Owing vs Renting
Saturday Jun 12th, 2021Share
Today topic is Owning or Renting.
Nowadays a lot of people wants to buy house or condominium apartment because of low interest rate.
The reasons why people want to be a homeowner are they are ready to buy, getting married, having a baby or being tired of paying the rent.
On the other hand, the down payment is a concern for the first-time buyer. Nowaday the 20% down payment is minimum $100,000 or more.
The young generation just started to work and build their career. They need time to save more money before they are able to purchase their first home.
Therefore, before you decide whether to own a home or continue paying the rent, you need to ask yourself the following questions.
- If you buy a home now, how long will you stay there before you sell it?
The shorter you stay in the home and sell it in 2 to 3 years, buying a home is not a good idea. You won’t make any profit and sometimes you can lose money.
- If the rent is almost the same amount of the mortgage payment, is it a good idea to buy a home?
The answer is Yes or No. Number 1 is … do you have enough down payment. Number 2…When you are paying the rent every month, you don’t need to pay the property tax, insurance and maintenance. If you rent a condo apartment, you don’t need to pay the monthly condo fee except the hydro in some cases.
But when you have a home, you pay everything. Are you ready and capable to do it financially.
- Are you buying a home for investment?
If you are, you need to calculate the Cap Rate. For example, you bought a rental property and paid 20% down payment plus the closing cost and remodeling.
The total investment is the sum of down payment, closing cost and remodeling expenses.
The Net profit is the amount of the rent deducted from other expenses such as mortgage payment, property tax, insurance and maintenance.
If you divide the net profit by the total investment and get the Cap Rate is less than 4 or 5%, the investment is not very good. Sometimes the Cap Rate could be higher depending on the location of the property.
- When you have 20% Down Payment, do you have extra amount of money in case the Appraised Value from the bank is different from the purchase price in the offer?
In today’s market the banks are very conservative. They don’t want to take the risk to lend you the money based on the purchased price in a multiple offer situation.
Having extra 5% to 10% of purchase may be necessary to close the deal or the deal would fell through.
By the way the down payment must be in your bank account 90 days before closing; otherwise, the bank would not consider that amount of money can be used as down payment.
As of June 1st, 2021, the qualified rate for all uninsured mortgages should be the greater of the mortgage contractual rate plus 2% or 5.25%.
Consult with your mortgage brokers or banks to have a Pre-approval before searching for your home.
If you have any questions, please contact me by 416-399-9981 or email: email@example.com
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