Home ownership vs. renting – an important step, a big decision
Congratulations! You’re thinking about buying your first home.
Chances are, you’re excited, unsure and maybe a little apprehensive about becoming a homeowner. Buying your first home is a major milestone. It brings lots of pluses, and also significant responsibilities, and it’s essential that you are ready to take this important step - both from a financial and lifestyle perspective.
With this in mind, let’s check out some of the pros and cons of renting compared to owning your home.
Things to consider
|If the value of the property rises, you may have to pay more in rent||If the value of the property rises, the value of your personal wealth should also increase and you’re more likely to make a profit if you sell it|
|Building maintenance is your landlord’s responsibility||You need to budget for building maintenance and repairs|
|Your rent is fixed for the term of the lease – usually 6 to 12 months||Your repayments may fluctuate – both rising and falling with interest rate changes, however this exposure can be reduced by fixing your home loan interest rate|
|You’re paying off someone else’s mortgage||Your property is likely to be an appreciating asset especially over the long term, and it could even be used as an investment property in the future|
|Your monthly rent payment may be less than mortgage repayments, especially if you’re sharing||Your mortgage repayments may be more than the rent you could pay to live in the same area but paying off a home loan is a form of saving as you are building equity in a valuable asset|
|You don’t have any certainty of tenancy control beyond the term of your rental agreement||The property is yours to live in as long as you want to|
|You have extremely limited options to personalise the property||Generally you can do anything you like with the décor and outdoor areas (subject to council approval), and any improvements are likely to enhance your lifestyle and increase your home’s value|
|Generally you’re not locked into a long-term commitment, other than the term of your lease, and can move out at short notice||It can take longer to sell a property, so you have less freedom to move|
Renting isn’t always the cheaper option
Renting is generally regarded as a cheaper option than owning your home but that’s not always the case. It's worth investigating to see if you could save money by owning rather than renting.
If you decide to buy a property
Purchasing a first home is one of the most exciting steps we can take. It may seem like a complex process, especially for first-timers however plenty of help and support is available from your Aussie Mortgage Broker, and the result is certainly worthwhile. A well-chosen property should rise in value over the time while the balance of your home loan will steadily reduce as you make principal repayments. It may be hard to imagine it now, but one day your home will be paid off completely and you can enjoy life without a mortgage or paying rent.
What if...you can’t afford to buy on your own, can you buy with someone else?
If you can’t afford to buy a property on your own, you might be thinking about buying a home in partnership with a friend or relative. It’s known as ‘co-borrowing’ and it’s a small but growing trend.
Here too there are a number of things to consider:
- By combining your resources, you and your co-borrower(s) are likely to have greater ‘buying power’, and this may give you access to a greater range of properties or better quality homes
- It can be quicker to raise a deposit, and you may be able to put down a larger buying deposit
- It may be easier to meet the repayments with two salaries, which gives you both a bit more flexibility
- It’s important to note that even if both parties are eligible for the First Home Owner Grant, only one Grant will be received
The key to success is having a strong relationship with your co-borrower, planning ahead for how you will share the rewards and costs of owning a home, and have a legally-binding contract drawn up to address all these issues - even if you are ‘going in’ with a family member.
This contract needs to cover things like:
- Payment for damage or renovations
- What happens if one co-owner wants to sell up further down the track?
A contract is also essential because if one person defaults on a loan payment, the other person is often liable. And the default can occur because of something as simple as losing a job or becoming too ill to work.
A contract also becomes critical if there is a breakdown in the relationship and one of the parties decides to opt out.
So seek legal advice and make sure you’ve got all the key elements covered if you’re thinking of co-borrowing.
Continue to information about saving and your deposit.