly compatible living with that person before you have purchased a home together. You will be surprised at all of the things you learn about yourself and the other person and its best to learn those before you have a mortgage together.
Save For a Home
If you have decided that you want to eventually buy a house, use renting as a means to save for that home. Rent below your means so that you can save a substantial amount each month. When it comes time to decide if you’ll renew your lease or not, see if you can afford to buy a house and if the timing works for you. One mistake many renters make is renting the nicest property they can find and just barely being able to afford it. Renting a place that you don’t love but you love how much you’re saving will make buying a nicer property so much more meaningful later on.
Learn about different types of bank accounts to find the right one for your lifestyle to help you reach your financial goals.
Learn About The Area
There is a big difference between driving through or visiting a neighborhood or city and living in it. Renting before buying allows you to learn about the area, the crime level and the schools in order to see if you really want to live there for the next 5-20+ years. You may be surprised to come to the realization that you don’t love an area that you’ve always wanted to live in. That’s okay – use renting as a learning experience and appreciate that you learned these things renting instead of after buying a home.
Improve Your Credit
The approval process to rent is far less detailed than to get a mortgage, so if you have little credit history or poor credit then renting will be better for you. If your credit is not good, then if you are approved for a mortgage you’ll probably have a very high interest rate or you’ll need to have a large down payment. Instead, you can use a year or two improving your credit while you rent. Focus on paying all credit accounts on time each month and avoid spending money that you don’t have. Pay down your debt and improve your credit history. Learn more about the factors that determine your FICO credit score – which is used by about 90% of all lenders. A year or two of being responsible with your credit while renting can put you in a much better place to get a mortgage.
Deciding to rent or buy is a big decision. There are many factors to consider, so you should take time to make your decision. To learn more, check out our article Renting vs Buying: The Comprehensive Guide To Help You Decide.
Our Take
We felt that renting before buying a house was really beneficial for us for a few reasons. It definitely helped us learn how to manage our money. For the years that we rented we learned tricks like setting up automatic payments and calendar reminders for payments that we didn’t automate. We never made a late rent payment – we actually would pay a day early each month. We were able to raise our credit scores during the time we rented and this helped us get a mortgage with a lower interest rate.
It was also helpful for us to learn about the area and actually where we didn’t want to live more than where we wanted to live. And of course we learned about each other’s living habits, which we think is important to do. Renting a few different apartments also helped us get a good idea of the features we wanted in the house we would buy – like ample parking!
Financial freedom begins with good habits.
Rebecca & Tiago, theloadedpig.com