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Sunday, January 17, 2016

Buy or Rent a House?

 

Buy or Rent?

 

Buy a house or rent a house? This is one of the biggest decisions of an individual's life. As you get ready to take this decision, you need to consider what is more suitable to your needs - buying a house or taking one on rent. Both buying and renting have their advantages as well as disadvantages and you need to weigh them both based on your personal needs and more importantly your budget.

Why do I need a house?

The first question you need to address is why you need a house. If your requirement is an accommodation in a particular area or city for a certain period of time as you might move to another city or area, then renting becomes a good option. However, if you are looking for stability and freedom or for pride of ownership, then you should consider buying a house.

Owning a house means there's no landlord to take care of the routine maintenance and utilities. You as house owner will be responsible for every aspect of maintenance - from leaky faucets and electrical short circuits to whitewashing. You need to carefully ponder the responsibilities that come with ownership of a house before taking the final plunge.

To make the decision of whether to buy or rent a house simpler, refer to the advantages and disadvantages listed below. Weigh the pros and cons and see which ones are valid in your situation.

Advantages of Renting

Advantages of Buying a Home

  • Initial money required is less.
  • Flexibility to move house as per requirement.
  • No need to worry about maintenance of the house.
  • No capital at risk.
  • Property tax to be paid by landlord.

 

  • A house helps to build equity.
  • When property values appreciate, an asset is built.
  • Certain tax benefits can be availed.
  • Freedom to maintain your house as per choice.
  • Sense of stability and community.
  • Experience the pride of ownership.

Disadvantages of Renting

Disadvantages of Buying a Home

  • Rent money can be money wasted as neither any returns can be availed nor will an asset get created in hand.
  • Accommodation may not be as per personal desires or needs.
  • Rents are bound to increase on a yearly basis.
  • Periodical shifting at expiry of lease will necessitate house hunting on a regular basis.
  • Sizeable amount of funds required for initial down payment.
  • Equity built in home may decline.
  • Time and effort for maintenance will become necessary.
  • Need to sell existing house may arise if there is a requirement to shift house and purchase another house. If unable to purchase or sell, a house may have to be taken on rent, adding to your costs.

Do I have the budget?

Buying a house may be an essential requirement as per your needs but this parameter is not enough to decide if buying is the best option for you. Buying a house may not always the best financial choice. Before you take the plunge, you need to pause and reflect on what it really costs to own a home and if you can truly afford it.

The first thing to consider is if have the funds to purchase your house or will you need a loan. If you have your own funds, then the next step would be to determine whether a house of your needs fits with the equity you have in hand. If you opt for a loan, will you turn to family and friends for funds or will you seek commercial lending institutions?

Whether you pay from your own funds or you opt for a home loan, you need to budget for expenses like property tax, home insurance, stamp duty, registration cost, maintenance, etc., which are additional costs over and above the basic price of a house. While stamp duty and registration costs are one-time expenses, remaining are recurring costs which may be quarterly, monthly or yearly, According to housing finance industry experts add around 20 per cent additional cost to monthly home loan EMI for the actual cost of owning a house. Once you have worked out the expenses, compare them to the budget available. Housing Finance Companies will offer loans based on repayment capacities and even then you will require equity to meet initial down payments. Do you have the necessary budget available to take care of the complete house owning cost? If not, then renting might be a wiser choice till the time your financials situations meet your housing needs.

At the end, the decision of whether to buy or to rent a house rests entirely with you. – You are the best judge of your financial resources and your personal factors. So take an objective look at all the factors before making the final call.

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