Making the Buying Decision

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01/06/2009 17:23:55 PM

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Making the Buying Decision

Assuming you plan to own your home for several years and can afford the payments, you'll likely be better off owning versus renting. Here are some points to consider:

	Rent	Buy
Tax Savings	You might receive a state income tax renter's credit, but nothing more.	Payments towards interest, taxes and points are tax deductible.
Equity Build-up	None, unless your rent payment is lower than the cost of owning a home, and you invest the difference in a CD, stock or mutual funds.	Even if your home value remains constant, your loan balance should decrease. This results in increasing equity your property.
Mobility	Most leases are less than 1 year in duration. It's easy to move at the end of a lease. Also, your landlord usually won't have to renew your lease, and you could be forced to move out at the end of your lease.	Selling a house can take time and may cost 6% to 8% of the sales price. If you have to sell quickly, it could cost even more. If you don't have to sell, yet must move, consider renting your house. You'll probably receive additional benefits by depreciating your home for income tax purposes. Remember, buying a home makes sense if you plan to hold it for several years.
Payments	Your rent payments generally increase every year. Rent increases are often tied to inflation.	Mortgage payments on a fixed-rate loan will not change. Adjustable-rate loan payments vary according to the terms of the note and economic conditions.
Timeframe	Renting makes sense if your time frame is less than 2 to 3 years.	The longer you plan to own your home, the more sense it makes to buy. Some buyers with plans to move relatively soon may buy if they expect the market to appreciate significantly.

Additional points to consider in your decision include:

What are my reasons of owning a home?
Do you need a bigger home? Do you need a better neighborhood? Are you speculating that prices will increase? Whatever your reasons, it helps to write them down. Seeing your reasons on paper helps create objectivity, and will help you follow through in the event you get the "jitters" later on.
Do I have enough cash for the down payment?
While this is certainly an important consideration, many lenders today offer zero-down and low down payment loans. However, you may still have to come up with cash for closing costs and moving expenses.
Can I afford to make house payments in addition to making payments on my other debts?
This is probably the single, most important question to answer accurately. Spend adequate time creating a realistic budget. If you fall too far behind in your mortgage payments or property taxes, you'll probably lose your home and any equity you might have had init. Generally, you should spend less than a third of your gross income on your total housing expense, including principal, interest, taxes and insurance.