Renting vs. buying a home: Are you ready to make the leap?

The renting-or-buying-a-house debate doesn't have a universal answer; it has a personal one. Here's how to figure out yours.

Property ownership in the Philippines is a dream for many. Whether it’s a house and lot or a condominium, homeownership serves as a milestone in anyone’s life. It is one’s proof of hard work, perseverance, and success. Coming from a life of renting your own place after leaving the nest, you can also achieve your dream of homeownership with the help of home loans.

Since buying a house, condo unit, or any form of residential property can be a heavy commitment, it will help to first consider the pros and cons of renting versus homeownership.

Before applying for a housing loan, weigh your options and see if homeownership is the right thing for you.

Renting vs. homeownership: the pros and cons

Renting, at its core, often offers more affordability and flexibility than homeownership. As a renter, you won’t have to worry about maintenance and any major repairs, and your monthly living expenses are pretty much calculated and forecasted accordingly.

If you no longer want to live there, you can easily give up the place and haul your stuff onto the next one. This makes it easier on the wallet. However, this flexibility can also be a disadvantage. If, for instance, your lease has already ended and your landlord does not wish to continue it, you’ll suddenly find yourself without a home and need to look for a new place to rent ASAP.

Meanwhile, in homeownership, the first thing that comes to mind is the cost of maintenance. A leaking ceiling, for example, will warrant unexpected repair costs on top of your monthly mortgage payment.

That being said, the property is all yours. Homeownership provides you with a sense of stability and the peace of mind that you will always have a roof above your head. You can also choose to have it rented out if you have no desire to reside there.

Cost is often the first thing people weigh when deciding whether to rent or buy a house. Renting keeps expenses predictable and lets your lifestyle adapt to what you can afford. However, this isn't a given. Depending on the location and loan terms, monthly amortization can be comparable to, or even lower than, monthly rent.

Depending on the location, a monthly amortization can be cheaper than monthly rent. You just need enough funds for a down payment although there are some developers who offer down payment pricing schemes at installment rates with 0% interest. Rather than just being about price, if you choose to apply for a home loan, it means you can afford to anchor yourself in a community that fits your lifestyle.

Apart from the total costs of homeownership, there is no other disadvantage to having your own piece of property. If anything, it can be an investment, but you have to know how to manage the risks.

So, are you ready for a home loan?

To find out if you can afford a monthly housing loan amortization, look at these factors and evaluate if you’re ready for this type of financial commitment.

Check the market and research your options

The first thing to do is to practice due diligence and look up your options. Research for these three elements of a home loan:

• Down payment
• Loan amortization
• Loan term

Reviewing the market and finding out these three factors can help you decide on the most suitable lender and housing loan interest rates.

Finding the right balance between the down payment and the loan amortization enables you to manage your finances better. A larger sum on the down payment translates to a more manageable loan amortization.

It’s also important to calculate your debt burden ratio or DBR. Your DBR measures your capacity to repay your loans and debts. It takes into consideration the total amortization of existing and proposed loans vs. your monthly income.

Say your monthly income is PHP 100,000 and your total monthly loan payments are PHP 25,000.

DBR = Total monthly loan payments / Monthly income

• DBR = 25,000/100,000 = 25%

As a general guideline, your total monthly loan payments should fall within 30–35% of your monthly income. Staying within this range gives you enough room to cover essential expenses while still saving or investing.

Clear any existing debts that can get in the way of your monthly amortization

Another factor to look at is your lifestyle. Will you have enough cash to repay your home loan if any unforeseen expense occurs?

For reference, a good rule of thumb is to have a cash surplus to ensure you can afford your necessities.

Repay any existing debts before applying for a home loan, to help ease your budget as you commit to a monthly amortization. Stick to a budget to ensure that you won’t miss your monthly dues.

Consider the short and long-term impact

The longer your loan period, the smaller the loan amortization or the amount you need to pay monthly. However, while monthly amortizations are smaller in long-term loans, the total amount in the long run is higher due to a larger accrued interest. If you have other  financial goals that need to be met sooner, it may be advantageous to go with a short repayment term with higher Gross Monthly Amortizations (GMAs). The sooner you finish repaying your home loan, the faster you can move on to reaching your other goals.

An honest self-assessment

To drill down deeper if you’re truly ready for a home loan, answer the checklist below as truthfully as possible:

• Do I have enough savings to pay for the down payment?
• How much of my monthly income can I put into home loan monthly amortization?
• Can having a home loan monthly amortization affect my lifestyle significantly? If yes, what are the positives and negatives?
• What are the monthly expenses that I would have to give up, if any?
• Can I rely on my current income?
• Will I be staying here for the long-term? Is my monthly rental equivalent to my monthly amortization?
• If so, why rent when I can own using the same money?

Having straightforward and concrete answers to each question can help you decide if you’re ready to move on from renting, and upgrade to owning your own home. Given the pros and cons of homeownership, are you financially secure to apply for a home loan?

Owning property is a dream for many. It’s a big decision to make, so you want to make sure that you won’t have any regrets.