Buying vs. Renting
Should you continue to rent your home or go ahead and buy it? Below we will outline what average customers should consider on their way to owning their own home.
Pros and Cons of Buying
- Your home becomes the foundation of your personal financial security as its value rises increases over time.
- You gain equity over time. With each monthly mortgage payment the portion of the property actually owned by you increases.
- If it is a FRM-type mortgage you always know how much you will have to pay next month because your monthly payment is fixed.
- In many countries, the government helps buyers by deducting part of the mortgage interest and real estate taxes for the first few years when most of the payment is going towards interest rather than principal.
- You should be ready for a long-term financial commitment — you will have to pay out a considerable sum of money each month for the term of the Mortgage, which could be 30 years.
- Your finances should be solid enough to shoulder the expenses associated with the mortgage. This includes down payment, closing costs, insurance, etc.
- You will have to face various home ownership expenses, such as repairs or furnishing.
- You have to be certain that you are going to stay in your new home for a long time, as relocation costs are significant.
Pros and Cons of Renting
- You are not obliged to spend a considerable part of your budget on regular mortgage payments.
- All maintenance, repairs and renovations are the responsibility of the landlord.
- Renting gives you flexibility. If you get a job opportunity elsewhere, it is easy move out. You are normally required to give a few months notice to the landlord.
- The rent may rise significantly and unexpectedly.
- Depending on your local tenancy laws, it is possible that the landlord will no longer rent the house to you and you could be forced to move out.
For some people there is a happy medium. They rent a house with an option to buy, or lease-purchase. You sign an agreement to rent a home and can buy it within a set period, which is usually 2-4 years.
A lease-purchase agreement gives a buyer a place to live without the immediate need to find a large down payment sum. There is time to save money for the mortgage down payment.
When real estate prices are rising quickly, a lease-purchase agreement can work to a client's benefit. The purchase price of the house is normally agreed upon and remains fixed from the date you sign the contract. Often, the lender considers the rent to be part of the down payment.
However, there is a fly in the ointment. Most rent-to-own contracts require some prepayment to secure the lease-purchase agreement. If you later decide not to go ahead and buy, you may forfeit this prepayment.
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