Buying (or renting) a house is probably one of the biggest financial commitments we make in our lives, so we should not take the decision lightly.
Most people need to borrow money to buy a house. Although this is obviously important, there is more to buying a house than just money. There are personal and lifestyle goals to consider.
Renting means you only have a week-to-week financial commitment and the flexibility to move with little cost. On the other hand, owning your home can give you security, ownership of a potentially appreciating asset and usually tax-free capital gains when you eventually sell. This is definitely a personal decision nobody can make but you.
Here are some thoughts to help you weigh up what’s best for you.
How long do you plan to live in the house?
It might not make much sense to go through the hassles and set-up costs of buying a house if you are only going to live there for a short while.
Unless you have done sound research and plan to renovate extensively to sell at a much higher price, if you buy and then have to sell within a short timeframe there could be a risk of financial loss.
How do you get a loan?
Applying for a loan can be a harrowing experience. Questions about your income and savings, spending habits, debts as well as other assets may be of concern. Be prepared to disclose answers and be honest to all sorts of nosey questions.
Ideally you need a deposit of a least 20% of the value of the house to avoid mortgage insurance (an extra charge to protect the lender, not you, if you default on the loan). Lenders will be more impressed if you saved the deposit because that shows you have financial discipline.
Lenders want to see that you can repay the loan and will look at how much of your income it will take up. Your credit history will also be of interest to them – your track record of paying loans and bills on time.
Your house will become collateral for the loan. If you fall too far behind on the repayments, the lender can repossess the house and sell it. They will generally take this step only as a last resort but it means you are out on the street. And even worse, it will be very hard to borrow money again.
Where do you go to find the best loan?
If you decide to buy, this is probably the most confusing question. You can start by comparing lenders online, go directly to your bank, or talk to a mortgage professional about the options currently available. Weigh up the pros and cons and make your decision wisely. Talk to us if you would like some extra guidance.
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