The decision to buy a house instead of taking one on rent is not easy. It takes a lot of financial and emotional planning. Home ownership is a matter of pride for some people, whereas others like to live in rented houses to avoid long-term financial commitments.

So what’s the right decision? Several factors play a role in this decision. Here are some points which might help you decide based on your financial goals.

Financial planning

When it comes to buying a house, you have two options. You either arrange the funds yourself or take a home loan from a financial institution. Whatever be the level of self-funding, you will still need to have saved up for 40-50% of the base price of the house you plan to buy. You can borrow the rest. With the loan, you need a regular source of income to pay the home loan EMIs. If you have the savings and the income stability, you can buy. If not, you should continue living in a rented place.

Commitment vs freedom

Leasing a house gives you the freedom to move around. But if you do not want to move around, living in a rented place may be a pain if you are asked to move. Your lease may be expiring, you may want something better, or your landlord may be selling the property and asking you to vacate. Rent also keeps on increasing and if your income isn’t rising in tandem, you’ll be forced to the outer limits of your town in search for a cheaper place.

On the other hand, buying a home gives you stability. Your EMIs may be much higher than rent, but they will remain the same year after year. Buying a home also needs you to be financially disciplined to pay your EMIs on time. “Therefore, taking a house on rent is easy now but gets harder later in life, while buying a house will have an immediate impact on your finances but you will build a solid asset that will become more valuable with time. Living in your own house gives you and your family freedom and safety besides capital appreciation. It is your property, and you can enjoy it the way you like it,” says Adhil Shetty, CEO, BankBazaar.

How long will you stay in one place?

If you are clear about your requirements, it becomes easier for you to decide. If you are going to stay at a particular location for a very long period, say 10-20 years, it makes sense to have your own house if you can afford it. You can compare your rental costs versus EMIs. But if your work requires you to keep moving cities, a rented house is better.

Income and higher credit score

Taking a home loan means you will have to pay EMIs on time. If you have a temporary job or have irregular income, it’s advisable to live on rent till you become financially stable. “You also need a good credit score to borrow at an affordable interest rate. Without a good credit score, your loan may become expensive, and in the worst case, you may not get the loan at all,” informs Shetty.

Consider opportunity costs

Home buying is one of the most important decisions of your life. It requires a consideration of your opportunity costs. You might be financially capable of buying a house, but the decision to buy the house may come at the cost of other life goals, such as educating your children. Evaluate how the decision upsets other aspirations. You may still need to go ahead and buy the house. But you’ll need to find a way to balance the opportunity costs so that your other goals are also achieved in due course.

In summary, take a long-term view of buying and a short-term view of renting. Buy when you have the savings, credit score, and income stability and the clarity that you’re going to remain in one place. Till then, rent.

COMING HOME

*To buy a home, you have to arrange the funds yourself or take a home loan

* By buying a house, you build an asset that appreciates in value over time

*The decision to buy a house may come at the cost of other life goals

* Take a long-term view of buying a house and a short-term view of renting it