Image source: Getty Images
Buying a home can be a good decision or a bad one, depending on many factors including your financial situation at the time of your purchase as well as your motivations for moving forward.
Unfortunately, Ramit Sethi warns many people purchase a property for the wrong reason because they fall for common propaganda.
Sethi is the author of I Will Teach You To Be Rich, and he also founded and runs a popular financial blog with the same name. He doesn't believe that homeownership is the right move for everyone and cautioned that getting a mortgage and purchasing a place could be a big mistake if you are doing it for the wrong reasons.
Don't buy a home because you fell for this propaganda
On Twitter, Sethi warned that many people purchase a home because they fall for propaganda-like phrases such as "don't pay your landlord's mortgage."
Sethi pointed out that many people make an emotional decision because they feel like they are "wasting" money sending rent to their landlord as their landlord then builds equity and ends up owning the property when they end up owning nothing in the end.
More: Our picks for best FHA mortgage lenders
However, Sethi points out that homeowners overlook the fact that when they own their property, they don't really own it outright -- not for a very long time. In fact, because of the way that mortgage loans work, most people end up mostly paying down interest over the first few years of homeownership. So while they aren't paying their landlords mortgage, they are making their bank rich instead -- and acquiring ownership very slowly.
"When you buy a house, it takes years to start building any meaningful amount of equity," Sethi explained in a podcast episode. "In the first year, you're paying 75% of your money to interest. And some of you guys are so brainwashed. You're worried about paying someone else's mortgage, but you never stop to run a single calculation, which would tell you you're paying the bank's interest."
Unfortunately, Sethi said many people don't take the time to realize this objective reality because they hear the propaganda so often about homeownership being better than renting. They end up buying a home with the assumption they'll get richer through building equity when that may not be true for years. And then they also face surprise costs for repairs that renters don't have to deal with, so their financial situation could be worse in the end.
"Now you understand why I get so mad when people run around town saying all these dumb little phrases, 'I don't want to pay my landlord's mortgage. I want to build equity,'" Sethi said.
Should you listen to Sethi?
In this case, the finance expert is exactly right that you could come to regret your home purchase if you're motivated by the fact that renting is a waste of money.
Renting isn't "paying your landlord's mortgage" or throwing away money -- it's paying for a place to live for you and your family. If renting is more affordable than owning and you can invest the difference, or if renting is the right choice because you'll be moving soon or aren't prepared for the financial responsibility of homeownership, then it could very well be the best option for you.
The Ascent's Best Mortgage Lender of 2022
Mortgage rates are at their highest level in years — and expected to keep rising. It is more important than ever to check your rates with multiple lenders to secure the best rate possible while minimizing fees. Even a small difference in your rate could shave hundreds off your monthly payment.
That is where Better Mortgage comes in.
You can get pre-approved in as little as 3 minutes, with no hard credit check, and lock your rate at any time. Another plus? They don’t charge origination or lender fees (which can be as high as 2% of the loan amount for some lenders).
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
