‘Never owning a home and never planting a garden is a tremendously high hidden cost’: I’m stuck renting with $72k savings, but a mortgage prevents 401k. At what point is renting worse financially?

"Hi Money Minder,"

Should I Buy a House or Keep Renting? Help!

I’m currently renting and I’ve saved up $72k for a down payment. Home prices around here are between $300k and $400k. Anything cheaper is either a total fixer-upper or just not my style. The problem is, switching from paying rent to paying a mortgage would mean I’d have to dip into my savings, and that would mess up my 401k contributions.

I’m kind of stuck here – should I keep renting when I’m retired or should I accept having less retirement income (or even working longer)?

Some people say it’s smarter to rent for the rest of your life and focus on saving for retirement because the return on investment is better. But realistically, never owning my own home or having my own garden feels like a huge hidden cost that’s not being talked about.

Farmer Dave

Response from THE MONEY MINDER:

Hello there

It’s understandable to feel a bit stuck between two significant financial decisions—whether to continue renting or to invest in homeownership. Each option has its pros and cons, and it’s critical to assess them thoroughly given your unique situation.

With $72k saved for a down payment, you’re in a relatively strong financial position to consider purchasing a home. However, it’s essential to recognize that buying a home isn’t just about the initial down payment. Closing costs, property taxes, homeowners insurance, and maintenance expenses will also factor into your monthly budget, potentially taking away from your current 401k contributions and other savings.

Given that your current rent is comfortably lower than what a mortgage payment would be, and you have concerns about maintaining your retirement savings, it might be beneficial to take a more balanced approach. Consider the following pathway:

First, reassess the housing market actively for properties that might be slightly below your upper budget but don’t require extensive immediate renovations. Sometimes homes that need minor cosmetic updates can be negotiated to a more affordable price while allowing you to build equity over time.

Second, look into financial assistance programs, such as first-time homebuyer grants or loans that might allow you to keep a larger portion of your savings intact while still affording a home that meets your needs.

Third, create a detailed budget that factors in all home-related ongoing expenses and see how they reconcile with your retirement goals. This can include setting up a spreadsheet or meeting with a financial advisor to get a comprehensive view of your financial future. Sometimes a clear picture can help make what feels like a difficult decision a bit easier.

Lastly, if your primary concern involves missing out on experiences like planting a garden, perhaps consider rental homes or townhomes with private yards. This could provide a middle ground, offering you the type of environment you’re seeking without the immediate financial burden of homeownership.

The key is to ensure that whichever path you choose, it aligns with both your financial capacity and personal goals without sacrificing one for the other unduly.

Warm regards,
THE MONEY MINDER