Posted on: Sunday, March 21, 2004

Renting might make more sense for some

By Sue McAllister
Knight Ridder News Service

Rent or buy?

Homeowners can choose to paint their walls bright orange and no landlord can tell them no. They can take income-tax deductions for mortgage interest and property taxes. They might make a profit when they sell.

Renters don't have to deal with fixing a broken water heater — maintenance and repairs are the landlord's problems. Renters can move easily. Their monthly rent is usually lower than mortgage, property tax and insurance payments.

For many, this last point is the deciding factor. Yes, the tax breaks help lower the overall cost of ownership. But that doesn't help the renter who simply can't afford mortgage and insurance payments.

At that point, the choice between renting and buying "is really about spendable income," said Barbara Steinmetz, a certified financial planner.

Those contemplating homeownership should consider a number of factors.

In general, buying a home makes sense for those who:

• Plan to stay in their homes for at least a few years — four or more, according to some experts.

• Can afford mortgage bills, insurance and property taxes.

• Are reasonably sure their employment and income are secure.

• Are ready to take responsibility for maintenance and repairs.

• Recognize that homeownership might involve compromise — that an affordable home might be smaller, older or in a less desirable location.

In general, renting a home makes sense for those who:

• Think they may want to leave the area in a few years.

• Like the flexibility of being able to move easily and the lack of responsibility for maintenance.

• Don't have the cash flow to pay mortgage payments, insurance and property taxes, or don't think their jobs are secure.

• Don't want to or cannot reduce other costly expenses, such as travel or private school tuition.

"Lack of down payment" isn't listed as a reason to remain a renter because there are many loan programs these days that require no or little down payment.

Steinmetz recommends that people experiment to see if they can adapt to the financial realities. If your rent is $1,500 a month and you might pay $2,200 a month in mortgage and insurance payments, save $700 a month for several months and see how it goes.

Homeowners must also pay homeowners insurance, and possibly earthquake or flood insurance. A home has maintenance needs — roofing, plumbing, yard care — that you'll either need to pay for or do yourself.

"Homes have responsibility," Steinmetz said. "Along with that joy go a few a negatives. If the plumbing bursts, it's your problem; if you have termites, it's your problem. And you need to be prepared for these contingencies."

"Rent vs. buy" calculators can help gauge which option makes the most sense. Check out E-Loan, Quicken Loans, Yahoo Real Estate and Ginnie Mae Web sites.