Rent or Buy?

Should I keep renting or should I buy a house? That's a question most homeowners have faced at one time, and you may be facing now. Making the choice to buy a house, the largest investment most people make in their lifetime, may feel daunting and mysterious.

We'll try to take the mystery away here, give you a few things to think about, and then offer you a financial calculator to help you see the factors you'll have to consider.

The pros of home ownership

• Home equity builds fast.
  With the money you are currently spending on rent, you could be building equity in your own home. In the Bay Area, home prices have increased greatly over the past ten years which means a house you bought back then may be worth two or three times today what you paid for it! Not a bad way to shore up your finances! Perhaps a better question might be, "can I afford to keep renting?"
• Mortgage payments are stable, while rents tend to increase.
  Over the years your income will likely increase, but so will your rent. Mortgage payments, on the other hand, can be fixed at a certain rate for a pre-determined amount of time, depending on your loan. If you choose a 30-year fixed rate loan, your mortgage payment does not increase with inflation or your paycheck. Rents, on the other hand, often do.
• All that mortgage interest is tax deductible.
  Don't forget to calculate what you'll save from deducting the interest on your house payments. Savings can be substantial, especially at the beginning of your loan, when most of your house payment goes toward interest.
• Property taxes are also tax deductible.
  That yearly tax bill on your property may seem like a huge chunk of outgoing cash, but remember you'll get much of it back come tax time.
• You're free to live the way you want - within legal limits of course!
  No more checking with landlords about whether they accept pets, mind if you paint those awful black bedroom walls, or will be upset if you plant some veggies in the back yard. Now that's freedom!

The cons

• You can't call the landlord when something goes wrong.
  Some people don't like the responsibility of home maintenance and repairs. If this is you, you may want to think about whether you have a pal who can help out, or the money to pay a professional when the faucet starts leaking.
• You can't "pick up and go" when you want.
  Buying a home takes planning and requires time, both to find a house and to complete all the details of the purchase. And if you need to make a change, selling takes time, too. If you like to make quick changes whenever the spirit moves you, renting may prove the better choice.
• Regardless of the monthly payments, buying a house takes more cash upfront than renting.
  Although low down payment loan packages are available, most home sales require a chunk of cash that exceeds the cost of the first and last month's rent and security deposit required for most rentals.