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How to decide if you should buy or rent a house

Lori Wilson is a Home & Living columnist, as well as a freelance writer in Los Angeles, who after a lifetime of enduring harsh Michigan winters, relishes the warmth year round.

What's best for you?

We've always been told buying a house is one of the best investments you can make. But is it really? When it comes to buying a home, there are many things to consider besides the mortgage payment.
couple in front of home

So before you make a down payment on your dream home, take a long, hard look at your finances and make the best decision for your situation.

More than just a mortgage

Many people think if their current rent payment equals a possible mortgage payment, then they should be putting their hard-earned money into something they can call their own. This seems like solid logic, but owning a home is much more than paying your mortgage. When you buy a house, you are first required to pony up a down payment (you'll want to lower your mortgage), which will be in the thousands. But more than that, you have to pay property tax, homeowner's insurance and shell out a lot of dough for home maintenance and repairs. All this adds up, and according to financial guru Suze Orman, when figuring out the real total of your monthly payments, you should add 40 or 45 percent of your mortgage to determine what you'll actually be spending.

Future plans

If you have the down payment and are prepared for all the extra costs, the next thing to consider is how long you plan to live in that house. If relocating is a possibility, renting is probably the best option so you won't have to go through the hassle of selling or, even worse, losing money on your investment. Job security should also be a factor when deciding what to do. If you're just out of school or if there's a possibility you could lose your job or get downsized, you might want to hold off on making such a large purchase.

Resale value

If you plan to live in your home for several years, it could be a great investment for you. But if you buy a home and try to sell it shortly thereafter, especially with the market the way it is today, you'll probably lose money. If something changes in your life and you need to make a quick exit (if you get transferred or the new job you find is in another city, for example), you might not be able to unload your house for a decent price.

Benefits of home ownership

Of course, if you have the money, plan to live in your home for years and don't foresee needing to make a quick getaway, then there are many benefits to buying a house. Not only is it a good investment, but you'll receive tax breaks, be eligible for home-equity loans, free yourself from landlords and be able to make any kind of improvements you wish, which will only add to the resale value.

Rent or buy?

Buying a house is a big decision and has many benefits, but it's also all about timing. So take a hard, realistic look at your finances and where you plan to be in the next few years. If financial planning isn't your thing, you can even consult a financial planner, who will not only give you insight on whether you can afford a house, but can help you make a plan that will allow you to do so in the future.

More about buying a home

7 Things to know before buying a home
The benefits of buying a house
Home buyers may choose between loans

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