Have You Got Nine Years?

If the housing bust's low prices have you tempted to buy versus rent a home, here are some things to consider.

Over the long haul, the thinking goes, buying a home will make your expenses more stable because unlike rent -- which can increase with a month's notice -- home mortgages don't go up if you have a fixed rate mortgage.

One good way to determine if buying a home is a better deal than renting is to find out how long it will take to live there before the monthly mortgage is lower than the monthly rental cost.
One of the common online calculators to use to determine this is the buying vs. renting calculator that the government mortgage company Ginnie Mae has on its Web site.

The calculator has default settings that users can change to determine how much they'll save when buying or renting a home. You can move numbers around to determine how long it would take for buying a home to be less expensive than renting a house.

Let's look at the default settings to see how long it would take to make buying a better deal. They are: $750 in current rent, $150,000 purchase price of a home, 10 percent down payment, 30-year loan at 7.5 percent interest, 10 years of staying in the home, an annual property tax rate of 1 percent, and a 2 percent yearly home value increase rate.

Using those numbers, owning a home would cost $550 per month, much lower than the $834 per month to rent.

Just living in the home for four years makes buying worthwhile, at $718 to buy versus $776 per month to rent.

However, if prices stay flat, instead of going up 2 percent a year under the default settings, it will take nine years of living there to make it worthwhile. That's a strong possibility to consider when buying a home.

Ginnie Mae also has a buy vs. rent comparison using a higher mortgage, slightly higher rent and lower home purchase price, making a home more affordable than renting much sooner than the above example.

But that's the thing to be cautious of with online calculators. They make assumptions and spit out estimates based on information that may be very different from what your situation is.

Along with the calculator's estimated costs, there are other costs with buying a home: Insurance, maintenance, home owner association dues and tax assessments beyond property taxes.

There are advantages and disadvantages to both. Consider them all before deciding to buy your rental home.
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