House Rules: How to Decide If It's Time to Own Rather Than Rent

By Suze Orman

Home ownership is the greatest AMERICAN DREAM, is it not? But listen up, my friends: If you do not have a clue what it really costs to own a home, how much of a house you can truly afford, and if you are just plain capable of owning a home, I am here to tell you that your dream will most likely turn into your greatest financial nightmare.

Not that any of those issues has scared off anyone from diving into home ownership recently. Did you know that the percentage of U.S. households that now own, rather than rent, is at an all-time high? We have super-low interest rates to thank for that.

So I can imagine that those of you who are still renting might be mentally kicking yourself right about now. I am willing to bet all you can think about is how much money you would have made if you had already purchased a home. I have to tell you that sort of thinking sounds dangerously like the investors in 2000 who thought they were losers if they hadn't jumped on the technology stock craze. And we all know how that story ended.

Feeding the housing craze right now is the panic over higher interest rates. With the rumor that rates have bottomed out and will be heading higher in the next few months, there is this rush to "get into" a house before rates rise. But before you rush to beat a rate increase, you need to understand the true cost of buying versus owning. If you can't afford the true cost of homeownership - no matter how low rates are - you better not make the purchase.

Let me show you how to make an informed decision on whether you can truly afford to buy a home or not.

The Down Payment: Don't Fall for the Zero Down Trap
I was once on a national TV talk show to help people determine if they could afford the house they wanted to buy. A woman on the show told us she had spent the past two years hunting for her dream house, which was in the $800,000 price range. My first question for her was how much money she had for the down payment. I was dumbfounded when she told me she didn't have any money saved up. She went on to tell all of us that her real estate agent said that was just fine, since plenty of lenders offered "zero down" mortgages. more...

Article also contains:

• Rent is not a Mortgage Payment
• The Tax Break is NOT a Reason to Buy

Even if you take the time to calculate the true monthly cost of owning your first home, I would suggest that you put those numbers to a test. For you see, looking at the figures on paper and actually having to write those figures on a check are two different issues. So I want you to commit to the following exercise for six months before you actually start even looking for a home: more...

Now that I have walked you through all the issues to consider, I want to put everything in perspective: homeownership is a great achievement and a terrific investment. My message is simply to make sure you can afford it before you take the plunge. Once you determine you have the ability to cover all your housing costs, I say to go for it. more...