Renters vs. Owners

Who’s better off? Maybe those who do both.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

Owning a home is the American dream, but does it really represent American prosperity? A new study by the Urban Institute is called Comparing Credit Profiles of American Renters and Owners, and its answers are somewhat obvious – except for one.


The big result

First, the most obvious result: “Renters who have never had a mortgage are younger and have lower credit scores and more debt problems than the other groups.” That makes sense. The study is loaded with observations that probably didn’t require studying 118 million homeowners and 127 million renters.

Then there’s this: Homeowners who paid off their mortgages might not be as financially secure as homeowners who rent out their home and then rent a place themselves.

In other words, there’s a segment of homeowners who don’t live in their homes. They rent them out, then use that revenue to rent a place to live in. Theoretically, the rent they earn is more than the rent they pay.

But does that really work?

The fascinating details

First, the bad news for those who pay off their mortgages: “Owners who have paid off their mortgage have higher credit scores but more debt problems,” than owner who still have a mortgage.

How can that be? The Urban Institute doesn’t offer reasons. It simply explains…

Compared to owners with current mortgages, those who have paid off their mortgage have more debts in collection and seem also to be a bit debt shy, using auto loans, credit cards and student loans less than the two groups with current mortgages.

The other group with mortgages are those renters we mentioned above. They seem to be doing pretty well for themselves. Their credit scores are generally over 700, their debt is “modest,” and they got a lot of prime earning years ahead of them:  “Renters with current mortgages are slightly younger than owners with current mortgages. The average age of the renters group is 45 compared with 51 for the owners.”

What you can do

If you’re thinking about renting out your house to increase your income, know that it’s not easy and not without risk. Simply search for “how to be a landlord” to read how involved the process is. You run the real chance of your home being trashed by tenants, and depending on the state you live in, eviction proceedings can take many months and many dollars.

A home is the most expensive item most Americans will ever own. Risking it for a few extra dollars a month may not be the best way to save money or pay down debt. The easiest way? Call Consolidated Credit for a free debt analysis with a certified credit counselor. Even the call to 1-888-294-3130 is free.

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