Owning a house is more than a dream for many. It is a representation of peace of mind, sense of belonging, security, stability, an investment, a show of self-actualization and a sense of pride.
To some, it is the means to an end and not an end in itself. As in, they see it as an opportunity for growth for themselves, family and enterprises. It is for them a launchpad to many other phases of their life’s journey.
In some customs, owning a home or land is a requirement for getting married. For many in Africa who know how important it is to own a home or a land, most part of their life is dedicated to this one goal.
Well, you may not be alone. In the United States of America becoming a homeowner is a key part of the American Dream.
Irrespective of the cultural differences and purposes one may have with regards to home ownership, the main issue has been the how? Some prefer building it themselves at their own pace and to their own specification, while others prefer to buy either outright or through a mortgage arrangement.
We have looked at the pros and cons of building your house in a previous write-up. I hope it served you well. In this article, we will be looking at the pros and cons of buying a home. Although not a new activity, it is now picking up in many developing countries like Ghana. Many people in these parts prefer building to buying, despite how long it takes to complete most of these building projects.
The reason is largely due to the cost of outright payment, cost of down payment (in terms of mortgage), lack of stable source of income and most of the population are in informal employment. Another reason is that others prefer to build in certain specific areas; probably because it is their hometown, or close to their hometown etc.
In fact, for those who prefer to build, some are unable to complete the project. Others too do not get to start at all. The fortunate ones get their children completing or building the project after they become adults and are in a better financial position.
The two main ways of buying a home is by outright payment or by mortgage. Outright payment simply means paying for the property in full or phases (installments) based on a purchasing agreement between the vendor (Home owner) and the purchaser (Home Buyer). Buying a home is a very expensive venture, hence very few are able to make outright purchases. That is where the mortgage way of buying a home comes in.
Mortgage or Mortgage loan is simply a loan used to buy or refinance a property. Thus, due to the amount involved, one goes to a bank, mortgage firm, Housing Company or Real Estate Developer to finance the home while the beneficiary (borrower) pays over a number of years with interest.
This is based on an agreement between the borrower and the one financing the property upfront (Lender). The property is also used as the collateral for the same loan. Thus, per the agreement, the lender has the legal rights to repossess the property if the borrower (home buyer) fails to meet the terms of the mortgage. As in; not being able to repay the money borrowed plus the interest.
In most mortgages in Ghana, the borrower is expected to pay a lump sum of the total cost of the home, while the rest is spread over a period of years. This can last between 10 to 30 years, depending on the agreement signed.
For many households, the lump sum is still too expensive for them, but for people with a stable source of income and having well-paying jobs, this arrangement is perfect. There have been several instances where some are able to pay the installment ahead of schedule.
Mortgage has become one way to free up money for those who have investment interests. For instance, there are some who opt for a mortgage even though they have the money to pay in full. The idea is that instead of paying off, you use part of the money to satisfy the lump sum, then pay the installment as though one was renting the home. The rest of the money can then be put into an investment to raise more funds to clear the debt or undertake other business enterprises.
Now that we know what goes into buying a property, can we then dive into the advantages and disadvantages?
To begin with, buying a home is a long term investment that may come very handy when necessary. It can form a backbone to financial freedom, especially as it cuts away rent cost; a huge part of one’s monthly expenditure. Although homes can lose value, this does not happen often. In a country where the housing deficit is so huge; you can bet a shed will have its value appreciate year on year.
Figures from the Ghana Statistical Service indicate a deficit of about two million housing units, thus about 100,000 units need to be built annually to close the gap in the near future.
If you are lucky to buy a home, know that you have bought an asset that will only appreciate in value. With Real Estate now growing in Ghana and many parts of Africa, this is a good time to own a home. Particularly, when the home you bought or are buying is in a good location and well-built. In this case, both the land and the property appreciate in value over time. When you want to retire to the countryside, you can sell it off to buy another property and still have extra funds for other purposes or even acquire an additional house.
The downside of this however is that poorly built homes, thus when built of poor quality materials, the value will depreciate. Buildings in waterlogged areas also decrease in value due to the wearing. Same as those built in buffer zones and places that are susceptible to government or state repossession. That is to say, if you buy a property on a waterway, area demarcated for future use by the state etc; it is a bad investment. Although it may give you temporary peace of mind and stability, know that with time it will lose value and become unattractive for new buyers.
Buying a House also builds one equity. Equity is the difference between the value of the home and what you owe; thus if you have paid a substantial amount of the mortgage. When your house appreciates in value, you can sell it off to clear your debt and use the reminder to find another home which is less expensive.
Instead of paying rent to a landlord or a property company for years without any special benefit, the installment you pay on your mortgage (home) is like a savings into your own home; equity. You hit the jackpot if your property appreciates in value. Usually by the time you are halfway through the mortgage payment, the value has appreciated more than the original price. In effect, what you are left to pay will be much less than half of the current value of the property. The difference is your equity or free money.
As much as being diligent in your mortgage payment can bring you equity, a glitch in your income flow can lead to a default in mortgage payment. A default if not well managed can make you lose the property all together. That is why it is always important to ensure your income flow is stable and there is a back-up in case the unfortunate happens.
Buying your own house also guarantees long term stability. What this means is that since you live in your own home, the urge to relocate is low. Thus you tend to live longer in one location. This means you can plan your life for the long term. This includes where to work, where your kids will have their education and building lasting bonds with neighbors, service providers and other key stakeholders within and around the neighborhood, like Police, municipal officers, water companies etc.
For the many who want to pass on their homes to their children, buying a home helps you have that stable plan working overtime. This also makes you work hard towards building a safe and progressive neighborhood.
If you do not own a house, you are not guaranteed stability to live in one place for long as several factors can make you move. This includes, a difficult landlord, fluctuation in rent payments, lack of sense of belonging, changes in income levels among others. Renters who are able to stay in a neighborhood for long, do so at a greater cost; which is still a disadvantage of some sort.
Having privacy and control over your living space is another good reason to buy a home. Unlike renting, buying a house gives you total control over your home. You can make renovations, modifications and expansions without the permission of the landlord or property manager. At any given time you can make changes to suit your lifestyle.
For those who like pets or enjoy loud music, you can do this without having to worry about the next door neighbor. This is based on the fact that renting usually has tenants sharing spaces and having most of the building semi-detached or just close to each other.
You can keep a garden, use part of your house as an office, or even build stores in front of your property to serve the neighborhood. All you need to do is to comply with statutory requirements. Apart from the control, you have privacy. Neighbors or landlords cannot tell you when to come in and go out. Who to invite in your home, how many people can visit in a month among others.
The land tenure system in Ghana can make building your own home a hell, especially in bigger cities where land has a lot of value. It could take you years to acquire the land before building starts if you deal with the wrong people. Hence, buying a home takes away all the stress, time, cost and losses associated with building your own home.
Buying a home therefore takes away all these uncertainties, disputes, litigations and losses as you enjoy the home as you pay for it over time or pay outright. On the other hand, a bad home purchase can lead you into bigger losses. Always deal with the right people.
Despite all these good reasons to buy a house, the challenge has always been the down payment (lump sum). That is a barrier that many renters are unable to reach. Whereas in some developed countries the down payment can be as low as 5 percent that is not the case in Ghana. It is usually 20 percent and above. This can be one disadvantage to buying the house.
As usual, it all boils down to the individual. Make a choice that resonates with you; one you can live peacefully with.
The writer is the CEO of CBC Properties Limited, a member of Ghana Association of Real Estate Brokers (GAR) and Ghana Real Estate Developers Association (GREDA); Email: [email protected] Cell: +233-20-422-5002
