Buy or rent? What to consider

Emotions, family and personal reasons all come into play in any home-buying decision.

No one knows what the future holds for you, your family, your job or your finances.

So how to decide whether to buy or rent? Look at the economic differences between renting and owning:

If you're looking for the best return on your money, you're better off investing in the stock market than buying a house. Primary homes generally don't earn the investment return of financial instruments such as mutual funds.

While the stock market's long-term average rate of return is in the range of 8 to 10 percent, housing historically has appreciated on average in the low- to mid-single digits. Don't buy solely for investment gain.

On the other hand, Uncle Sam helps out by letting taxpayers deduct part of the mortgage interest and real-estate taxes each year.

Borrowers get the benefit only if they pay enough in one year to exceed the standard deduction. But that usually happens, especially during the first few years of a mortgage, when most of each payment goes toward interest rather than principal.

Owners enjoy other benefits, too. They build equity over time as home values rise and their mortgage balances shrink.

But when something breaks at an apartment, it's the landlord's problem. When it's your name on the deed, the problem is yours. If you throw every penny into a down payment, you're taking a big risk because you may not have enough money left to fix leaky pipes or buy a new air conditioner.

Potential buyers might want to hold off for other reasons. If there's a good chance that you will be laid off soon, you might want to wait.

Some middle-ground approaches to homeownership blend elements of buying and renting. Some of the more popular loan types are seller financing, "lease with an option to buy" and "contract for a deed" plans.

With seller financing, the seller actually assists the buyer in purchasing the home, by "lending" the buyer either a portion of the amount to be financed or the entire amount.

Let's say the buyer and seller agree on a price of $150,000 for the house. In many cases, a lending institution would require a 20 percent down payment — $30,000 — and give the buyer a mortgage for $120,000. But if the buyer has only $15,000 cash, the seller could "take back" a second mortgage for the $15,000 the buyer is short. The buyer makes payments on the first loan to the bank and the second loan to the seller.

Another example of seller financing: If the sale price of the home is $150,000 and the buyer has only $15,000 for a down payment, the buyer gives the $15,000 down payment directly to the seller, who agrees to carry the entire mortgage amount of $135,000. The buyer would make all payments directly to the seller.

— Bankrate.com