Buy or rent?

So, should you join the house party or be content to rent?

Two big factors in the equation: How long you plan to stay put and how much you expect your home to appreciate.

You typically need to stay in a home at least three years to recoup your costs. But consumer advocate Clark Howard says five years is even better, because you never know how the real estate market will fare. To protect yourself, assume your home will appreciate at the rate of inflation or a little more, says Howard.

And you may need to stay longer to come out ahead compared to renting. On the condos I priced in the San Francisco area, I would have had to keep one for at least 13 years in order to save money versus renting for the same period of time (assuming a rate of appreciation in line with inflation). Of course many people buy with the hope that prices will appreciate fast enough to pay off sooner, but that’s a gamble, especially with many economists — including Alan Greenspan — warning that growth can’t continue at its current pace forever.

Even if you plan to stick around long enough for the purchase to pay off, that doesn’t mean squat if you can’t afford to pay the bills. Your monthly house payment — including principal, interest, taxes and insurance — should consume no more than 33% of your monthly gross income. Your total debt payments, including your credit cards and student loans, should remain below 38% of your total pay.

Also, do you have enough cash for a down payment? Typically, you need 20% of the purchase price to avoid paying extra for private mortgage insurance. That’s $40,000 for a $200,000 home. And don’t forget closing costs, which can add up to 3% to 6% of the purchase price.

Bottom line: Buy a house because it’s the right move for your situation and finances. Don’t let the fear of missing out on big gains drive you to a decision you may regret later.

If you find that buying is the better bargain and makes more sense for you.

Any questions? Please call this Realtor, Gladys Wehbe at 610-972 3545