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Renting can be the best option in the short run

(ran HP, HL)

Question: My husband was just promoted again but it means another family relocation. Our old home hasn't sold yet and we are reluctant to turn it over to his employer's relocation company because the last time we did that they didn't pay us enough for our old home.

My question involves whether we should buy or rent a house at our new location. We have no idea how long this new job assignment will last.

It could be a year or two, or perhaps as long as five years. We have compared the costs of buying a large home against the costs of renting an equivalent home in a top neighborhood.

Even with today's low mortgage interest rates, we would save at least $1,500 per month by renting. Are we missing something?

Answer: There are circumstances when renting a home makes more sense than buying. I presume you are looking at upper-end luxury homes. On an out-of-pocket basis, renting such a house is usually cheaper than owning.

If you knew for sure your husband's job assignment would last less than three years, then you should definitely rent because it is hard to break even if the home must be sold in less than three years.

However, if you rent, all you'll be building is a pile of worthless rent receipts. Not only will you have zero equity in a house you rent, but you will be reluctant to make improvements because you know the house isn't yours.

Also, you will miss out on the income tax subsidy for home owners which comes in the form of tax deductions for mortgage interest and property taxes.

My suggestion is to lease a house with an option to buy. Try to get a lease-option for the longest possible term.

However, be sure it contains a clause allowing you to cancel the lease if you or your husband receives an out-of-town job transfer.

If you learn the job will last four or five years, then you can exercise the purchase option. Try to negotiate as high a rent credit toward the down payment as possible.

A 33 percent to 50 percent rent credit will be a good deal for you.

No easy answer

Question: A local Realtor told me that in our vicinity homes sell for about 5 percent below the asking price.

My wife and I are interested in making an offer bid to buy a house which has been on the market at least four months with a $149,000 asking price.

What should be our first offer price?

Answer: I don't know. That Realtor gave you information on average home sales, but no home is average.

I suspect that home you want to buy which has been for sale over four months is probably overpriced. If you offer 5 percent below its asking price, you will probably be paying too much.

Before you make your purchase offer, ask the Realtor to prepare a written comparative market analysis. This is the same form which should have been prepared for the home seller when the house was listed for sale.

It shows recent sales (not asking) prices of comparable nearby houses. Also included are asking prices of similar nearby houses listed for sale.

With the Realtor's help, to arrive at an intelligent offer price you can then add or subtract value for the pros and cons of the house you want to buy as compared to the neighborhood homes which have recently sold.

Only after you go through this exercise will you be in a position to make an intelligent purchase offer.

Fees can be hidden

Question: I am investigating refinancing my home mortgage. Every lender seems to have a different gimmick.

What are loan points? Are they good or bad? What is a no-point, no-cost mortgage?

Answer: One point equals one percent of the amount borrowed. For example, a one-point loan fee on a $100,000 mortgage is $1,000. A two-point loan fee on the same loan would be $2,000.

Loan fees are fully tax deductible in the year paid to obtain an acquisition mortgage used to buy your principal residence.

However, loan fees paid to obtain any other type of loan, such as a refinanced home loan or an apartment building mortgage, must be deducted over the life of the mortgage.

Many lenders now offer so-called no-point, no-cost mortgages. These can be especially attractive if you are refinancing your home loan.

However, the interest rate is usually higher than for a mortgage where you pay a loan fee and normal loan closing costs because the costs are hidden in the higher interest rate.

Robert J. Bruss is a nationally syndicated columnist on real estate. Write to him in care of the Tribune Media Syndicate, c/o the Times, 64 E Concord St., Orlando, FL 32801. Questions of general interest will be answered in the column. Because of the volume of mail, personal answers to questions are impossible.

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