Rent or Buy?

Home prices, mortgage rates, and housing bubbles have gotten their fair share of print in the news lately. If you're a renter wondering whether to take the leap into homeownership, it may all seem a little overwhelming.

When considering whether it's better to remain a renter and let your landlord fix the plumbing leaks, your area's real estate market should be one consideration. But it's not the only one, and it may not be the most important one. Here are some things to ask yourself when considering whether to become a homeowner.

Will you remain in the house for more than a few years?
Housing prices have definitely skyrocketed in many regions, but that doesn't mean they'll stay on that path forever. A few areas have seen prices starting to decline. That can be great when you're the buyer, but not necessarily when you're the owner.

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You'll want to stay in your home long enough to at least recoup your buying costs. If you know you'll move in fewer than three years, your house may not have appreciated enough to cover those expenses. You may want to plan on staying at least three to five years to give yourself more time to cover your costs.

How does it compare with renting?
When renting, it's easy to calculate whether a new apartment will fit in your budget. Just ask about the monthly rent and the average utilities. Once you start thinking about buying a home, this calculation gets a lot more complicated.

Luckily, there's a handy Motley Fool calculator that will tell you whether you're better off renting. As you'll see from the questions the calculator asks, this equation depends on the expected appreciation of your home, your tax rate, your mortgage interest rate, your homeowners' insurance, and your property taxes, to name a few things.

What else would you do with the money?
If you purchase a home, you may shell out more each month for your housing costs. That doesn't mean it's better to remain a renter. You're likely to get a discount on some of those costs, including mortgage interest and property taxes, through various tax deductions.

Also, your mortgage payments won't climb every year with inflation, the way your rent can. (Unfortunately, the same can't always be said of your property taxes.) When you pay your mortgage each month, you're building equity in your house. When you pay your landlord each month -- and he keeps raising the rent -- you're not gaining anything but the same old apartment, for more money.

On the other hand, homes require some upkeep and maintenance, which can get expensive. Depending on the real estate market in your area, you may find no advantages to buying a house. Maybe you're better off investing your money and improving your financial situation through stock ownership, instead of real estate.

Can you place a down payment?
To get the best mortgage arrangement, you'll want to be able to put down 20% of the purchase price of the home. You can get a multitude of arrangements that let you avoid that down payment, but some can be costly. You'll either have to pay private mortgage insurance to protect the lender in the event that you default, or you'll need a second loan that will probably come at a higher interest rate.

There are many programs around to help people, especially first-time homebuyers, who cannot put down the traditional 20% down payment. You may qualify for one of these arrangements. In the meantime, consider whether you'd rather rent longer and save more money toward a down payment.

How do you feel about homeownership?
Some people cannot wait to paint the white picket fence and plant daisies, while others dread the idea of doing their own maintenance chores. If you know exactly where you stand on that question, there may be no debate about whether you should keep renting or start home-hunting.

Fool contributor Mary Dalrymple probably spends too much time on home maintenance every weekend, but she still loves owning a home. She welcomes your feedback. The Motley Fool has a disclosure policy.