The cost of housing is probably the greatest expense for most Americans. In searching for housing, most of us have had to decide whether to buy or to rent, and the choice usually depends on how much you can afford to spend.

Determining the cost of renting to the cost of buying is a lot more complicated than simply comparing a monthly mortgage payment to the monthly rent payment.

The only sure way to determine how much you can afford is to have a spending plan and be living on a budget -- otherwise financial disaster is just waiting to occur. Finding housing that fits your budget could mean you’ll have to settle for a smaller house than you desire, or you might need to rent for a while.

Generally, the figure we have found to be safe, is that no more than 40 percent of net spendable income (income after tithes and taxes are deducted) should be allocated to housing. This includes house payments or rent, taxes, utilities, repairs and maintenance and telephone.

When trying to determine whether to rent or buy, there are some practical issues to regard:

-- First, is your employment secure enough to start making mortgage payments? If not, consider renting.

-- Then, if you plan to stay in the area less than five years, renting should be considered. On the other hand, if you’ll be there more than five years, ownership may be a good option. The longer a house is held, the less appreciation is needed to justify ownership.

-- Next, carefully consider the economic outlook for the area. If the outlook for growth looks good over the next seven years, buying could be a good option. However, if little or no growth is projected, renting is advisable. If the area is at a market peak, it’s probably better to rent. If the area is economically at the bottom of the market, but the nation’s economic situation seems to be improving, it might be better to own. Inflation makes the rental scenario worse and ownership tends to look better.

-- After that, be sure you know the cost of living in the area. If it’s high, buying a home might bust your 40 percent budget allocation for housing, so renting may be the best option. If the cost of living is average, buying is probably a better option. Real estate in metropolitan areas is generally much more expensive, so it’s usually better to rent, unless you’re going to own for a long period of time.

-- Finally, research the area to determine rates of real estate appreciation or depreciation. Are housing and rental rates expected to increase or decrease over the next several years? If appreciation is projected to be fairly secure at a few points above inflation, it would be better to buy. However, if depreciation is expected, renting would be best.

Once you have investigated and considered these concerns, take your budget amount allocated for housing in each scenario and compare the costs. The Mortgage Bankers Association reports that in 2006 more than 2.1 million Americans were behind in their mortgage payments and the rate of new foreclosures reached a record high. So, carefully do your homework.

For rent, consider monthly rent, renter’s insurance, term (period of time over which you will rent), estimated inflation rate, and estimated annual rate of increase in the rent (usually this will be the inflation rate).

For ownership, consider purchase price, down payment (usually 10 to 20 percent of the purchase price), closing costs and fees (typically 3 to 10 percent of the loan amount), other regular expenses, amount of mortgage, mortgage rate, mortgage term, mortgage payments, property taxes, and homeowner’s insurance.

Other factors enter in as well, such as marginal tax brackets, the current standard deduction allowed by the IRS, continuing maintenance costs (generally 5 percent of annual mortgage payment), estimated inflation rate, rate of increase of property taxes, and appreciation rate of the home (generally 2 to 7 percent per year).

All of this may seem overwhelming, but here’s some good news -- Crown Financial Ministries can help you through the process. Simply go online to www.crown.org, and you’ll find a free "Rent vs. Buy" calculator that will walk you through the process of comparing the cost of renting to the cost of buying a house, and help you make an informed decision.

So, study your personal situation and options, and pray for the Lord’s guidance so you’ll make the right decision about what is appropriate for you. If the cost of buying would be equal to or less than renting, then purchasing a house may be the wisest choice.

(c) 2007 Baptist Press. All rights reserved. Used with permission.


Howard Dayton is CEO of Crown Financial Ministries. Dayton and the late Larry Burkett joined forces in 2000 when Crown Ministries, led by Dayton, merged with Christian Financial Concepts, led by Burkett. The new organization became Crown Financial Ministries, on the web at http://www.crown.org.