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real estate

Time to Buy a Home?

Before you're lured by the low price of a house, consider these three things.

If falling home prices and the first-time home buyer tax credit are tempting you to purchase a house, consider these things:

Renting may be smarter if home prices in your area will fall further. You don't want to buy a home in a market that's still in a bubble -- or you could end up owing more on your home than it's worth. See Should You Buy or Rent? to find out whether home prices will fall more in your market.

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The cost of a house is more than a monthly mortgage payment. There are property taxes, homeowners insurance, utilities, maintenance and repair costs. See First-Time Homeowner Lessons Learned and The True Cost of Owning a Home.

You need to be willing to make a long-term commitment. According to the April issue of Kiplinger's Personal Finance:

From the 1980s through the boom years, the plan for many home buyers was either to get the biggest house they could afford and sell for a profit or to lower their home payments by refinancing as mortgage rates declined. Today, smart home buyers have more-modest expectations.

When home-price appreciation returns, in most cities it will run at about the historical average of 1.6 percentage points more than the rate of inflation, according to the National Association of Realtors. That means homeownership should be a long-term proposition because you won't be able to recoup your costs in just a few years. The NAR suggests you plan on owning a home for ten years to not only cover your costs, but also to realize a meaningful profit.

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As you work through your own buy-versus-rent calculations, don't overestimate the value of the tax breaks that come with home-ownership. Make sure you know how much you'll get to deduct above your standard deduction amount and what that's worth to you in your tax bracket.

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