To Buy or To Rent??!!

If you are considering buying a house, one of the first decisions you need to make is whether buying a house instead of renting one is the right direction for you. Since owning a home is the "American Dream", many people simply assume that it's always to their advantage to buy a home, and for most, it is. Take a moment to review the following table to see how your situation fits in. Items in the green boxes are advantages and in the red boxes are disadvantages

Advantages of buying a house:

• You will increase your asset, if you buy a house.
• You will have guaranteed appreciation over a time period.
• You will never have to pay monthly rent.
• If you buy a house, you will have a sense of ownership, when you have paid all of your loans, you will be the owner of the house.
• You can easily decorate the home in any way you like and there is no need to take permission from anyone.

Disadvantages of buying a house:

• You will be responsible for any kind of maintenance and you have to take care of it.
• If you want to move to another place, you have to think a lot.
• Property taxes will stand in your way.
• You have to pay the brokers fee, stamp duty, society charges, insurance cost, registration fee etc.

Advantages of renting a house:

• You do not have to worry about maintenance; the property owner will take care of it.
• There is no need to pay any type of property tax.
• If you do not like the area of your house, you can move to another place at any time you want.

Disadvantages of renting a house:

• Property owner can increase the rent whenever he wants to.
• The property owner can send you the notice to vacant the house at any time.
• You have to pay the rent every month and you can never be the owner.
• You cannot decorate it in the way you like

Are you better off renting or buying a home? Three tests can help you decide:
The affordability test

• Can you really afford the loan payments? Ask yourself (and read "8 signs you're ready to buy your first home").
• Are your total debts manageable? Add all monthly payments for the mortgage, property taxes, homeowners insurance and mortgage insurance, plus credit cards, car loan or lease, medical bills, college loans, child support and other debts. Divide the total by your monthly pretax income to get your debt-to-income ratio. MSN Money financial columnist Liz Weston advises keeping it at 36% tops -- ideally, less.
• Can you make the payments? Look up current interest rates, and then use this affordability calculator to find how much you can reasonably spend (not just borrow).
• Do you have the credit? You may have to use more restraint than the bank or the government.

The quick-exit test
You can't assume, as buyers did during the housing bubble, that you'll simply sell when you want out. The big picture includes planning your exit.
A big down payment gives you some protection. The more you contribute, the greater your maneuvering room in case you must exit.
But the standard down payment with the popular Federal Housing Administration mortgage, for example, is 3.5%. On a $150,000 home, that means your only equity, at first, is your $5,250 down payment. The typical cost of a sale is 8% of the purchase price, leaving a quick-exit buyer thousands of dollars in the hole even if the home's value stays the same.

Renting, on the other hand, lets you easily pick up and go, if necessary -- to another city, another neighborhood or a cheaper place, or even back with the folks. At the worst, you lose a deposit.

There are no fees, points or interest payments to get in. Amassing a first and last month's rent, plus a damage deposit, can seem like a lot, but it's cheaper than throwing cash into a short sale, ruining your credit in bankruptcy or foreclosure or, as is happening frequently, getting sued by your lender for walking out on the mortgage.

The 'duh' test
Do you honestly know what you're getting into? Many people apparently don't understand their mortgages. You need to understand not what your salesman or lender tells you about a loan, but what the contract says. Get help from a real-estate lawyer or nonprofit housing counselor, someone who won't profit from your purchase.


|

By Marilyn Lewis