Financing for Real Estate
Deciding to buy a new home is an exciting time in any person’s life. However, no-one wants the debt associated with the purchase of a property. Logically it makes sense that you can avoid loan debt by buying a property for cash, or at least a large portion of it. It would seem that this is the smartest choice. But very few people have the capital to buy a home outright and there are many things to consider, that may make financing the better option.
Let’s compare the two.
While many people are strained by their monthly down payments, there are those who either have the finance or save up enough money to pay for their homes in full, in cash. However, the question remains - if you can afford to pay cash, should you?
When you buy a home for cash you save money by not paying monthly bond instalments including interest over a 20 year (usually) period. You will also forego the home loan approval process and skip out on the bond registration costs. On top of this sellers will see you as a very serious buyer, which could open the door to negotiations on price. Finally, as a cash buyer, you own 100% equity in the property, which can be used as a safety net in future.
While there are many pros to buying a property cash, there are some disadvantages. Buying a home in this way will most likely mean that the majority of your finances will be tied up in a single asset - leaving very little for an emergency situation. If all of your money is invested in your home, it means that when property prices drop you take a percentage drop as well. This is particularly concerning if you decide to sell.
On the other hand, most people opt to finance their homes by taking out a home loan. As the average cost of a home in South Africa climbs on a yearly basis, it is financially easier for people to pay off a long-term home loan (20 - 30-year terms). Depending on your deposit amount and the financial institution and type of loan, interest rates and monthly repayments vary - which adds to the affordability of the loan. It is also much more undemanding to repay your home little by little, opposed to paying one large lump sum.
But loans also have some pitfalls to them. The most obvious downside to getting finance is the debt. When you take out a home loan, you have a long-term financial commitment that you have to pay on a monthly basis. It is also a secured loan, which means that if you can't keep up with your repayments you will lose the property. There are also many other fees that apply, over and above your instalments - from conveyancer costs to bond registrations and more.
At the end of the day, the choice of whether to buy your home cash or take out a home loan will depend solely on your financial and personal situation. If you have money to pay for a home without needing to go through a financial lender, cash buying might be the best option for you. Or if you can only afford to pay smaller monthly instalments to own the home of your dreams, securing financing could be the best option. For more information on how you can finance or purchase a home contact us!
Author: Firzt Realty Company