Advantages of Renting Vs. Buying a Home

Financial expert Andrés Gutiérrez tells us why buying may not be as beneficial as people think.

Among many families, the talk of buying a home takes on a serious tone when you factor in the importance of attaining the proverbial "The American Dream"- especially among Latinos. But the idea that renting is a waste of money may need to be reconsidered. "It's a big mistake to buy a home early, especially right after graduating or getting married," says financial expert Andrés Gutiérrez, who believes that there are great benefits to renting.

Keep your options open
There's something to be said about renting a home, especially for young couples or someone who has moved to a new city. It's the right decision if you need to remain mobile and keep your residence options open in case of unforeseen changes. "Buy only if you know you'll be [in that home] for longer than five years," says Gutiérrez. Purchasing a house too soon, without the necessary financial foundation, is a risky proposition. It's an investment that comes with risk, and risk becomes a bigger deal if there's no financial stability.

Resolve to get rid of debt in 2013

When renting makes more sense
When compared side-by-side, renting is actually less expensive, according to Gutiérrez. While many are lured by possible mortgage payments that seem lower than rent costs, there are additional expenses to be taken into consideration. From taxes and insurance premiums, to regular repairs and buying new furniture, the cost of home ownership can easily ravage the budget leading the family to become "house poor".

So, how do you know when you're ready to take the plunge and buy a home? Gutiérrez sets the record straight and provides this step-by-step plan for making your homeowner dreams come true:

1. Become debt-free: Pay off all unsecured debt, and decide to live a "buy with cash only" lifestyle.
2. Develop an emergency fund: Place an amount equal to 3-6 months worth of paychecks in a money market account.
3. Save money to buy a house with cash: This is, no doubt, the ideal way to buy a home, according to Gutiérrez . "If people save money while renting for about 5-7 years, they'll have the power of the cash buyer [when buying a house]." This would require some aggressive saving (like living on 50% of your paycheck for a while), but buying a home free of mortgage may be worth your while.
4. Or, have at least a 20% down payment: "If you're able to do this, you prove that you're disciplined with money…and you're considered a lower risk to the bank," says the expert who sees that today's banks are becoming very selective when lending, even to customers with good credit.

The best mortgage ever
While placing all your financial eggs into a domestic nest used to be the best and easiest way for people to invest, that is no longer the case after the mortgage "bubble bust" of 2008. "[Residential] real estate is depreciating 3-4% per year," says the expert who no longer finds a long-term mortgage to be a good investment. To get the best benefit from a home loan, Gutiérrez suggests getting a 15-year fixed mortgage, making sure that monthly payments don't take more than 25% of take-home pay. Mortgaging should only be used as a step towards stability and not break down your financial foundation.

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Financial expert Andrés Gutiérrez is the host of "The Andrés Gutiérrez Show" and creator ofPaz Financiera. A successful entrepreneur and small-business owner, Andrés Gutiérrez knows what it's like to start with nothing and build lasting wealth. After hosting a San Antonio financial radio program and appearing frequently as a financial expert on the Telemundo television network, Andrés joined Dave Ramsey's team in 2009 to bring the message of Financial Peace to the Spanish-speaking community.