By Janet Farley

Home may be wherever the military sends you, but should you rent or buy that house while you’re calling it your own?

The Pros & Cons of Owning Your Own Home

"There are many advantages of buying that are not present in renting. Buying needs to be based on a long-term strategy -- to have a home, to be in the best location for future appreciation, and to meet the needs of your family," said Barbara Sheehan, Assistant Vice President, Mortgage Products at Navy Federal Credit Union.

Let’s face it. Home ownership has always been a prominent feature of “The American Dream” regardless of the current housing crisis. Having a home to call your own signals to the world that you have theoretically achieved a certain level of success and stability. 

With the median cost of homes down across the country, why not now?

It means you can paint the walls canary yellow with bold splashes of purple without having to get permission from “the owner” first. You are the owner.

It means that you may be able to take advantage of a number of  financially significant federal and state tax benefits if you itemize on your returns. For example, assume you owned a house costing $200,000 and your annual interest payments totaled $10,000. You would be able to deduct that $10,000 from your income on your tax returns and, as a result, pay less taxes. See the Mortgage Tax Deduction Calculator to run your own numbers.

Additionally,  if you are a first-time home buyer (or if you haven’t owned a home for three years and will live in it for at least 36 months), you might be able to take advantage of a tax credit of up to $8,000, compliments of the most recent economic stimulus bill. For more information about this, see www.federalhousingtaxcredit.com.

It means that you aren’t writing a monthly rent check out to help support someone else’s investments.

It means you have a place to live forever, if you choose to do so.

There is a flipside, of course. There always is one, isn’t there?

You could lose your home. According to RealtyTrac, the nation’s leading online foreclosure marketplace, the number of household threatened with their losing their homes rose 30% in February 2009 from last year’s levels. Blame the 8.1% unemployment rate or the fact that some people bit off more than they could financially chew. The unfortunate end result is the same.

Monthly mortgage payments are generally higher than rents.

With housing costs dropping, no one is sure when the market itself will bottom out. Buying a property that might be worth less than it is the day you bought it is not a good idea.

When the hot water heater breaks down you can’t call the landlord to take care of it. You have to shell out the big bucks and handle it.

If your surrounding neighborhood goes downhill, so might the value of your home.

If your neighbor has appeared on “America’s Most Wanted,” you might be stuck with him for the long haul.

The Pros & Cons of Renting

And then there’s renting. Month after month, you write out a large check to your landlord and think the same thought over and over: I could be making a mortgage payment instead. I could be investing in my future. I could be a homeowner with deepening community roots and a lawn to keep groomed in accordance with the covenants of neighborhood association.

Alas, poor renter, don’t despair.  You have a few arguments working in your favor.

Renting is a piece of cake. When stuff breaks down, someone else is stuck footing the bill and dealing with the incompetent contractors.

Flexibility is yours.  You get tired of your daily digs? Can’t stand your obnoxious neighbor?  Just move. You can do that easily after giving agreed upon notice.

With the economic situation being so volatile, it’s somewhat comforting to know that your financial well-being isn’t dependent on a building structure. 

Orders might arrive taking you to some new and exotic duty station where you decide you would rather go into debt for a house there instead.

So, Should You Buy or Not?

Pros and cons aside, the question still remains: Should you buy or rent at this particular point in time, when the U.S. housing market seems to have enter a twilight zone of sorts? To be sure, experts appear on newscasts nightly and seem willing to offer you, the potential homebuyer, conflicting information a daily basis.

In the end, as always, turbulent times require calm and clear thinking.

"I think the biggest lesson we can take from the recent decline in the housing market is that real estate remains a long term proposition,” said J.J. Montanaro, a USAA Certified Financial Planner and Lt.Col. in the U.S. Army Reserves.
 
“While there are certainly opportunities for buyers in today's market, the fundamentals in making the decision of whether to buy or rent have not changed,” said Montanaro who offers the following valuable tips:

• If you decide to buy a house, buy one that you can afford, not one that is based on how much someone will lend you.
• Set yourself up for success by putting yourself in a position to buy in the first place. For example, aggressively build your savings for a down payment, closing costs and move-in expenses. You’ll need a down payment of 20 percent of the price of the house. So if the house costs $200,000, you’ll need $40,000 for the down payment.

• Do the “what if's” before committing to buy:
  
  
  • What if… you get PCS'ed early?   
  • What if… you leave the military altogether?
  • What if… you lose your second source of income?
  • What if… you’re forced to hold on to the property after your PCS
move? Would you be able to rent your house out to cover all or part of your mortgage payment, keeping in mind you might have to rent at your next location as well?
    
     “If in doubt, rent. There will always be another opportunity to buy!" said Montanaro.
    
    Get an Education
    
    To help you make the best decision for yourself and your family, get an education before signing on any dotted lines.
    
    Keep in mind that the current crisis is changing how things are done on an almost daily basis.  Experts agree, however, that higher credit scores increase your chances for actually getting a loan to buy a house and may be required given today’s stricter financing regulations.  (You can obtain a free copy of your credit report yearly from www.annualcreditreport.com).
    
    (To up your credit score, see “Upping Your Credit Score” below).
    
    Additionally:

• Check out the valuable MoversAdvantage tips offered at www.usaa.com or the Navy Federal Credit Union’s Home Buying Made Easy:  A Step-by-Step Guide.

• Investigate the possibility of using a VA Home Loan Guaranty as well.

• •    Visit Military OneSource and your installation’s family center for more information and assistance.

• •    Talk to your personal financial or tax advisor.

In the end, the decision to buy or rent is truly a personal one that only you can make.

Upping Your Credit Score

"Credit is always very important when obtaining any type of financing. Mortgage lenders require good credit because they are lending the borrower a lot of money. It is collateralized by a home. They really do not want to become the owner of the home. It is possible to purchase a home with credit scores below 700. You will generally pay a higher interest rate because you are considered to be at risk of not making payments versus someone with a better score. Improve your credit first to get the best possible rate when you purchase a home and obtain a mortgage," says Barbara Sheehan, Assistant Vice President, Mortgage Products at Navy Federal Credit Union.

Sheehan also offers these credit score improvement tips:

•    Paying bills on time, all the time,
•    Taking care of old bills you did not pay.
•    Carry a lower balance on your credit card
•    Use a credit card when you need it but then pay the bill in its entirety.