Buying a new home is probably the single biggest decision most of us make. It can be a lot of fun, but it can be challenging too. When you're moving, this is especially true, since you may have a short time within which to purchase. Also, if you're moving to another city or moving to another country, there is planning and research involved as well. It is often wiser to rent first when moving overseas.
Take your time if you can. Never rush into a purchase because you feel pressured to buy fast. But of course, there may be times when the situation dictates your timing. There could be reasons, such as an expanding family, baby, on the way, relocating for work reasons - these are all valid reasons for having to find a home in a hurry.
Or, it could be that you are trying to buy at a time when prices are in your favor. Even then, do some planning, and ask some questions. It may be wiser to rent. Use a rent or buy calculator to help you determine if renting first makes more sense for you.
Other important considerations are whether to borrow and pay interest on your home or wait and save more till you can finance more of the home yourself. And what if you don't have sufficient funds for the down payment?
So the big question is: Should you wait till you've saved enough for a downpayment on your new home, or find some way to come up with the money - perhaps borrow at a higher rate to finance your down payment? To help you decide, here are some of the advantages and disadvantages of each decision.
Advantages to Borrowing for Your Down-Payment
- You can stop paying rent sooner and get into a home faster - less money sunk into a rental. Pay off your mortgage instead of someone else's.
- You can buy at a time before house prices rise beyond what you can afford. You can take advantage of the housing slump, and you can probably afford more house for your money.
- You will start paying off your home earlier. It can lead to substantial savings in the long run.
Disadvantages to Borrowing for Your Down-Payment
- You most likely will be paying more interest, as the kind of loan you will try to get may carry a high interest rate.
- You may be in danger of taking on more debt than you can service.
- In the unfortunate circumstance when you are forced to sell at a loss, you may be stuck with the problem of paying back your high-interest loan when you may not have the means.
Advantages to Holding off and Saving for Your Downpayment
- You can avoid paying a high-interest loan.
- You will not have to worry about the risk of trying to pay back the loan if you are forced to sell your home in a hurry and cannot recuperate your costs.
- You will save the costs of paying mortgage insurance.
Disadvantages to Holding off and Saving for Your Downpayment
- You will have to wait a little longer to own your home, and you will pay more rent.
- The rent you will be paying could go towards paying down your mortgage, and helping you own your home faster.
- There is the danger that your savings may dwindle as you will have to pay for other expenses (you will still be setting up home even if it is a rental).
- Depending on the real estate and banking situation, house prices and/or interest rates may have risen by the time you have your down-payment ready.
So whatever you decide, remember always to give the decision lots of thought. Also, talk to a financial planner to help you weigh the pros and cons of buying a home.