Buying a house is probably the biggest financial commitment we make in our lives, so it's not a decision to be taken lightly.
Most people need to borrow money to buy a house. Although this is obviously important, there is more to buying a house than just money. There are personal and lifestyle goals to consider.
Renting means you only have a week-to-week financial commitment and the flexibility to move with little cost. On the other hand, owning your home can give you security, ownership of an appreciating asset and potential tax-free capital gains when you eventually sell. This is definitely a personal decision nobody can make but you.
Here are some thoughts to help you weigh up what’s best for you.
How long do you plan to live in the house?
Depending on your circumstance, it might not make much sense to go through the hassles and set-up costs of buying a house if you are only going to live there a short while. This is unless you have done sound research and plan to renovate extensively to sell at a much higher price. When you buy and sell within a short timeframe, you can run the risk of a financial loss, especially when you factor in costs like stamp duty.
What is your comfort zone?
Can you really afford the repayments on the loan? Just because you can borrow the money doesn't mean you have to. Can you live the lifestyle you want and afford the repayments? If travelling, starting a family or other lifestyle commitments are important to you, then maybe you should consider a less expensive house and smaller loan. The mortgage is just part of your own financial puzzle – it shouldn't take over your life.
How do I get a loan?
Applying for a loan can be a harrowing experience. You'll be asked all sorts of nosey questions – income and savings (or lack thereof), debts (like credit cards) as well as other assets (shares, managed funds, cars, boats, etc). Be prepared to disclose all, and always tell the truth.
Ideally you need a deposit of a least 20% of the value of the house to avoid mortgage insurance (an extra charge to protect the lender, not you, if you default on the loan). Lenders will be more impressed if you saved the deposit because that shows you have financial discipline.
Lenders want to see that you can repay the loan and will look at how much of your income it will take up. They will also be interested in your credit rating – your track record of paying bills on time.
Your house will become collateral for the loan. If you fall too far behind on the repayments, the lender can repossess the house and sell it. They will take this step only as a last resort but it means you are out on the street. And even worse, it will be very hard to ever borrow money again.
Where do you go to find the best loan?
If you decide to buy, this is probably the most confusing question. Talk to a mortgage professional about the options currently available to you. Weigh up the pros and cons and make your decision wisely.