Australians love to own properties, or at least the thought of it. Small talk at parties and barbecues commonly include interest rates and owning properties. If you are currently renting, it certainly puts pressure on you to purchase something for yourself.
Extremely low rates and rising rent have led some people to dive into home ownership quicker than they normally would. There is no right answer when it comes to deciding whether to rent or buy a property.
But the below pointers will help you make that decision.
Ability to finance a home purchase
If you are looking to buy a house, your first step should be meeting with a broker to determine if you qualify for a home loan and if so, how much you can borrow. There are a few factors to consider:
- Do you have enough savings (for the purchase, emergency costs, moving costs)?
- Do you have steady income?
- Is your asset vs liability position favourable?
- Do you have good conduct with your bank accounts?
- If you fall short on any of those criteria, you may be better off renting until you can improve your situation.
The key to understanding how much you can comfortably borrow is to budget. Know how much money is coming in every month, how much is needed for essential costs (living expense, bills and so on) and then have a realistic amount that you should be saving for emergency before you can push your borrowing limit to the maximum.
Lifestyle Vs owning a house
Some of you may argue that paying rent is paying off someone else’s mortgage. Even though this may be true, the outgoings in terms of ‘rent equals mortgage repayments’ is not true. Do your homework! Are you aware that there will be other extra costs when you are a home owner? Extra costs include but are not limited to council rates, strata fees, water rates, insurance, higher electricity bills and maintenance costs.
If your income is not going to be able to support all the costs, then you should think twice.
There are a lot of advantages of owning a house, but understand whether you will be sacrificing your lifestyle or actually enjoy living in that beautiful house.
What are your future plans?
It is very hard to predict your situation in 5 years. The best way is to take some time to analyse your goals – both for your career and your personal life. If you hope to climb your career ladder – but may need to relocate to do so, rent a place and own an investment property than trying to buy a place to live in.
If you are single and buying a home, will it be too small when you find a partner or will you move out and rent somewhere, while this stays as an investment property? If you are married and hope to start a family, and thereby intend for one spouse to work less or stop working altogether, make sure your housing budget can accommodate a reduction in income. Lastly, if you have a hobby that you love but costs money, such as travelling or skiing, make sure you keep that in mind when you create your housing budget.
Final word
Buying a home is a major decision that shouldn’t be taken lightly, but when faced with rising rent and low mortgage interest rates that make purchasing more affordable, you should take the time to consider the pros and cons of both renting and buying. No one can be a better judge of what is right for you. Know what you want and do what is right for you. Long-term homeowners, even those whose homes lost value during the recession, can build wealth that can be used to fund their retirement. As long as you can comfortably afford your mortgage repayments and are emotionally prepared to commit to homeownership, buying a home can be a smart financial move.