Regardless of whether you’re buying or renting a home, the importance of your credit report cannot be emphasised enough.
If one were to conduct research on the advantages of owning your own home versus renting a home you would likely find the same number of pros and cons for and against each scenario.
Let’s take a closer look:
Renting or Buying? Which is Cheaper?
For the sake of this comparison, a house of R700 000 was used – and the benefits of renting or buying the same house were compared.
Renting a home
One can rent a home of R700 000 for ± R3 500 per month. Depending on your lease, as a tenant you don’t have to pay any additional expenses per month, but can expect your rental to escalate between 6–10% every year.
In year one, your rental expenses will be R42 000 based on such rental per month.
Buying a home
If you’re a homeowner however, you’ll have to pay the mortgage instalment every month and if you bought a property of R700 000, paid a 10% deposit, and secured a home loan of 8.5 % ( the current prime lending rate), payable back over 20 years, your repayment per month would be R5 400.
Over and above the mortgage repayment, you’d be required to pay property insurance, rates, taxes and levies (in the case of a sectional title complex) and can thus add another ± R1 400 to your monthly expenses.
It’s also important to provide for property maintenance and it’s suggested that you budget another 1% of the value of the home towards maintenance per month – thus another R600.00 per month.
If you add up your mortgage repayments, plus insurance, rates, taxes, levies and maintenance, in the first year as a property owner, your expenses as a homeowner will thus be close to R88 800.
Renting vs Buying
To secure the rental property, you may be required to have a deposit available equal to 2 months’ rental, say R 7 000.
If you buy a property of R700 000, a bank may require you have a 10% deposit, available. That’s R70 000, plus you’ll have to provide for transfer costs payable to SARS and the transfer attorney of ±R 17 500, bond registration costs payable to the bond registration attorney of ±R 11 500 and bank administration fees of ±R 5 500.
The total cash amount that you must thus have in order to a buy a property of R700 000 available if you qualify for a 90% loan is thus close to R104 500.00.
It’s thus clear that it is less expensive to rent the same type of home.
The Importance of Your Credit Report
Just as a bank will obtain a prospective home buyer’s credit report to assess his or her creditworthiness, so too will a rental agent conduct a credit check on a prospective tenant.[sponsoredlink title=”Get Help Improving Your Credit Report Here” link=”http://bsmart.ms/DebtBooklet”/]
If the tenant has a negative credit report, the letting agent or landlord may require a higher deposit or even decline the application completely.
A home buyer is more likely to have the loan application declined if the applicant has an impaired credit report.
Your credit report is therefore one of the most important tools at your disposal when looking to buy or rent property.