Ready to become a homeowner? Buying a home may be the largest purchase you’ll ever make. Before you start house hunting, it’s important to understand how owning a home could impact your finances.
Buying a home can be a smart choice for many people, but before you select a real estate agent, consider the following:
- Down Payments – A down payment is what you pay for the house, while the rest of the payment comes from your mortgage. This large initial investment includes the down payment plus closing costs. In the UAE, for example, the maximum loan to value (LTV) for expatriates is 75 percent, for Emiratis it is 80 percent, providing it is a first mortgage and the property is valued under AED 5 million. In Kuwait, where Kuwaiti and GCC nationals can purchase property, the down payment depends on the type of property but typically starts at 25%. Besides the down payment amount, the buyer has to also cover additional fees. These fees will depend on the country in which they’re buying and their residency status but could include fees for transfer, mortgage registration, property valuation, and loan establishment, and real estate agent commission.
- Mortgage Payments – Monthly mortgage payments are not comparable to rental payments. Even if the monthly payment amounts are similar, owning a home means that you’ll also be responsible for paying fees, homeowner’s insurance, renovations and repairs, utilities and other types of fees typically covered by a landlord.
- Leasing a Home – If you are only looking to stay in a home for a specific period of time, consider leasing a home through a contractual agreement with the owner. Leases are typically for 12 months, but can be set for any length of time specified in the agreement. Leases are longer-term and more strictly defined than rental agreements. While rental agreement terms can change monthly, lease contracts can only be changed once the term of the lease is up.
- Renting vs. Buying – To determine whether renting or buying is better for your needs, consider how much you are willing to invest in a property. Renting a house involves a contract where the tenant pays rent to occupy the property, and it typically involves payments one, twice or four times per year. Renters may be responsible for appliances, utilities and low repair fees of a villa or apartment, while landlords are usually responsible for maintenance, community fees, high repair fees. The benefits of buying a home will also shift as the real estate market changes.