The most common and ongoing debate when it comes to house purchase is to whether rent a house or buy it. The debate is so common that many financial experts have already deemed it as useless and pointless. There are so many factors which need to be weighed in before you make a choice between the two. Most people who ask this question are already living on rent and the real question the want to ask is if they should make a shift to buy a house instead.
There was a time when buying a house was very difficult. It required people to save money for ages, borrow it from their friends and relatives, restrict their activities so they could reserve more money for their house. Fortunately, these days, people can simply walk up to a nearby bank and apply for a home loan. These loans are so easily and readily available that you don’t have to do anything but sign up for one, make a small down payment (which is a fraction of the actual price of the house) and then start paying the bank back in installments with an added interest rate. However, the money which you have to pay back is huge and it takes a long time to finally get all of it out of the way.
The easiness and availability of home loans makes the buy versus rent debate an even hotter topic. The points raised in favor and against each topic just don’t seem to die down. There are many calculators available online which are meant to help you decide which option is better for you – to stay on rented property or purchase a new one. In this post, we will discuss the basic theory behind how you make the final choice.
First of all, purchasing a home is not as much of a financial transaction to most people than it is an emotional venture. Most of us associate our homes with memories, a place where we find ourselves in a secure and happy condition no matter what. It is a place where your children grow and you do whatever you like without being restricted by a stupid landlord. Most people fail to see it as a business deal which needs to be carried out with a calm and composed mind that knows what the best path would be at any given time.
Financially speaking, it is always better to stay on rent than invest in a home loan. This is a strictly financial suggestion and does not take non financial things into consideration. So, if you want to save money and remain financially sound, renting will always be your friend. Most people, when they decide to settle down in a particular city, tend to invest in a home loan and build equity. This is because they don’t consider the fact that it is possible they could move out of the city they are currently in and end up in a completely different place. When the mind is not calm and rational, it is overtaken by emotions which show it how satisfactory a well settled life would be.
Paying rent money, even with all the taxes, is much easier and much less financially stressful than it is to repay mortgage. Repayment of home loans is a stressful affair which goes on for the entirety (or the most part) of your life. You spend a whole lot of money simply paying a loan back. A rent can be less stressful than paying back a home loan and also gives you freedom to move to wherever you want. It is possible to refinance your house when you are moving out but the whole process can seem like an ordeal rather than a quick decision.
Conversely, having your own house gives you the kind of security which a rented house can never give. You know that the property you reside on is yours and you can do just about anything with it. You have rights over all aspects of your house and don’t have to feel insecure about your stay in it. There are many cases in which a property owner will want you to be out of their house after a certain period of time. This means you will have to either keep renewing your contract with the same owner again and again. In case the renewal plan does not work, you will be forced out of the house even if you had grown to like it. No one can force you out of your own house which is why people might prefer buying their own house despite it not being the best decision, in a financial sense.
The choice of whether to rent or buy a house is factored heavily in the financial stability of the person, or couple, looking to make that investment. Selling your annuity is the best way to come to the conclusion as it will give you a strong injection of cash for the right choice. A comparison of listing of why to buy vs. why to rent is often good to review from a neutral point of view.
So, what should you do? Rent or buy? If you have money to make a successful 20 per cent down payment along with some savings, you can buy a house. It is always preferred to purchase property in a cheaper location and rent it when living in a luxurious locality. In a very concise way, the question can be answered simply based on the type of location you choose. If you go for an expensive location, you should rent as it will save much more money but if you are going to live in a more affordable location, buying trumps renting.
To conclude this discussion, one should definitely invest money in a house but only when they have decided to settle down in a nice, affordable location. If you are still free, unsettled, and have many years of experimentation and life ahead of you, you should stick with renting and think about buying a house later.