It sounds like an easy question for most people, but is it really?  You might be surprised at the answer.  The conventional wisdom told you that with renting, you were throwing your money away.  The reason is because you could be building up equity into a home with each payment.  Not to mention the tax incentive on the interest deduction.

Now, with the prices of houses dropping while foreclosures on the rise, buying doesn’t have the glamour that it once did.  Many would-be buyers have been scared off by the prospect of losing their houses.  So, is it better to try to get a good deal on a house or to keep renting?

The future of the market is uncertain, and prices will vary greatly, but maybe we can help with three tips in considering whether you should rent or buy.

The 28% Cap.  Financial planners state that you should not spend any more than 28% of your gross monthly income on housing.  This percentage should cover all of the following items on a purchase:

·         Monthly principal and interest (your total house payment)

·         Property taxes

·         Homeowners insurance

·         Private Mortgage Insurance (if you did not put 20% down on your house)

·         Maintenance

For renting the 28% should cover:

·         Rent

·         Renter’s insurance

Stay for Five.  Experts tell us that if you buy, you should plan to stay in your house for five years.  So if you cannot make that kind of commitment, then renting might be the better choice.

When buying you incur costs during the closing that can make a difference in whether or not you can afford to make a purchase.  You have these items to deal with: Appraisal fee; Loan origination fee; points on the loan; property taxes; recording fees; and interest on the loan calculated on the number of days until the first payment is due.

Renting usually only requires you to put down a security deposit and the first month’s rent.

Ownership Requires Work.  If you choose to buy, keep in mind that you will have to keep your home in good condition.  That includes mowing the lawn, painting, fixing problems, etc.  Not to mention if you desire to remodel or add on to the house.  Some of these items are not only expense, but they can be time consuming as well.  If you do not have time to do these or oversee them, renting would be a better choice.

Going into buying with your eyes wide open can help give you a better idea of what you will face with this type of decision.  Once the ‘newness’ wears off, homeownership takes on a new meaning.  That’s where renting has an advantage.  If you do not like where you are living, wait until your lease expires and find a better place.  Selling a home is much more difficult.

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