Your Next Home: Renting or Buying

March 1, 2009— -- The American dream has always included owning a home. But in this economic climate, has that dream changed?

Some families are trying to decide if renting their next home is right for them. Amy Bohutinsky, from real estate Web site Zillow, can help make that decision easier.

"It's no longer blindly accepted that the American dream of buying a home is always the right choice," said Bohutinsky. "More people are considering renting, and there's less stigma about it."

For many families, it makes equal sense to rent or buy. To decide, families should ask themselves three questions: How long will they stay in the home? Can they afford the upfront costs? And what do they need the home to give them.

How long can the family stay?

Home values have dropped substantially in recent years, but long term -- 10 years or more -- the average yearly appreciation on a home is more than 5 percent. That's a better return than the stock market in the last decade. If a family can commit to staying in a home 7 or 10 years, buying is a smart decision.

How much can the family pay?

Lending standards have tightened and many families who aren't first-time home buyers may be required to put 10 to 20 percent down on a home. For example, for an average $200,000 home, that's as much as $40,000 in cash. Plus, across the United States, a family will still pay more monthly to own versus rent a similar home. From a budget standpoint, families should calculate if they have enough savings, and how important it is to have more money at the end of every month compared to building home equity.

What does the family need the home to give them?

Is the family expecting to grow? Will the family need a bigger home than it can currently afford? Is the family priced out of a good school district? If the answer to these questions is yes, a family should rent.