Doesn't Hurt to Look, But to Buy ...

Many renters are being tempted to look at buying, whether it's because of the first-time buyer tax credit, the low interest rates or the low prices. And there's certainly no harm in looking.

Even in New York City, where it is estimated that 70 percent of the population rents, some long-time renters are considering buying. Even tenants with so called "rent control" are taking the plunge, according to a recent New York Times article.

In one scenario, a man who is renting for just $725 a month is considering moving. The first reason is he wants to move anyway, and if he rented at a new location, he'd probably double his rent anyway. Also, at 61, he wants a building with an elevator and a doorman, so he's willing to pay a little more for certain amenities.

For some one on a fixed income, buying probably makes sense, as 30-year mortgage helps to keep costs from rising.

But what people who bought at the peak are only now learning is that it can cost up to 10 percent just to sell your home, so if you don't have much equity, and prices go down, you are lucky if you can just break even and walk away.

Also, just making your normal mortgage payments isn't going to do much to help you build equity. Your mortgage is set up so that you mostly pay interest at first, which is great for your tax deductions but sucks for your equity. After a year or two, you won't have paid your mortgage down hardly at all, maybe $1,000 or so.

Lastly, you need to give yourself some flexibility. Is your boyfriend/best friend going to move in with you/move out? Do you want to get a dog or a cat?

The gentleman mentioned in the Times article is already retired, so hopefully he has a sense of where he wants to live for the next 10 to 20 years, but if you don't, then buying probably isn't the smartest move for him right now.
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