The conventional wisdom tells you that it’s always better to own than to rent. A home is an investment that will appreciate in value. Rent is just paying someone for the privilege of living somewhere. All other things being equal, this is often truly the case.

However, owning a home doesn’t always pay. The fact of the matter is that there are significant costs of home ownership that are often glossed over by advocates.

So, how do you decide if home ownership is right for you? You need to consider all of the costs involved. There are several costs involved in buying and owning a home, including:

• The interest on your home loan. The cost of the interest on your home loan is going to be sizable in the first part of the mortgage process. In fact, you’re going to go many years without hardly reducing your principal. By the end of the loan, you’re going to pay quite a bit. Even at a loan rate of about 5.4 percent, on a 30 year loan you’re going to pay twice the purchase price. Raise that interest rate up to around 9.4 percent, and you’re looking at three times of the home cost.
• Tax deductions. You can deduct the interest that you pay on your home loan, as well as the property taxes that you  pay, from your income tax. Unfortunately, these numbers wind up being relatively small. Unless your loan is large and you have a high interest rate, your deduction isn’t likely to help that much.
• Potential equity. A home should appreciate rather than depreciate. Unfortunately, as the past few years have proved, this isn’t always the case. Homes drop in value sometimes. That means lost equity and lost money.
• Market pricing. Understanding your local real estate market and being able to buy a house below market value is important if you want to make home ownership pay. Unfortunately, the market is a fickle thing and it’s not always easy to tell what a home’s true value is, much less what that value will be 20 years down the road.

Even taking all of that into account, it is often still advantageous financially to buy rather than rent. Looking at your own financial situation, as well as the conditions in your local market, will help you make that decision.

Photo via pnwra