Buying a Home: 6 Different Options

Buying a home is one of the major desires of every person. It signifies the end of monthly personal budget allocations to pay rent, and an addition to one’s assets. However, understanding and selecting the best option to purchase a home is key as it also helps one identify their needs and suitable financing options, while also getting value for their investment. Therefore, lack of adequate information regarding the available options may lead to poor decisions and worse lead to a lot of debt.

Based on this, there exists various strategies that one can use when purchasing a home;

  1. Cash or Savings

Cash or savings is the easiest and the fastest way to purchase and own a home, because it involves few legal processes but requires a lot of financial commitment to succeed. Furthermore, the needs of the person to buy the home might change overtime, resulting to the property being disposed even at a lower price.

  1. Mortgage

A mortgage is a type of a loan used to buy a home, in which the borrower agrees to pay the lender (financial institutions) over a number of years, usually in a series of regular payments divided into a principal paid at the instance of purchase and monthly interest payments, with the home bought serving as the collateral. In Kenya, the Kenya Mortgaging Refinancing Company (KMRC) is tasked with the responsibility of providing loans to primary mortgage lenders which include banks, microfinance institutions and Savings and Credit Cooperatives (SACCOs) for onward lending to homebuyers at single digit rates. However, if one delays or stops paying the installments, there is the risk of losing the home since the property is used as collateral. Additionally, unless the home purchased is well maintained, it is likely to depreciate in value over time, bringing the possibility of negative returns since the mortgage amount does not change.

  1. Rent to own

This is a method of owning a home in which the tenant has an option to purchase the property they are renting sometime in the future. It involves paying more rent with the extra rent going to the home’s down payment. However, this option expires after a number of years, so one must be consistent in the payment of the extra rent. There are two types of renting to own agreements namely;

  1. Lease option– Here, the tenant has the option to or not buy the property when the lease expires. However, if one doesn’t buy the house, the extra payments made are always non-refundable, and the tenant suffers the losses, and,
  2. Lease purchase– The contract is legally binding, and the tenant has the obligation to buy the home at the end of the lease period, independent of one’s financial position. This makes the contract risky, and the interest rates may go up after the lease hence throwing one into debt.
  1. Off-Plan Purchasing

Off-plan refers to purchasing a property before its construction or completion. This is a great way of buying a home as one purchases the property at a price way below its market value, making it an investment opportunity as well due to benefit of capital appreciation. In addition, developers can offer flexible payment plans such as cash, installments, mortgage and zero deposit being the most popular options available. This implies that buyers have the freedom to choose the payment terms that they deem fit for them, as well as enable them make payments at their comfort without straining, and. The buyer may also have the benefit of changing or choosing his/her preferred design layout in the early stages of construction or even during the construction period. Despite the benefits, purchasing a home using the off-plan option can be disadvantageous particularly when one does not do proper due diligence hence gets involved with a developer with a bad reputation. This in most cases leads to the buyer getting swindled or the project being delayed. It is therefore important for one to do proper market research before investing using the option, in addition to also involving a conveyance lawyer in the whole process to ascertain the validity and legality of the project in order to avoid fraud cases or losing money.

  1. Joint Venture (JV)

A joint venture is a partnership between two parties, in which the parties agree to share the costs and expenses of a project, and later enjoy the returns. When it comes to buying a home, a JV entails partnering with a property developer who constructs your home, and then receives rent over a specified period of time. This option is suitable to an individual who doesn’t have enough finances to build a home of his or her own.

  1. Auction

This entails buying of a home that has been listed for auction by financial institutions such as banks, SACCOS, or even microfinance institutions. Whereas one can get a home at a cheaper price through the bids, it is advisable for the potential buyer to conduct proper due diligence regarding the properties listed for bidding, and also involve a conveyance lawyer to certain the details of the properties in order to avoid encumbrances that may be attached to the properties.

Conclusion

With the many options to consider in the market when buying a home, it is necessary to also consider your personal objectives, the time frame you have, budget prepared for home buying, and the location of the property. Additionally, it is more important to always conduct proper market research and due diligence before settling for a property, and always involve a lawyer in almost every step such as getting the title deed, contracts, or even making the required payments