BUYING A HOME: Economics vs. Emotions.

• Author: Austin, Kenneth T.

"Falling in love with a particular house is wonderful, but not a good enough reason for buying it."

The American dream of home ownership is alive and well. Owning a home, in fact, is the single item most often mentioned as necessary for the "good life," according to Roper polls. That is in spite of rising home prices, which, in the local market, only have seemed to fuel the quest for a place of one's own.

Sometimes, the strong desire to own a home precludes many practical decisions concerning the purchase. First-time home buyers, in particular, often are guided by their emotions when choosing a house, rather than approaching it in a carefully thought out way.

There are, however, many practical steps you can take if you want to protect your investment--most likely the single largest one you ever will make. Buying a home should be approached systematically, with both eyes wide open, using your brain instead of your heart. So, take off your rose-colored glasses and let's start at the beginning.

If you presently are renting, should you consider buying? This decision can be affected by market conditions, including mortgage rates, home prices, and supply and demand.

In over-all terms, for most people, the advantages of home ownership--pride, status, privacy, inflation hedge, tax considerations, freedom to do what you want--often outweigh those of renting. Renting, on the other hand, affords a greater sense of freedom to move, requires little upkeep or responsibility, and doesn't tie up one's money. (In today's market, if you just plan to live in a house for a few years, you can't take for granted that prices will keep rising or that you will be able to sell when you want to.)

It always is important to consider the financial and tax implications of owning vs. renting for your personal situation. Paying off a mortgage ultimately builds equity, which can be used as collateral for financing another home or other purchases down the road. Each individual case requires comparing the two costs (owning vs. renting) and considering all the various factors involved. If you need assistance, check with your accountant, who should be familiar with your financial status.

Falling in love with a particular house is wonderful, but not a good enough reason for buying it. Of course, you must like it a lot, but buying a house no longer is a purely emotional decision. Today, financial considerations play an expanded role in the purchase deliberations.

Calculating what price range you can afford helps you conduct your house hunt with realistic expectations. To determine this, you need to know how much mortgage you can carry or, looking at it another way, how much money the bank will allow you to borrow.

There are some simple ways of calculating this yourself: Subtract all your non-housing monthly debts and expenses (e.g., credit card and loan payments, tuition, transportation, food, clothing) from your monthly income to calculate how much income can be applied to housing expenses, including mortgage payments, real estate taxes, and insurance premiums. This amount should come to no more than 33% of your total monthly income.

Armed with-this information, you can go to a lender, who will confirm and refine these numbers for you based on current interest rates. Because mortgage lending is so competitive these days, most lenders will...