Searching for your first home: Rent or buy?

MANILA - Choosing your first home is likely to be one of the biggest financial decisions that you will make. As with all purchases, you can either feel you made the right choice, or regret the investment.

This is why some prefer to initially rent or lease, and then decide whether the neighborhood is right for them. But they could also miss out on the opportunity to buy when the price is more affordable.

So should you rent or buy your first home? The quick answer to this question is it depends. The decision to buy or rent depends on so many factors that varies per individual: your lifestyle, finances, future plans, and even the current real estate market.

What is right for one person may not be suitable for another. For instance, a newly married couple whose career plans include moving abroad would be in a totally different position from a large family with an entrenched business in a specific location.

There are pros and cons for each option. Here’s a run-down of the upsides and downside of buying and renting.

Buying a house means being able to hold on to a hard asset that almost always appreciates in value.

It also lets you and your family establish roots in the community.

Plus it allows you to plan out your life--where your kids will study, where you will work--for the long term.

But expect this to put a dent on your cash flow, since you will need to put in equity, which could go anywhere from 20-60% of the property value.

It also means paying real estate taxes and maintenance costs.

Should you need to dispose of it at some point, you will find this may not always be easy, and you could be at the mercy of market conditions.

Renting is easier on the pocket--you only need to worry about a downpayment and security deposit.

It also gives you a measure of flexibility. If you’re unhappy with the place or your landlord, you can simply end your contract.

 It also means not having to worry about taxes and maintenance costs, which are the landlord’s concerns.

However, property rentals rise, and it means you have to be ready to deal with increasing rental fees, depending on market conditions.

Rent is an outright monthly expense, and does not enhance your asset base.

You have to live with the terms set by the landlord. For instance, the landlord may prohibit you from keeping pets, or may not allow you to drill holes for your pictures on walls.

Still not decided? Look at each of these five factors for more help:

1. Your current life stage and lifestyle. How old are you? The younger you are, it’s more likely that your options are wide open. Career-wise, there’s a possibility of finding a new job, within or outside the city you are now in, which means renting might be better for you. Are you single or do you have a growing family that needs more space? If it’s the latter, consider how owning or renting a home affects their lifestyle.

2. Your future plans. Do you have any plans of moving abroad? If so, then you might be better off renting a starter home. Otherwise, you will have to deal with selling off your home when you leave the country. This may not come easy when you’re about to migrate, and this may not even be at a price acceptable to you. Don’t forget your significant other, if you have one. If you purchase that starter home, do you think your prospective spouse, whose parents live far away, would be happy to move there?

3. Your financial status. Can you afford to pay the down payment for the starter home that you want? If you are thinking of taking out a loan for this home, do you have enough income to support the monthly payments? Note that your expenses as a homeowner will not be limited to just the mortgage payments, but will also include maintenance costs, real estate taxes, and in some cases, condominium dues and homeowner’s fees.

4. The neighborhood where the property is located. It’s been said that there are three things to consider when you buy property, that’s location, location and location. Let’s say you have identified the neighborhood where you intend to stay for the medium term. Evaluate the neighborhood and determine if it has good potential to become a growth center. What are planned developments being undertaken by the government and other private companies in the area? If the area’s potentials look promising, and if your finances permit, then it may be worth purchasing your starter home here. On the other hand, if the neighborhood is riddled with problems such as flooding, security issues, and urban blight, you may wish to simply rent a place for the time being.

5. The current real estate market. Don’t forget to consider the current real estate market before deciding if you would purchase or just rent a property. It is always better to buy when it is a buyer’s market than a seller’s market. Plus, look at interest rates if you intend to take out a loan for this purpose. The lower the rates, the cheaper it is to buy a starter home.

source: www.abs-cbnnews.com

5 Things Every Renter Should Know Before Buying

Buying a home can be financially rewarding, but it also has its challenges. Many renters can’t wait for the day when they’re able to get the keys to their own house. Ownership can provide a sense of stability, giving you full control to decorate and remodel as you like. But before buying, it’s important to know exactly what you’re getting into. Some people start the homebuying process with rose-colored glasses, or they feel the experience will be far better than renting—and sometimes, it is. At the same time, you need to be realistic and understand that buying might be more expensive and time-consuming than renting.

1. Profits aren’t guaranteed

Some people buy a home because they’re tired of wasting money on rent. Rather than put money in a landlord’s hand each month, they purchase a home to build their own net worth. Unfortunately, there’s no guarantee that buying a home will be financially beneficial.

If you purchase at the right time, your property may appreciate a little each year, which increases your equity, and you can earn a profit when you’re ready to sell. But sometimes, home prices go backwards. Rather than appreciate, property values depreciate. In a bad market, you could end up owing more than you paid for the house. And if you sell before home prices recover, you can lose money and pay out-of-pocket to sell the property.

2. Maintaining a yard takes time and money

If you lived in an apartment before buying a house, your landlord’s maintenance department likely handled the landscaping. As a homeowner, you’re responsible for your exterior, which involves mowing your lawn, pulling weeds, seeding, and fertilizing. Maybe you always dreamed of having a beautifully landscaped yard, but it takes money to maintain an outdoor masterpiece. You’ll also sacrifice your free time. According to the Bureau of Labor Statistics, the average American spends about 1 1/2 hours a week maintaining their lawns and gardens — but as a newbie, it might take you longer.

3. You might pay more for utilities

If you’re moving from an apartment to a single-family home, anticipate an increase in monthly utilities. The amount you pay for electricity depends largely on the size of the property. And if your apartment was smaller than your new home, you can realistically pay an extra $20-$30 every month. You’ll also pay more for utilities if your new home has natural gas, whereas your apartment was electric. Plus, homeownership means paying your own water and sanitation bills.

4. Your mortgage may slightly increase from year to year

Some people purchase a home because they’re tired of yearly rent increases. However, just because you buy a home with a fixed-rate mortgage doesn’t mean your mortgage payment will never change. Your property taxes can increase, which can increase the monthly payment a little each year, and if you file a claim with your homeowner’s insurance, your agency may raise your rate. Since both of these expenses are included in your mortgage payment, any increase or decrease affects your monthly payment.

5. Homeownership can slow your savings efforts

Saving money might be a priority, just know that buying a house can slow your efforts. Ownership can be financially beneficial in the long run, but in the beginning, you’ll drain your savings account buying the property, plus there’s ongoing repairs and maintenance which can cut into your disposable income.

If you’re ready to own your own place, buying can be rewarding and satisfying, but there are things you should know before you even think about starting the process. If you know what you’re getting into, you won’t have unrealistic expectations or be caught off guard.

source: totalmortgage.com

When Rent-To-Own is the Way to Go

If you’re not familiar with the rent-to-own structure, it’s for good reason.

When the housing market was booming, these options were few and far between. But with the market now moving more cautiously you may see more and more opportunities as a buyer and a seller.

First, let’s take a quick rundown of the basics
If you’re a seller thinking about turning your home into a rent-to-sell property, you first need to set a fixed rent and sale price. These should be negotiable, just like normal home prices, but keep in mind that once that agreement is signed, the sale price is locked into place for the length of the rental term, regardless of how the market changes.

There are a few other special differences. In addition to the rent, the renter is going to have to pay an upfront option fee, which will be put toward the down payment if the renter decides to buy the house and kept by the seller if the renter moves on.  On top of that, the renter will also have to pay a rent premium, or an amount in addition to the rent that will go toward the down payment.

The term of the rental agreement tends to be 1 to 5 years, at the end of which the renter has the option of buying the home at the agreed upon price with the down payment partially funded.

The Positives

If done right, this sort of deal can prove beneficial to both sellers and renters.

Rent-to-own can be a great plan B for sellers having a hard time getting a bite on their property. Houses still aren’t selling as fast as they did pre-2007, and if you’ve already moved into a new home, there’s a good chance you’ll be stuck paying two mortgages. A rent-to-own agreement could easily keep you above water for now and net you a sale later down the road.

Renters (slash potential buyers) benefit too. If you don’t have a great credit score, the rental period gives you time to build it up. Similarly, if you don’t have the funds saved up for a down payment, rent-to-own can be a smart way to put money toward one.

…and the Negatives

No surprises here—there are potential downsides for both the seller and the renter.

If you’re the seller, you have to abide by the contract even if the value of your home rises, or if someone makes an offer to buy it out right. If the renter backs out, you’re also back to square one, and potentially stuck with mortgage payments on a second house.

On the renter end, making a late rent payment often voids the option fee for that month, which will take a chunk out of your eventual down payment if you’re late a few times a year. If you decide not to buy the house, you won’t be able to get your option fee back, which means you may be out thousands of dollars.

There have also been cases of less-than-legit sellers offering rent-to-own options on houses under foreclosure. In this scenario, the bank gets the home and the renter is out their option fee and premium. Know what you’re getting into, and there should be no reason why both buyer and seller don’t benefit.

source: totalmortgage.com

Do's and don'ts when renting a home

MANILA, Philippines - At one point in your life, you might find yourself renting a home. Whether it’s for a three-bedroom house in a residential subdivision or a 20-square meter unit in a high-rise near your place of work, renting should be done with careful attention as it almost always involves a substantial part of your income.

To be sure, renting a home comes with many advantages. It allows you a measure of flexibility, in that you can easily give up the property should your personal circumstances change. If your work location changes, or your children will be enrolling in a different school in another side of town, you might find it more economical to rent some other dwelling closer to your new daily destinations. This is not something you would have when you own a house, since disposing off a property involves time, money, and considerable documentary work.

Renting a home, though, still requires you to be vigilant. In renting a home, you will be dealing extensively with your landlord. Some unit owners engage the services of a property services management company, which will deal with you on your rental concerns. The terms and conditions of your rental contract is something that you and your landlord both have to be comfortable with. Should changes arise in these terms during the course of your stay, you have to discuss this with the owner to come up with a mutually acceptable arrangement.

So before you take out your pen and sign off the dotted line on that rent, here are some points to consider:

Do your research.

Make sure you know as much as you can about the area and the property itself. Ask some pertinent questions: does the area get flooded during the rainy season? Is security a cause for concern? Does the ceiling leak and do the drainage systems work? Who are your neighbors going to be? Are they too rowdy and too noisy for your family? Who was the former tenant and what was his experience in the area? Is your landlord fair and agreeable?

Are services like water going to be offered to you straight by the utility company or will these be coursed through the homeowners’ association? If so, how will this affect your utility bills? If you are dealing with a property management services company, what do people have to say about their services? Visit the area several times and explore it on foot to have a better feel of the property.

Stay within your limits.

It may be tempting to rent that nice home with the jacuzzi and the gym, but make sure you have the financial capacity to do so. Most finance experts recommend that you spend no more than a third of your income on housing expenses.

Haggle over price.

There is nothing wrong with haggling over the price for the unit that you want to rent. You might not get a positive answer, but if you do, you can definitely put the savings to good use.

Parking.

If you have a car, is there a safe place for you to park in? How much will it cost? Finding a secure place for your car every night can be stressful so best to make sure there are arrangements in place.

Discuss the terms and conditions of the rent thoroughly before signing the contract.

You would like to be very clear on the terms of the rental contract. Make sure there are no hidden costs. If there is a deposit and an advance payment, discuss how these will be accounted for and when or how you will get these back. Find out if the deposit is refundable, and when. Ask if the advance payment will be given back to you in cash, or if you will be allowed to use it up towards the end of your contract.

Discuss the mode of payment.

Agree on a mutually convenient payment system. You may wish you make payments through post-dated cheques or through bank deposits, on a set date. Make sure both parties are clear on this.

Check escalation clauses.

Make sure you are clear about possible automatic increases in your rental payment when you renew your contract. Also discuss with your landlord how often he expects to raise prices, so that you may be better able to anticipate your cash needs.

Make an inventory of the property.

Before moving in, go through everything in the property. Check out for broken plumbing, electrical or other fixtures that need attention and point these out to the landlord. If the unit is fully furnished, go through each and every appliance and furniture to make sure these are in working order. Discuss all these with the landlord. Don't be afraid to take pictures of walls, rooms, carpets and so on to record the state of them as you move in. If you do this make sure you email them to the agent so they can be kept on file.

Discuss maintenance of the property.
Make sure you know what your landlord expects you to cover in terms of maintenance. In general, the property owner is in charge of maintenance costs, but there are other items you might want to discuss. For instance, who will pay for a pipe that gets clogged? Also look at utilities and services. Payment of electricity and water will most likely be to your account, but ask about meter deposits, subdivision or homeowners’ association dues, and other related fees.

Don’t forget insurance.

Do ask your landlord about fire and property insurance, and what this covers.

source: www.abs-cbnnews.com