From renter to owner

EACH of us dreams of having our own home. When one starts his or her adult life, the first step usually is to rent a small place. As we move on in life and eventually have our own families, we come to a point when we ask ourselves if we are ready to acquire a home of our own. Having rented for so years, we finally would want to cross the line: from renter to owner.

Being prepared

If your goal is to eventually own a home, there is no better time to start preparing than now. Moving from a renter to an owner requires a lot of will power, energy and above all, honesty in dealing with ones' wants and financial capabilities. You have to sort out what you want, what you need and what you can afford for these can be different from each other. The decision to purchase a home depends a lot on your financial preparedness.

Crunching the numbers is one of the most important steps before deciding to move. As an example, if you are paying 25, 000 pesos per month as rent now, and then you may ask how much you may be able to borrow from the bank that will require a monthly payment of 25,000 pesos for the next 15 years. If you borrow 2.3 million pesos at 10-percent fixed interest and would want to pay in equal monthly amortization for 15 years, then your monthly payment would be about 25,000 pesos per month. Simply put, paying a monthly rent of 25, 000 pesos for the next 15 years is like paying a 2.3-million-peso loan for property that you will never own.
In moving from a renter to owner, equity is necessary to pay the down payment for your home. If for example you are buying a 4-million-peso property that has a loan to appraised value ratio of 0.6 (which means that 60 percent of the total appraised value can be borrowed from the bank), then you will have to give out 40 percent or 1.60 million pesos as the equity. Raising the equity can become the biggest hurdle in moving from a renter to owner.

Rent, especially in highly urbanized areas, will continue to go up to catch up with inflation.
Looking at the long term, the main reason you should buy a home is not to save money today but to save a lot of money and accumulate wealth throughout your entire life.

Real estate provides a hedge against inflation and serves a vehicle for the continuous accumulation of wealth. If you think that the monthly mortgage payments are huge, your rental payments will come to match them over time.

Other costs to consider

In buying a home, there are other costs to consider and you should be prepared for these. These costs include:

· Transfer costs -- Purchasing a home requires that you pay the necessary government taxes to register the property in your name.

· Move-in costs -- Moving into a new home requires a budget for hauling and transferring. New appliances and furniture may also have to be bought.

· Real property taxes -- As owners of real property, taxes are to be paid on land and its improvements. As a renter, you may not have to worry about these.

· Maintenance costs -- Depending on your contract with your landlord, you may or may not have to worry about the maintenance of your home. But if you own one, you will have to set aside a budget for maintenance. Maintenance costs may not be as high for a new home but gets larger as the structure grows older.

· Taxes on your loan -- Interest payments are now charged the value added tax.
Over time, as you pay your monthly amortization, your equity in your house will continue to increase since your loan balance steadily decreases.
Even if your home does not appreciate (which very rarely happens), you will be able to own a property that is free from any loan obligation.

As renters continue to spend money on the place where they live, homeowners will become richer through the gradual increase in home equity.

Pride of ownership

Having a home provides a lot of intangible benefits and is the dream of almost everyone. It can serve as a proof of the fruits of our labor.

Once you are locked in to a commitment to own a home, you continuously strive to meet the payments regularly. It may be hard at first but after you have adjusted your lifestyle, payments will be easier.

Moving from renter to owner takes a lot of courage. Having assessed your real needs and finances it may be the perfect time to own a home now.

If you have raised enough money for the equity, then you have to think about the monthly payments. If you have a regular job and salary, it would be prudent to set aside a total of 6 months amortization as an "emergency fund" just to cover any unexpected occurrences that would affect your monthly income.

If you are an entrepreneur and your business experiences a lot of ups and downs, then the requirements of your buffer fund may be more.

Not for everyone

Moving from renter to owner may not be for everyone. A reason for not buying or building a home and choosing to rent relates to lifestyle and the profession or job that one has.
If you are always moving because of the nature of your work, then renting may be a better option until you decide to settle in a specific place.

A final note: the downpayment may be the biggest obstacle in owning a home and it is wise to start saving now so when the time comes that you have the equity, then you can cross the line from renter to owner.

In borrowing money from the lenders, make sure that you have a healthy credit rating. As long as you have a good track record of paying your debts and obligations on time, then you may be able to borrow the amount that you need to finance your home.

This article was taken from Inquirer Global Nation