Should I keep renting rather than buy?

By Gina Pogol
Mortgage Credit Problems Columnist

Dear Gina, I keep reading articles that say it's better to rent then buy a home. I saved and saved and am working on cleaning up my bad credit; mortgage lenders have told me I can probably get an FHA home loan. But is buying now a bad decision? - Louise, Los Angeles, Calif.

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Dear Louise,

What the folks on the renting-is-better bandwagon are saying is that for some people in some parts of the country during a short point in time, renting would have been a better use of their money. Anyway, you plan to live in a home and not on a bandwagon. You might be better off renting, or not. Here's what you need to know to decide for yourself if you are considering getting a bad credit home mortgage.

Credible arguments for renting

Renting has a few advantages:

  1. A month's rent and a security deposit is a lot easier to come up with than a down payment and closing costs.
  2. It is easier to move. You don't have to sell your home and pay real estate commissions. For those who have to move frequently to take advantage of job or educational opportunities, renting makes sense.
  3. You aren't stuck if your community goes downhill or a real creep moves in next door.

A strong case for bad credit mortgage home purchase

If you're in a position to buy, with a stable job in a healthy industry and a community you love, you should consider these reasons for buying a home:

  1. Rents are rising. Historically, rents have increased an average of 3 percent per year, according to the US Bureau of Labor Statistics. However, the foreclosure crisis dumped over 9 million families out of their homes and into rentals. Competition for rentals is high, vacancies are low and rents are increasing at a 7 percent to 10 percent clip in such markets as Los Angeles and San Francisco.
  2. Mortgage rates are super low. At today's low rates, a fixed-mortgage payment won't increase in 30 years and at the end you own a house. Meanwhile, someone paying $1,000 a month rent who gets 3 percent increases each year will spend over $570,000 in 30 years and have nothing to show for it in the end.

Home ownership builds wealth

As you pay down your mortgage, you amass home equity. Harvard University's Joint Center for Housing Studies found that "renters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $234,600 -- about 46 times the $5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters."

Whether you choose to get a bad credit home mortgage or rent a home is up to you. But you need to decide based on the facts, not what's trendy.

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