Should I buy or rent?

NEW YORK (CNNMoney) -- For the last three years, my husband and I have been renting a house. But I would rather buy than throw my money away on rent. Still, even though we have about $120,000 in savings, great credit and no debt, my husband is reluctant. The job he's had the past two years took 15 months to find, and it pays a lot less than his previous job. He's afraid buying now isn't a good idea because of the shaky economy. What do you think: Should we buy or continue renting? -- Jean J.

First things first, I want to dispel the belief that you are throwing money away on rent.

This is a self-serving notion real estate agents often spout that not only isn't true, but isn't a basis for making a rational decision when it comes to buying versus renting.

Fact is, when you rent, you are buying. You're buying a service: the use of a house for a specified period of time. And as long as the rent you're paying is in line with what others are paying for comparable digs, then you're getting that service at the market rate.

Granted, you don't have some of the potential plusses of ownership, such as seeing the value of your home climb over the years. But renting has other advantages. You can move more easily, and you're not on the hook for real estate taxes and upkeep. And the money that would have gone into your house can be spent on other things or go into other assets.

Besides, as recent experience has shown, house price appreciation is hardly a given. Many people who bought during the most recent housing bubble now owe more on their mortgage than their home is worth.

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That's not to say a house can't be a good investment. It can. But whether it is depends on a variety of factors, ranging from the price you pay to the prospects for the market you're in to the tax advantages you get and how long you remain in the house.

There are some gauges, such as a "house P/E ratio," that may be able to give you a sense of whether buying may be a better deal than renting. But, just as with stocks, no single metric can tell the whole story. Besides, in the case of a house, the decision to rent or buy isn't just a financial one. There are personal and lifestyle issues that matter just as much as the numbers.

So given all that, I recommend you ask yourselves these four questions before you make any move:

1. Why do you want to own?

It sounds like both you and your husband would prefer to be owners, but he's just not that sure about the timing. In order to rationalize a change in your living situation, you both want to see a benefit.

First, you and your husband need to discuss how owning would differ from renting. Would it improve your quality of life? If so, how? Would it be possible to achieve the same goal renting somewhere else instead of buying?

If you can't come up with several concrete ways your lives would be better as homeowners, then it may not be worth it to go through the trouble of moving and taking on the extra financial responsibility.

2. Why buy now?

Assuming you and your husband still come down on the side of owning, the next question is why now? What's your hurry?

I don't want to suggest that you should try to time the housing market and try to buy just as it bottoms out. But I also don't think you should feel compelled to move quickly. Even though the widely followed Case Shiller Home Price Indices have shown improvement in recent months, the weak economy and overhang of foreclosures still represent a considerable drag on the housing market.

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And while the newly-revamped HARP (Home Affordable Refinance Program) initiative could help homeowners who are underwater refinance to a lower rate, I don't see the program improving the housing market's prospects immediately. Those eligible for the new program must be current in their payments, so they're not in immediate danger of adding to the inventory of foreclosures.

All of which is to say it's not likely that home prices are going to skyrocket anytime soon, leaving you feeling that you missed a great buying opportunity.

3. How stable is your employment picture?

Given your husband's recent job history, he's absolutely right to be concerned about a weak economy, and especially what it might mean for the still-not-ready-for-prime-time job market.

It's worrisome to lose your job knowing you have the obligation to pay rent for the remainder of your lease. But it's even more upsetting to face unemployment knowing that you've got a mortgage and possibly equity at stake in a home.

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So before you and your husband take on the financial commitment of buying a home, you both should feel that his job is reasonably secure. If you think it's not --maybe the company is having problems and as a relatively recent hire he could be jettisoned at the first sign of trouble --then holding off until an economic recovery gains more traction is more prudent.

4. How would buying affect your finances?

The fact that you have no debt and a tidy savings balance gives you a nice cushion against potential financial setbacks. But buying a house will cut into that safety margin. Downpayment, closing costs, the inevitable outlays after moving in...all these expenditures can add up.

Before joining the ranks of owners, take some time to add up how much you would likely have to come up with for a downpayment and other costs. Subtract that amount from your savings balance and then ask yourself whether you would be okay with that as a cushion.

And while you're at it, check out our How Much House Can You Afford? calculator. Once you know that, you can then see how much you'll have to shell out each month to be an owner -- and compare that to your rent. (Don't forget that you can deduct the interest portion of your monthly mortgage payment, and that some closing costs may also be tax deductible.)

After going over these questions and discussing the issues involved, you and your husband should come away with a clearer sense of whether to buy and, if so, when. Even more importantly, though, your decision won't be based on the absurd notion that renting is the equivalent of throwing money away.

Author's note: When I mentioned real estate taxes and upkeep, I should have made it clear that while renters don't pay those costs directly, such expenses should be reflected in the rent the owner charges. Thanks to the many alert readers who brought this to my attention. ?Walter Updegrave