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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:
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Rent |
Buy |
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Tax Savings
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You might receive a state income tax
renter's credit, but nothing more.
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Payments towards interest, taxes and points
are tax deductible.
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Equity Build-up
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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.
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Even if your home value remains
constant, your loan balance should decrease. This results in
increasing equity your property.
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Mobility
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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.
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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.
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Payments
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Your rent payments generally increase every
year. Rent increases are often tied to inflation.
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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.
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Timeframe
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Renting makes sense if your time frame is
less than 2 to 3 years.
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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.
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Additional points to consider in your decision include:
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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.
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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.
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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 in it. Generally, you should spend less
than a third of your gross income on your total housing
expense, including principal, interest, taxes and insurance.
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