To buy or to rent? That is the question. For most people, owning a house is a dream. A lot of people say that it is more worth it to buy a house, and pay the mortgage monthly because at the end of the day, the house will be yours. But is it really that simple? Many things need to be taken into account before someone can make the decision. So should you buy or rent? Well, ask yourself these questions first before you decide.
1.What kind of credit report do I have?
In Malaysia, banks generally use the Central Credit Reference Information System by Bank Negara. Besides that, there are also two private credit reference agencies which are Credit Tip Off Service (CTOS) and Financial Information System (FIS).
These will track an individual’s spending habits, repayment patterns, credit card and other electronic transactions, and credit standing with other banks for the last 10 to 20 years.
So when an individual applies for a loan, banks will check his/her credit rating before deciding to approve or reject it. It may sound scary that everything you do is literally being tracked but it’s necessary for banks to do this to avoid giving money to people who are not genuine.
It’s all about how you manage your money. If you do it well, odds are you’re probably ready to own a house. However, if you spend your life tied up in debts, then maybe you should consider renting for a little while more until you get yourself stabilised.
2.How High is My Debt Ratio?
By adding up the total amount of your monthly payments and comparing the total to your monthly income as a percentage, you get your possible debt ratio. The higher your debt ratio is, the more difficult it will be for you to pay off your loan.
So, if, after calculation, you have a low debt ratio, then go for it! But if your debt ratio is high, we wouldn’t recommend buying a house just yet. Renting is the choice for you, at least, until you manage to lower the ratio.
3. Do I Have a Stable Job?
Before buying a house, you should make sure that your job is stable. If you’re still unsure of your future in the company that you work in, it is best to stick to renting. You don’t want to be stuck with mortgage payments in the event that you get laid off or decide to look for a new job.
4. Am I Psychologically and Financially Ready to Deal with Maintenance Issues?
When you rent a place, the maintenance of the house is taken care of by your landlord. With just a phone call, that pipe leak is likely to be fixed within the week itself. When you own a house, however, this luxury is not there. Leaky roof? Malfunctioning lights? The cost to fix all of these would have to come out of your own pocket. Therefore, when you buy a house, you need to make sure that you have some cash stashed aside for emergency maintenance purposes.
If the down payment itself takes away all of your cash so that you have none left for these, maybe you should rent for a little while more until you’re really sure you’ll be able to afford any emergencies. These are things you have to be psychologically and financially prepared for if you intend to buy a house.
5.How Long Do I Plan to Stay?
Ideally, you should plan to stay at a house you want to buy for at least 3 years, if you want to get back what you spent. It has been said that generally, it takes about three to six years for a house to appreciate enough to make up for the cost of selling and moving as well as the amount you’ve paid in down payment and mortgages. Therefore, if you don’t have plans to move anytime soon, then buying a house is a good choice. However, if you are still uncertain about where you will be in the future, renting is the better option.
6. Is it Cheaper to Rent or to Buy?
Some people say that when you rent, you’ll forever be poor. That may be true because at the end of the day, no matter how long you stay at a rented house, it will never be yours. However, sometimes it’s good to look at the simplest of arguments: which one costs more?
Depending on your salary and the stability of your job, a costly mortgage payment may take a toll on your overall expenses. So sometimes, it’s better to save up that extra cash until you’re sure of your financial stability. However, if, after calculating everything you’d have to pay a month, it’s more beneficial to buy, then by all means, go for it!
By the way, we found a very handy tool for calculating your best option. Just enter the required information into the fields provided and let the calculator tell you which is the better option for you.