Tough Decision After Divorce: Rent or Own

In last month’s guest post, financial expert Suzanne Cramer shared the lowdown on refinancing – something that many divorcing couples have to do if one partner is keeping the marital home and has to buy out their partner. Before you get to that stage though, deciding whether you should own your home or rent should be a conscious decision and there’s much to consider. Here’s Suzanne:

[contemplate1] Home is where the heart is. You most likely spent years in your home; raising your children, making memories, and feeling like you were living happily ever after. Then, the unthinkable happens, you get a divorce and suddenly you are left thinking about your home. Will you stay in the marital home or is it just not financially possible? Will you sell your home and buy another on your own? Or will you rent until you can gather the cash for a down payment and get yourself settled? This is a huge decision to make and shouldn’t be made in haste, but instead with careful and thoughtful planning for your future.

Deciding to own or rent after divorce should be a condsidered decisionWe are all brainwashed to believe home ownership is the best financial decision, but the reality is that is not always the case.  Depending on your situation renting may be better for you.  Today, many people who have been renting are in a much stronger financial position than recent homebuyers. But the combination of foreclosed homes for sale, low mortgage rates, and government assistance may have you thinking, now may be the best time to buy.

Are you really ready to buy a home?

Emotions run high after a divorce and in some instances we are not in the right frame of mind to make these life changing decisions.  So you should ask yourself these questions:

  • Do you plan to stay in the area?  Maybe living in the same town as your ex makes you cringe. Or maybe you will begin working again after years of being a stay at home mom and there just aren’t any jobs available in the area, so you may need to relocate. By renting you afford yourself the time to make the decision as to whether or not you want to put down new roots near your old home or relocate.
  • Do you like the area?  Perhaps you moved to your current location so your ex could be near their family or job, the choice was not yours; now you realize you want to live somewhere else maybe closer to your family and friends. Consider if the area is truly where you want to be. If you are not sure-rent until you are.
  • Is your family close by?  Support is key to dealing with a divorce and having your family and friends close by may just may make things a little bit easier.  Consider how important this is to you in making your decision.
  • Do you have employment here?  You are now on your own and dependent solely on you! Is your job in the area or will you need to relocate in order to earn what you need to make it on your own? Employment is a major factor in your decision to set down roots or give it a trial run by renting.
  • Can you really afford it?  How much are you paying now for rent? You should look at a good principal and interest calculator or talk to a lender to get the whole picture, including monthly amounts for taxes, insurance, any applicable homeowner’s association dues, and any applicable mortgage insurance. This is important even if you plan on paying taxes and insurance on your own (rather than impounding them and making monthly payments to the lender) because you will want to make sure to budget monthly to set aside for these expenses. So, if you are paying $1,500 currently for rent, and the new home will be $2,500, put your budget to the test and see how you do with saving the increased housing expense (in this case $1,000). Take it out right when you pay your rent, and don’t touch it. This is a great test of how much you can really comfortably afford, and of course has the nice side effect of padding your savings.

By answering these questions you can gauge whether or not you are ready for home ownership on your own. Remember, the most important factors are: do you like the location, is your career here, and can you afford it.

Okay so you have decided home ownership is a possibility for you, now let’s take a look at the pro’s and cons of home ownership.

Pro’s of Home Ownership

From a financial standpoint, there are many reasons why it’s better to own a home, as opposed to renting.

  • Equity. By making monthly mortgage payments, you’ll be building up equity in your home and increasing your overall net worth.
  • Tax breaks.  You’ll also receive significant tax breaks as a homeowner with a mortgage. The interest you pay on your mortgage each year is tax deductible.
  • Stability.  Once you’ve purchased your home and have a fixed rate mortgage, your housing costs will remain constant for the life of the loan vs. dealing with annual rent increases.

Con’s of Home Ownership

From a financial standpoint there are also several reasons why it’s better to rent.

  • There are no guarantees. Even if you work hard at maintaining your home, property values can drop, depending on the neighborhood in which you live. Can you say short sale? Foreclosure?
  • Owning cost more overall (typically).   Mortgage payments are generally higher than rent, and include the added costs of home repairs and maintenance. As an owner, you must pay for any unexpected costs such as a new roof or heating system.
  • Downsizing when times are tough-not easy.  When you own a home and fail to keep up with your mortgage payments, you may be foreclosed upon.  This could result in the loss of your home as well as the equity you’ve built. A renter, on the other hand, can downsize to a cheaper apartment to cut expenses.
  • You lose flexibility.  Owning a home usually makes moving difficult and complicated. After you purchase a home, you may not have as much flexibility in choosing a new location to live or work. That’s why it is important to ask yourself the above questions to ensure you are ready.

Regardless of the choice you make be sure that the home you rent or purchase is one you can afford. Compromising on the home or taking on debt you can’t handle will only lead to problems and disappointment down the road. Acquiring a new home and taking on the responsibilities of home ownership results in significant life changes – usually for the better. As someone who is looking to rebuild their life after a divorce, make sure becoming a homeowner is a set of financial and emotional responsibilities you’re willing and able to take on.

Do you think that renting is a good decision just after divorce? Did you rent? Did you buy immediately, and then regret it? Did you buy immediately and land happily in your new single life?

[contemplate2]

Deciding where you want to live is the first step and you may not have total freedom in that decision. If you have children, then their schooling will be a major factor and proximity to your STBX for their parenting time may be another.

My ex and I stayed in the same town because we both agreed the kids should continue at their schools. We also agreed that we wanted as much as possible about the kids’ social lives to stay the same. That meant staying to close their friends. The best part about living in the same town has been how easy it is for the kids to stop by if they forget something at the other parents’ home.

If you’re not certain about your future whether that’s financial, career or location, then I would say strongly consider renting. Renting is another good strategy if you want to take your share of the equity from your marital home and use that to cover your living expenses while you train for a different career or work towards your financial independence after being a stay-at-home-mom. It would also be a legitimate strategy if you wanted to find a way of working part-time while your kids were still in school.

The key point here is not to just assume that because you owned your home before, you should own a home now. This is a great opportunity to evaluate what is in your best interests, given your new circumstances.

Suzanne is a certified credit counselor and a Social Media Specialist for CareOne Debt Relief Services. Suzanne writes for Divorce, Debt and Finances and A Straight Talk on Debt. Follow Suzanne on Twitter @ADivorcedMom and @AskCareOne where she shares her insights on divorce and managing your finances.

Photo credit: Images_of_Money

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  • http://formerlyaprildawn.blogspot.com/ April

    I was going to look into maybe buying something again just a couple of weeks ago and Suze Orman totally changed my mind. I realized that even if my monthly expenses might go down a hundred or two a month, I would really be in trouble if I lost my job. My emergency savings isn’t nearly built up enough to take on that kind of responsibility. If I lost my job as a renter, at least I could give notice under my contract, and I have the safety net of moving back in with my parents if I absolutely had to. Not to mention, maintenance, real estate taxes, etc. I sleep much better at night without a mortgage hanging over my head!

    • http://sincemydivorce.com Mandy Walker

      Sounds like you made a smart decision, April. It’s so important to look at the big picture.

  • http://www.careonecredit.com Suzanne Cramer

    @April I can totally relate to your situation. After my second divorce I chose to rent instead of purchase because even though the bank said I could “afford” it I knew my finances were not secure enough to take on a mortgage and the “what if’s” were just to many. I am happy renting and enjoying that I don’t have to be the one who fixes things around the house :)

    • http://sincemydivorce.com Mandy Walker

      @Suzanne, I know banks have been badly bruised by the housing/mortgage crisis and rightly so. We’d all do well remembering that many of the vendors involved in a house purchase stand to gain by you going ahead and benefit nothing from you renting. They aren’t impartial. You were wise to listen to your instincts.

  • http://twitter.com/ZagEsquire Brian E. Arnold

    As a divorce attorney in Salt Lake City this is a hard decision. It seems that you want life to be as normal as possible by living and owning a home but sometimes it is not possible. You also think that the kids will care, when all they really care about is going to the same schools and having the same friends. It is a hard road, but you can do it.
    http://www.arnoldwadsworth.com

    • http://sincemydivorce.com Mandy Walker

      I think it can be harder for kids to adjust if their standard of living changes dramatically, for example going from having own bedroom to having to share with siblings but if that’s the reality of your situation there’s still much that you can do to help them adjust. Getting on a path to financial independence outweighs creature comfort.

    • http://www.careonecredit.com Suzanne Cramer

      @Brian & @Mandy Maintaining as much normalcy as possible for your kids is important but not at the sacrifice of quality of life–purchasing or renting a home you can’t afford will make for a stressful financial situation that can affect your kids far more dramatically.

  • http://www.quickie-divorce.com/ David Rees

    This is a tough decision, i think i would rent for a few months after just to gather my thoughts then decided whether to buy or not. 

    • http://sincemydivorce.com Mandy Walker

      @David – and that’s a good point … if you have any uncertainty in your mind don’t make a long term commitment. Renting keeps your options open for the future.

  • George

    Here’s my dilema. I am 2.5 years from 59 1/2. I got laid off 02/2012 after 35 years and no one will hire me. I’m assuming my age has a lot to do with it. I do not want to be far from my kid. And oh yeh, I driving a 2000 ford w/138K on it. But I got 70K in cash, and I can’t get a loan unless I have the same type of job I had. Also, I have to be out of the house by the end of March.

    • http://sincemydivorce.com Mandy Walker

      I’m assuming that your reference to 59 1/2 is about when you can start taking withdrawals from your retirement assets?

      You’re in a difficult position … I’m not sure you were asking a direct question but in your position you’re really can’t make any long term commitments.

      Have you looked into any retraining options to update your work skills?

  • http://sincemydivorce.com Mandy Walker

    I think the most important factor in buying vs.renting is affordability. Does the housing cost fit with your budget, realistically. It may be better to rent and have money for vacations than to own your home …

  • MG

    I was the smuck in this divorce. I was nice and fair except to myself. I now live in the basement of my mothers’ house with my two children. I also have my adult son living with us because of financial distress. I have no degree and am living on medical retirement and alimony. I still do all the running around I did when I was married because my ex works a full time and part time (real estate) jobs and has no time. He has the second career because his kids were home with me and I gave him that time to do it. I have health limitations for employment and being middle age isn’t helping. I lost my home because I was advised I couldn’t afford it and now the rentals are more than my mortgage payment was! I can’t afford rent and the utilities and still expect to eat! So I am considering education for a certificate in a job that I might be placed in. How ridiculous! No promises of gainful employment now that’s a future. I know how to live on very little. Prove it more daily. I have sold nearly everything I owned. And considering selling more things just for a buck! I really am bitter and questioning my actions. It is too late to change it though…
    I will never trust again.