Mortgage: Deciding When to Buy a Home
Buying a home is probably the biggest decision you have yet to make. As you make your decision, you must be considering a lot of factors. One is the urgency of your need. You probably can’t wait to start a family. Perhaps the place you’re living in is already too small. Or maybe you just want to finally start your own life in a location of your choice. In any case, your personal reasons are perfectly acceptable.
However, there are many restraints to your decision. One is the lack of the initial payment to buy the house. In this case, you can pay the down payment only after you’ve saved enough. However, with the way house prices are going up, this might take a little while.
For that, the question remains: should you save more money and wait longer, or should you borrow in order to complete the down payment?
By saving more, you will have to wait to get your own home. The length of time is not guaranteed, though. If you’re renting, you will have to pay your regular rent with money that you can otherwise use to pay a mortgage for your own home. Although these are clear downsides, you get to pay less interest in the long run and avoid paying mortgage insurance.
If you decide to borrow money instead, you will stop paying the rent and get your own home at a faster rate. Also, you will not get affected by continually rising house prices. However, borrowing can be problematic if you have more than enough debt than you can handle as it is. Another valid consideration is selling your home. If the value of your home drops and you decide to put off selling your home until the market picks up again. So if you are in a situation where you want sell to pay back what you borrowed, this can be an issue.
Buying a home now means that you need to complete the down payment. There are two options for you to borrow more: getting either a second mortgage or a high-ratio mortgage.
Both options, as explained, will add up to any existing mortgage or debt you currently have. This might not be such a good idea if you don’t have a steady stream of income. The interest for either type is also higher. In the long run, you can borrow more with either type – but you will have to pay more as well over the years.
As you can see, there are pros and cons to both options. It is a good idea to talk to industry professionals such as a knowledgeable mortgage broker before making such an important decision.
