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Buying vs. Renting in this Market - Calculate which makes sense for you

The buy-versus-rent question is particularly relevant right now. To qualify for an expiring federal tax credit of up to $8,000, home buyers must sign a contract by April 30 and close on the house by June 30. Many economists also expect mortgage rates to rise in coming months.

Camela Witters, a 38-year-old trophy engraver in Las Vegas, plans to close on her first home purchase — a four-bedroom, $164,000 house nearly identical to the one she is now renting — in the next few days. She decided to buy, she said, when she found out she could save money by doing so. “I didn’t buy a house when everyone did,” said Ms. Witters, who lives with her companion and their children. “So I’m kind of taking advantage of all the foreclosures.”

A simple way to do the comparison is to look at something called the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so. When the ratio is well below 20, the case for buying becomes a lot stronger.

Click here to compare and find out if buying is better for you.

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