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Getting Started

Should you buy or rent?

Buying a house is more complicated than just having the money for the down payment and monthly mortgage payments. Owning a house requires a tremendous commitment of funds, time, and attention. For some people, owning is not the best or only way to have a comfortable and safe living environment. Consider the pros and cons of renting listed below.

Renting a Home

For some families, renting is the best solution. You may not be ready economically or emotionally to own. Some people consider renting a temporary way to live until they are more settled in job or family. Renting can mean benefits such as:

Moving is easy (you can move within a short time). Amenities may be available (pool, tennis courts, social/activity rooms, laundry facilities, security for apartment renters). You have few responsibilities. Maintenance and repairs are handled by the owner. There is no large down payment, only a security deposit or bond. Some monthly expenditures (rent) are fixed making it easier to budget. There is no chance for financial loss of investment (beyond the amount of the lease). You can look over the community and move again. Moving-in costs are low. It is easier if you travel a lot, either for your job or pleasure.

However, renting has some disadvantages: In the United States it offers no special tax deductions - home ownership does. There are no potential gains from the rising value of property. You usually get less space for the money. Changes cannot be made or are limited in scope. Rent rises with inflation except where there are many rental units available. You will probably have restrictions on noise level, pet ownership, or children.

Buying a Home

If you are thinking about buying a house, consider the following advantages: A house is a form of forced savings (you make payments on an asset that may grow in value - many families would never accumulate assets otherwise). Home owners often have a sense of pride and status in home and community. A home owner may have a better credit rating (equity in a home improves the credit status of the family and can be used as collateral for an emergency loan). Mortgage payments contribute to an investment, particularly if the property is located where it increases in value over a period of years. Monthly payments remain relatively constant for many years (fixed loan), thus housing costs are stabilised because present and future costs can be estimated and planned. The house may increase in value, resulting in a significant gain in net worth. Ownership may contribute to security, especially in retirement years when income normally decreases. A home owner can borrow against his/her equity, as the value of the house increases against what is owed on it. More space may be available for family members and their activities. A home owner has freedom to make improvements and changes to the house and surroundings as desired (although a development or association may have restrictions and prohibitions). Home ownership can contribute to the general well-being and sense of "roots" of the family, especially for children. Home owners generally are concerned about community affairs and how they may affect their property.

The disadvantages of home ownership may outweigh the advantages for some people because: A substantial down payment is needed. A house requires a big commitment in time, emotions, and money. The house may decrease in value if the neighbourhood deteriorates or changes quickly; thus resale may be a problem. The homeowner may have limited money for other purchases or activities since his or her money is tied up in the house. Maintenance and repairs may be costly and take a great deal of time and effort. Owning a house requires money for Insurance, and a loss of the house as a result of a natural disaster (tornado, flood, hurricane) could mean a serious financial burden. Some families have difficulty budgeting for maintenance, repairs, home improvements, and/or home ownership dues. Rates could increase dramatically. Total housing costs may take too much of the budget, resulting in potential cash flow problems. The family may have higher moving-in costs as new items may have to be purchased for a house. The house may be too large after children leave home. Security may be a problem if you travel a lot. Unexpected loss of income due to job termination or unemployment may limit money available for home ownership costs.

Are You Ready for Home Ownership

When trying to decide if you are ready to buy a house, ask yourself the following questions:

  • Am I sure I want to buy a house?
  • Do I have steady income and stable employment?
  • Do I plan to remain in the area for the next several years?
  • Have I created a budget so that I know how much more I can realistically afford to pay for housing?
  • Do I have an established credit record or can I build a non-traditional credit history with records of payments to previous landlords and utility companies? If so, is my credit profile favorable? Do I pay bills on time or before the due date?
  • Do I have enough money saved for the down payment (if required) and purchase costs? If not, can I enlist the aid of relatives or government or non-profit agencies that might give or loan me money at a low interest rate?
  • Have I been "pre qualified" by a lender so that I know how much I can borrow based on my income and existing debt?
  • Is my existing debt low enough that it will not limit my ability to qualify for a mortgage? If not, can I pay down my debt before I attempt to buy a house?
  • Have I looked into the benefits and requirements of the numerous financing options that are now available to low- and moderate income home buyers?

If you can answer YES to all or most of these questions, you may be well on your way to owning your own home.

Work out how much house you can afford

Buying a house commits your family to a long-term debt and requires time and energy.

How much each family spends on housing depends on many factors.

Be flexible. In your monetary calculations, overestimate by a thousand dollars. Anything can happen between contract acceptance and closing.

It could be the inspections reveal areas of concern that the seller is unwilling to fix or the repair costs are higher than the amount limited in the contract. Or the interest rate changes and that affects the necessary down payment and closing costs you will need to come up with.

Most buyers feel a bit overwhelmed when taking on a new mortgage and the responsibilities of a new home and we've seen many buyers get angry when it seems like the cost just keeps going up. Anger is caused when reality doesn't match up with the expectations you had in your mind. So if you anticipate this happening in advance, you won't get angry. In fact, it'll probably go better than you expected.

Three basic considerations that can help a family determine how much house they can afford are:

1. The amount of take-home pay the family can reasonably expect.

2. The family's living costs and other debt payments.

3. The total amount of housing expenses, including taxes, Insurance, energy, furnishings, maintenance, and mortgage payments.

The following calculators are useful for working out mortgage repayments.

Because of rising prices and increased housing-related expenses, the old rule of thumb on how much to pay for a house no longer apply.

When shopping for an existing house learn as much as you can about the condition of the house to see if repairs will need to be made.

With a new house, monthly utility and maintenance costs can only be estimated based on similar houses in the neighbourhood or those of a similar size, style, and construction .

How much money will I have to come up with to buy a home?

That depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: the deposit you make on the home when your offer is accepted, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.

When you make an offer on a home, the real estate agent will put your deposit into a trust account. If the offer is accepted, your deposit will be applied to the purchase price if the offer becomes unconditional. If your offer idoes not become unconditional your deposit will be returned to you. The amount of your deposit varies. It is usually less than 10%.

The more money you can put into your down payment, the lower your mortgage payments will be.

Closing costs - which you will pay at settlement - cover various fees your lender charges and your lawyer charges.

In addition to the mortgage payment, what other costs do I need to consider? Well, of course you have your utility costs (power, gas, and water). You will also have to pay Council rates and house insurance premiums. The real estate agent will be able to help you get information from the seller on how much utilities and Council rates normally cost.

Carefully determine your needs before you start looking

To avoid regrets when buying or building, always:

  • Do your homework.
  • Be realistic about your financial situation and about what your family wants and needs in a house. Make sure that you have enough money to cover the costs purchase, and that you know and can afford the cost of borrowing (both interest rate and terms of mortgage), and maintenance costs. Land. Do you prefer a smaller sized city lot, or something more rural?

Price range. The answer to this question will automatically rule out certain communities.Climate. Is the neighbourhood good?Are neighbourhood values stable or increasing?What are your family values?Current residents (similar or dissimilar occupational and social interests). Safety and security.Accessibility. Commuting time. Where are you going to work, and how much time do you want to spend travelling back and forth?Schools. How old are your children and is the school district important ? Information is available on every school, such as class sizes, % of students that go on to college, national exam results, etc. You can get this information from your agent or directly from the school.Convenience to shopping areas. Good roads and streets. Available public transportation.Community Facilities. Police and fire stations. Health and sanitation services. Churches. Recreational facilities, such as parks.Find competent professionals to help you make your selection and don't be in too much of a hurry.Sit down and list the factors about a house that are important to you.If you are a couple and have children, ask every family member who is old enough to make their own list. Then compare the lists. They won't be the same and you will probably have to talk with each other about the differences and compromise to make a single list for the family.This list should include answers to questions such as the following: What is a home to us (a refueling station, the center of family life)? Which is more important to us, the house or its furnishings? How do the activities we are involved in affect the kind of house we need? How far are we willing to commute to work, school, church, shopping? How important is privacy to us? Can a privacy fence give enough privacy, or do we want more open space in the country? How much time and what skills do we have to devote to maintenance and upkeep? What community services are available (garbage and trash pick up)?What stage of the life cycle is our family in and are we likely to need more space or less in the next five years? Ten years?Before you select a house, decide on the space you need and the location, community services, and many other personal wants and needs. These are often called housing values.To help you think about how important various housing features are to you and your family, use the following "Setting your priorities work sheet" in this document.

Setting your priorities

What are your housing values?

This work sheet is designed to help you think about how important each of these features is to you. Ask each person in the household to help rate each feature.

1. Essential: A house is not worth considering without this feature.

2. Desirable: A house with this feature is much more appealing than a comparable house without it.

3. Acceptable: This is not a feature that you seek, but it is not objectionable.

4. Undesirable: This feature would make the house difficult to accept.

Feature: Convenient to schools Friendly neighbours Safe area Near public transportation Quiet street More than 2 bedrooms More than 3 bedrooms More than 1 bathroom More than 2 bathrooms Low utility costs Low maintenance Space for children Space for entertaining Large, private lot Fenced yard Garden space Privacy Attached garage Interior space for hobbies Exterior space for hobbies Dishwasher Space for washer and drier Fireplace

You may want to make a copy for each family member who will be involved in the decision process. Consider how essential each item is to you and why.

Your expectations may be based on past housing experiences and may even reflect your childhood home. Are these expectations compatible with your current lifestyle?

If your job keeps you away often, you may not have time to maintain a large yard, water the tomatoes, or trim hedges. If you like the charm of an older home, but also want a good school and neighbourhood for your children, you may have to settle for a ranch house in a newer neighbourhood. In other words, you probably can't get everything you want in a house. Therefore, it's worth your time and effort to think about what you really need instead of what you would like.

Remember, a house requires time and attention. If you would prefer to use your free time doing something other than cleaning out the gutters or raking leaves, home ownership may not be right for you. Many new home owners soon get the feeling that the house owns them, rather than the other way around. Houses require constant upkeep and attention. Repair people are not always available and they are usually expensive, making at least some do-it-yourself skills essential for most homeowners.


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