should I rent or should I buy?
Hello peeps!
Homeownership is one of the most quintessential parts of the idea of each Malaysian Success Dream. Who among us hasn’t aspired to own our own piece of paradise, complete with the white picket fence and flower boxes out front? Most of us even have pinboards on Pinterest devoted entirely to those dream houses we hope to be someday able to afford - I do Pinterest, you see. Even if you don’t have any plans to purchase a home shortly, it is a good idea to get informed on the home buying process.
As is the case with many things in life, failing to plan is essentially making a plan to fail. The case with purchasing a home is no different. If you’re looking to purchase a home, consider your options, weigh the pros and cons, and also consider a few key points before signing on the dotted lines.
The first point to consider is the length of time you are willing to commit to living in this new house. The general “rule of five” suggests that it takes at least five years to break even on a home purchase. If the nature of your life or job is still somewhat unpredictable, it may be wiser to rent than commit to a 35-year mortgage.
Why?
Two reasons: closing costs and mortgage loans.
Closing costs are fees and expenses you pay when you close on your house, beyond the down payment. These costs can run 3 to 5 per cent of the loan amount and may include insurance, attorney fees, appraisals, taxes and more.
A mortgage is usually a loan sanctioned against an immovable asset like a house or a commercial property. The lender keeps the asset as collateral until the borrower repays the total loan amount.
Every time you purchase a home, you will be responsible for your share of the closing costs associated with the transaction. While closing costs are typically divvied up between the buyer and the seller, there are not insignificant and will add up over time if you frequently move.
Additionally, mortgage loans are traditionally set up to require the buyer to pay a large amount of interest and insurance in the earlier years of the term. It typically takes a buyer at least five years of making the mortgage payments to make enough of a dent in the principal to make this a better option than renting.
Second, owning a home is not for the faint of heart. Despite all of the inspections and realtors’ claims about the home's stability, things can and will likely go wrong. The water heater will need to be replaced. The air conditioner will, without fail, break down in the hottest months of the year. Think I’m kidding? Just ask any homeowner. The potential surprises that come along with owning a home can be plentiful and, frankly, challenging on your bank account if you don’t have emergency savings set aside for just such occasions or a “home maintenance” fund. Therefore, before you do look to purchase a home, be sure to have at least 2-3 months of your income saved in an emergency savings fund to help out should you, unfortunately, need it.
*On that note, be sure to consider how purchasing a home will impact your current personal budget. For example, if you purchase a home with more space than your previous or current residence, you’ll have to account for higher utility bills. Other expenses that may creep into your budget with homeownership: residential association fees, landscaping, trash removal, property taxes/assessments, warranties, etc.
Third, be sure to thoroughly understand the neighbourhood's safety and assess the quality of the local education system. While you may not even have children or plan on doing so, the chances are that the next owners of your home will find those factors important. Considering the home's resale value is of the utmost importance when deciding whether or not to make the purchase. If the home is in an affordable area, but the crime rate has been steadily increasing, perhaps the investment simply isn’t worth the risk.
Finally, whether you rent or own, aim to keep your monthly payment to a third of your monthly take-home pay. This way, you can afford to pay for the various other liabilities you have while still being able to build your savings, contribute to your retirement plans, or take the occasional trip. In some markets, this may not be feasible if rent control is not in effect. However, if you can keep your monthly housing payment low, you will find that this will serve you well in the long run and allow you to focus on other important priorities on your list.
Ultimately, the decision to purchase a home or remain to rent is a very personal one that largely depends on many factors. As is the case with most big life decisions, it is generally wise to take a thought partner along to ensure you’re evaluating and including all of the necessary components correctly. In some instances, renting can make a lot of sense for your lifestyle, financial situation, and personal preferences. In other cases, owning a home or condo can fulfil that desire for privacy, freedom, and a host of other responsibilities.
Hope you enjoy my writing.
Speak to you soon,
Love,
EMIR xx
