At some point in life, almost everyone dreams of being a homeowner. In one way or another, most people dream about slowly transiting from being renters to owners.
But just how smooth or rough can the process of owning a home get?
For starters, there are two major ways through which one can acquire a home; either pay for it in cash or take a mortgage loan for it.
A mortgage is a loan from a bank or lender to help one finance the purchase of a home. When one takes out a mortgage, they make a promise to repay the money they have borrowed, plus an agreed-upon interest rate. The home is used as security.
Usually, one needs to put down a deposit for at least 5% of the property value, depending on their lender’s terms and conditions, then borrow the rest from the lender. They will then pay back what they owe monthly, generally over a period of many years.
Advantages of Mortgages
- Less money upfront: One pays a small percentage of the house’ cost, which makes it easier.
- More flexibility. The owner can put their money in other investments.
- Makes it easier to pay for it because of the monthly payments which are not very hefty.
- Mortgage loans can improve one’s credit score
Disadvantages of Mortages
- One has to have a great credit score before they qualify for one
- High interest rates, which when fluctuating, may result in one paying a lot more than they borrowed.
- Added fees such as insurance, legal, survey, penalty fees, etc.
- Prolonged debt
- One may lose their home if they fail to fully repay their loan
On the other hand, one may opt to continue renting a house. We take a look at what works and doesn’t work with renting.
Often, people rent when they cannot afford a down payment for home, have poor credit, excessive debt, or are in the process of building their credit. When a person rents he/she is not responsible for repairs to the home or yard upkeep.
For some people, the expense of maintenance is a deterrent. People who are not settled on a location or who plan to relocate within a few years will also likely choose to rent rather than buy a home. This will save them the hassles of selling their home.
Advantages of Renting
- No responsibility for maintenance or repairs
- Relocating is easier
- Initial cost required for renting is less as compared to buying
Disadvantages of Renting
- Some people may feel that renting is a waste of money because they are not building equity or making an investment
- A person is expected to give up a certain amount of privacy.
- A person gives up a certain amount of freedom to do what they want to their environment, such as painting or renovating.
In the long run, one needs to weigh the pros and cons of each of the methods, before making a final decision on what will work best for them. The best choice falls with the option which gives one a greater value for their money.