We think you should own a home.

Why?

Because it's hard to save all the money you'll need to live your dreams, put your kids through college and successfully retire without one.

It's no accident that homes quickly become the most valuable thing most of us own. We dutifully pay for them with our monthly mortgage check. They can appreciate in value without us lifting a finger. And the government richly rewards home ownership at tax time.

Homes are also the investment that will love you back. You can use and enjoy them every day. They can become a source of pride and achievement that constantly reinforce your effort to do the right thing and build a nest egg for yourself and your family.

We know how hard it is to save. You need that. We all need that.

If you're renting, here's our best advice on how to make the decision to buy a home and a quick look at the financial advantages that might have for you.

Your income and savings - coupled with the interest rate and house prices in the area where you want to live - will determine if you can afford a home and the size payment you can afford to make.

Making $50,000 a year might qualify you to buy a home with a small down payment in rural Pennsylvania, but in Seattle you would probably be out of luck. That sum might also do it in some parts of northern California or Arkansas, but not in Southern California or Alaska.

Our rent vs. buy calculator will show you the tax advantages and other benefits of buying and help you determine when it makes financial sense for you.

Our required income calculator will help you determine how much you can afford to spend.

If your income will let you buy in your chosen area the next question is: How long do you expect to live there? There are two ways to build equity in a house:

• Paying down the loan.
• Having your home increase in value.

In the early years of a mortgage, most of your monthly payment goes to pay interest. Those are true of both a conventional loan and an adjustable-rate mortgage, or ARM. The longer you own the home, the more of your monthly payment goes toward reducing the principal -- the amount you borrowed in the first place.

Let's say, for example, you borrow $100,000 at 6.5% interest for 30 years. Your basic monthly payment, just the interest and principal, and not counting any taxes, insurance, fees or assessments, would be $632.

Most of that payment -- $541 -- will go toward interest and $90 will go toward principal. After two years you would owe $97,689 in principal, and you would have $2,310 in paid equity.

The rest of your equity would be determined by the value of your house. Even though history shows that the value of your home will probably have increased, thus increasing your equity, you can't count on that.

Particularly not right now.

Although the median sales price of existing homes grew more than 110% over the past 11 years, and remains more than 25% higher than in 2003, it increased by less than 2% in 2006 and the National Association Realtors expects prices will rise only 1% in 2007.

Moody's Economy.com Inc., a research firm in West Chester, Pa., caused a stir last fall when it projected median prices will fall in more than 100 cities over the next several years, with 20 metro areas experiencing a decline of 10% or more.

Click here to see how median home prices are changing in more than 140 markets.

At the end of two years you will have also paid more than $12,800 in interest, which is tax deductible. The same is true of your property taxes which, depending upon where you live and the value of your home, can be hundreds or thousands of dollars a year.

It is important to realize that you do not deduct the interest or property taxes directly from the amount of federal income tax you pay.

Here's how it works. Mortgage interest and property taxes, like other local and state taxes, medical bills, charitable donations, and certain other expenses, are considered itemized deductions. You add up all the qualifying itemized deductions and then subtract that amount from your income.

The savings are based on the fact that you pay taxes on a lower amount. If you make $85,000 a year and have $20,000 in itemized deductions, you would be taxed on an income of $65,000 instead of $85,000.

There is no tax benefit to renting, even though you are generally paying the property owner's mortgage interest and property taxes.

If you're looking for a bottom line number to make the buy versus rent decision, keep in mind that the cost of selling a home is about 10% of its value.

When you sell your house, will your paid equity, your home appreciation equity, tax savings and property taxes cancel out the sales cost and the closing costs?

In the long run, it certainly does for most homeowners.

By Mike Sante

Interest.com Managing Editor

and Stef Donev

Interest.com Contributing Editor

Have a question about your finances? Ask us at editor@interest.com