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7 Common Mistakes When Deciding Either To Buy Or Rent
As you continue to generate income and accumulated a sizable amount of cash stashed in the bank, you will eventually reach a point in life when you have to seriously decide whether to continue renting or buy your own home instead.
This is one of the biggest financial decisions in life. And it’s nothing to shy away from.
Every adult has to go through this stage at one time or another. And there are pros and cons of both renting and buying.
And at the very least, don’t let the following mistakes sway your decision either way.
1) Continue to rent because it’s less expensive
If you are so financially stretched that you live from paycheck to paycheck, then renting is probably the only logical choice to take.
But if you are like the average person who is financially stable with a growing savings account in the bank, then you have to take this issue more seriously.
Is renting really cheaper than owning a house?
In the short term, renting would mean a lesser commitment and also lesser responsibility.
But in the long run, owning your own house has proven to be make more financial sense.
For starters, when buying your own home, the mortgage your pay each month goes into the home equity which you could access in future. When renting, the rental you pay each month goes into the home equity belonging to the landlord.
Time and again, when the long term future is taken into consideration, owning your own home has proven to be more advantageous in terms of personal finances.
2) Fearing for your job
With how the nature of jobs are changing all over the world, it is perfectly normal to contemplate what would happen should you arrive at work one day and find a retrenchment letter sitting on your desk.
But while job loss is a real concern in the real world, you should not have your hands tied due to the insecurity wreaking havoc in your head.
This fear will never go away!
If you keep yourself chained up due to the fear over job security, you would never be able to make any major financial decisions in life.
Look at it this way.
How many of your friends own their own homes? Every one of them have this concern on their minds when buying their houses. And have they lost the house yet?
Don’t get paranoid over job security.
It’s not that it could never happen to you. It’s just that it’s not the end of the world just because you’ve lost your job. And even so, you could always get a new one.
However, if circumstances make being laid off a real possibility within the next 6 months, do postpone the decision to buy a house until you can get more clarity about your employment situation.
3) Becoming the victim of aggressive salespeople
Remember that there is a host of professionals in the real estate value chain that make a living from property transactions taking place.
So it wouldn’t be a surprise to find that every third party service provider you come in contact with pushes you to close as soon as possible.
- Real estate agents
- Mortgage brokers
- Interior designers
You are the one who will be paying the mortgage through your nose every month should you buy a house.
So do take “expert” advice with a pinch of salt.
Ultimately, you should only purchase a house when you feel comfortable enough to go ahead.
Walking away from a deal is always an option on the table… no matter how far you have gone in the transaction process… as long as you have yet to close.
4) Spending too much
The elation with finally buying your own home can sometimes go out of control. So much so that first time home buyers are very prone to overbuying.
They spend a premium on a house in a great location. They hire celebrity designers to beautify the aesthetics. And they do this by getting a jumbo mortgage and maxing out their credit cards for good measure.
Don’t be a victim of this pitfall. It happens more often than you think.
Victims usually take a bigger bite than they can chew and inadvertently get sucked into the money hole burning up their savings accounts.
5) Spending too little
The opposite of the previous point is in spend too little when you can easily afford to spend more.
If there’s anything worth investing in, it is your home.
This is where we recharge, relax, and have fun with the family.
And I’m saying this not just from an investment point of view. It is about living as well.
If you are buying a house in a geographic location where hell freezes over during winter, don’t penny-pinch with the heating system. It would come back and bite you in future.
And if you have enough cash on hand to pay a 50% down payment, don’t do it until you have worked out the numbers meticulously.
Maybe keeping some of that cash can be useful in one way or another.
While the mortgage can be easier to manage monthly, the lack of cash flow can greatly compromise your lifestyle.
6) Fear of escalating home prices
If you purchase a house due to the fear of affordable prices in the future, you have already fallen into the trap of an emotional purchase.
Real estate cycles are a fact of the modern economy. They come and go like the seasons.
However, should you wait, do note that inflation is a force to be reckoned with in real estate.
So waiting too long before purchase is something that can work against you.
7) Buying because of social pressure
All your peers and siblings have their own homes… so what?!
Just because everybody is talking about their houses does not mean that you need to buy one too just to fit in.
In fact, the more time you delay your purchase, the more you can learn about the mistakes that your friends have made when they were buying.
And just because they already have a home of their own does not mean that they are better off than you.
In many circumstances, you are going to have a better nicer home when you eventually do buy.