The second factor to consider when deciding whether to buy a house or rent is the steep cost of home ownership. Many people have been told that home ownership is the best financial choice because you’re not “throwing your money away on rent,” and you get a tax write-off on the mortgage interest and property taxes. However, given the many costs of home ownership compared to renting, these benefits don’t always outweigh the costs. Someone who has never owned a home before will have a difficult time imagining the many costs associated with it. First, there’s the steep down payment and closing costs. Then, you’ll have a monthly mortgage payment, including insurance and property taxes, which is likely to be higher than what you pay in rent. Finally, you’ll have the on-going costs of decorating and purchasing furniture, maintenance and upkeep for replacing a dishwasher here or a water heater there, and higher utility payments.

So before buying, make sure that you have enough cash to cover a 20% or more down payment plus closing costs and a cushion for moving expenses. When I moved into my new house, I had to replace the dryer and dishwasher in the first week. That was a surprise! Also, make sure that you can afford the likely higher monthly payments and maintenance expenses. You can factor in the tax benefits of owning a home if you like but in my opinion the tax benefits shouldn’t be the primary reason to purchase. They also shouldn’t be a reason to purchase a more expensive house than you can afford just to increase your deductions. This is just an example of spending a dollar to save twenty-five cents.

If you find that you can afford the house and on-going payments, then go for it. There is definitely some truth to the saying of throwing your money away on rent. After all, with each mortgage payment, you’re paying down the principal on your loan and building equity in your home (assuming home prices remain stable or increase). You don’t get that benefit from renting. In addition, once you lock in a thirty year mortgage, your payment remains relatively constant except for increases in insurance or property taxes. When you rent, you’re at the whim of the landlord when it comes to your rental amount. It could increase every year!