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Monday, March 8, 2010

Should you buy or rent a home?

Deciding whether it's best to buy or rent a home isn't an easy decision. There are financial pros and cons to each. Plus, whether or not you want to become a homeowner may depend on your lifestyle, so it's very much a personal choice. Take a close look below at the pluses and minuses before making your move.

Pros to renting

•You're not required to save up a hefty down payment.

•Renting is normally a short-term commitment (you normally can sign a lease for as little as a few months to a year).

•You are usually free of major maintenance costs and paying property taxes -- your landlord takes care of that. Also, it's normally up to the landlord to take care of major maintenance issues for the home. You're probably not responsible for tiring tasks like mowing the lawn or the shoveling the snow.

•You aren't tied down to one place, and can relocate fairly easily.

•In some cases, renting may be less costly than owning a home. While you may be able to afford the rent on a pricier home, you might not have the means to buy a similarly priced residence.

•Since you are only obligated to a relatively short-term lease (a few months, or a year), committing to a particular rental isn't an arduous decision.

Cons to renting

•You aren't building equity (the value an owner has in a piece of property minus the debt against it).

•You can't take advantage of tax benefits (like tax deductions for mortgage interest and property taxes) only available to homeowners.

•You may be subject to rent increases that you can do little about.

•You might not be able to decorate a home as you like. (You may have to stick with the white walls and beige carpeting that your landlord put in.)

•You may be subject to restrictions on pets (some landlords don't allow them). Also, your landlord could infringe on your lifestyle -- e.g., complaining about the level of noise from parties and the number of guests who park at your place.

•You are dependent on the landlord to maintain the home and keep things in working order. (This could be a bad thing if he or she is lax about it.)

•You could be evicted (say, if the landlord decides not to renew your lease, or to sell the home) and may need to seek another place to live.

Pros to buying

•You can build equity over time.

•The home is yours, so you have more control over how to decorate it and landscape it.

•Greater stability -- as long as you can afford the property taxes and your mortgage payments, you don't have to worry about being evicted.

•Getting to know the neighbors. Because you are likely to stay in a home you own longer than one you rent, you may become more involved in your community.

•You can benefit from tax deductions on real estate taxes and mortgage interest.

Cons to buying

•It's a big commitment. You may be in that home for quite some time, so deciding which home to purchase can be tough -- you want to make sure it's a good fit.

•When it comes to maintaining a home, it's all about you. It's up to you to make the repairs when the toilet leaks or pay the handyman for the fixes.

•Homeownership insurance premiums. You'll have to pay these to cover the cost of any potential damage to your property. Also, if your home is part of a homeowners' association (HOA), you'll have to pay HOA fees.

•You may have to borrow heavily and pay interest (take out a mortgage) to afford the home. You could lose your house if you can't keep up with your mortgage payments.

•You have less mobility because of the work and time required to find a buyer, sell your place and move your belongings. (Which you may have acquired more of, now that you own space to keep things in.)

•If you can't keep up with your mortgage payments, you could face foreclosure and a loss of equity. (Not to mention the damage it'll do to your credit history.)

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