While owning a home is a wise financial move for the vast majority of Americans, there are a few scenarios where it is probably better to rent than own. For instance, if you plan on moving within three to five years, it's smarter to rent. That's because of the forecast of slow appreciation combined with the costs of selling a home. If you have the bad luck of buying right before your part of the country downshifts into an economic slowdown, home prices in your area could slide or stagnate for a couple of years. Once you add in the 8% or so cost of the real estate agent's sales commission and your moving expenses, you could easily be out by more than 10% if you try to sell your home a few years after moving in. You might also consider renting rather than owning if rents in your community are too cheap to pass up.

As a rule of thumb, consider being a tenant if the rent on a place you like equals about 65% or less of the monthly mortgage costs (including property taxes and homeowners insurance) that you would pay to own a comparable dwelling. That's because the 35% discount is about equal to the tax breaks you'd get from owning.

You can run on your home computer a detailed analysis that compares the after-tax costs of owning and renting, using software programs. Keep in mind, however, that even though renting can cost less now, the long-term cost of renting could soon outstrip today's cost of a fixed rate mortgage. For example, let's say you set out to purchase a house with a price tag at the national median of $106,000. At an 8.9% interest rate, a 30-year fixed-rate loan with a 10% down payment will cost about $675 a month. Annual property taxes and homeowners insurance would probably add up to about 3% of the purchase price.

So in this example, your total monthly cost of home ownership would come to about $940. Remember, though, that you can deduct both the mortgage interest and your property taxes on your tax return. So for someone in the 31% federal tax bracket, the after-tax cost drops to $650. While the tax benefits will decline in the latter stages of your loan as your mortgage payments are earmarked to pay down more principal than interest, your property taxes will remain fully deductible.


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