Photo: Robert Trachtenberg
Just because you can buy a home or condo doesn't mean you should. Here are some instances in which renting makes more sense.
1. You have credit card debt or you have yet to save 10 to 20 percent for a down payment. I know FHA-insured loans allow down payments of just 3.5 percent. But I have a higher bar for you to clear: If you have credit card debt and haven't saved for a sizable down payment, you are not yet ready to own.
2. You envision moving within five to seven years. When you buy a home, you owe the real estate agent nothing. When you sell, however, you pay the full agent's fee, which is typically 6 percent. Add in the other costs of closing a sale and the cost of moving, and it's very possible that leaving your home too soon could eat up close to 10 percent of its sale price. Here's something else to consider: Depending on where you live, it could still be a year or two before home prices stabilize. And even once they rebound, it's wise to anticipate average annual increases in line with or slightly ahead of the rate of inflation, or about 3 percent. So if you have to sell a home in fewer than five years or so, the cost of selling may exceed any potential price appreciation during the time you owned.
3. Your calculations show that the cost of renting is a better deal than the cost of buying. The New York Times has a terrific free online calculator that shows how many years you'd need to own before your home "pays off" relative to renting.
4. You don't really want the responsibilities and risks associated with being a homeowner. There's absolutely no rule that says you must own. Whatever feels right to you is the right move—as long as you can afford it.
More Financial Guidance from Suze Orman
From the May 2011 issue of O, The Oprah Magazine