To Buy or Rent? What Kind of Financing is Best?

To buy or rent? Many young people ask the same question, but the answer isn’t really simple. It not only depends on what’s currently within your range of possibilities, but also on your preferences and plans for the future. What are the ups and downs of each? And what about rent-to-own?

Hypotéka, nebo nájem? Jaký způsob financování zvolit?
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To buy or rent

Sooner or later, we all reach the phase when we start considering moving into our own house or flat. Unless you’re lucky enough to have a relative wishing to donate property to you, you’re left with two basic options – renting or buying a property. Few have saved enough to afford a property straight away and thus opt for a mortgage.

Both rent or a mortgage can cost you about the same per month. What differs is what you get for your money. While a mortgage gives you ownership with a lien, renting allows you to use a property without owning it. Each option has its own pros and cons, so we’ll examine them in more detail in this article.

A mortgage creates a financial obligation but brings security

Taking out a mortgage means binding yourself financially to a creditor for a certain period of time, sometimes many years. On the other hand, you gain the benefit of becoming a property owner. However, you should take into account a few conditions you’ll need to meet in order to secure a mortgage. The bank will require you to document your income, so that they can calculate how much credit they’ll give you.

To take a mortgage, you’ll also need hundreds of thousands of crowns immediately available in your account, because as of 2017, the applicant must pay a portion of the purchase price on their own. This down-payment usually equals 20% of the property price, but upon meeting certain criteria, some banks are able to lower this to 10 or less percent by offering additional loans.

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Flat rental means financial freedom without any securities

Renting a flat will not financially bind you for years, nor will you have to document your income. On the other hand, it comes without any securities. You don’t own the property; you merely pay for using it each month. What’s more, your landlord has the right to raise the rent after a time, to perform flat inspections, or to break the lease.

Muž stěhující se a řešící otázku hypotéky, nebo nájmu
A man moving and solving a questions of mortgage or rent issue

In general, renting a property serves as a short-term solution, as most people take out a mortgage and buy their own house or flat sooner or later. However, there are many families living in a flat because they can’t afford anything else or have a questionable payment history that prevents them from getting a mortgage. Of course, there are many possible reasons for deciding to rent property. Some people prefer the freedom from responsibilities that comes with owning a house or flat, as they don’t have to take care of anything. All they need to do if an issue arises is to contact their landlord, who will take care of it.

Nowadays, we note the increased preference for the freedom that renting offers. Owing to it, one can, for example, live in a neighbourhood they couldn’t afford otherwise. It also gives people the flexibility to move from one place to another as the need arises.

Rent-to-own is a possibility

There’s an interesting possibility that combines some advantages of both paying rent and taking a mortgage: renting to own. This is ideal especially for young couples who can’t afford a mortgage yet but are eager to move into their own home. It also works for those who don’t qualify for a mortgage.

Several websites and companies offer this type of financing, and all you need to do is apply. It’s not only possible to finance a property purchase this way, but also to construct a house.

The principle is quite simple: the property price is divided into monthly instalments (the amount is negotiated in advance), which you repay while normally using the house or flat. Thus, there is no need for a mortgage. The monthly instalments are guaranteed, so you don’t have to fear they’ll be raised in any way. What’s more, you can choose their amount and thus the length of the repayment period. Some providers charge a reservation fee, but you can also find those who don’t, so you won’t need a large savings.

If you opt for a rent-to-own home, you can also decide to pay if off early without any additional fees or penalties, for instance by taking out a mortgage. In other words, you can apply for a mortgage later on when you can afford one, use the money to pay off the remaining rent-to-own balance, and then proceed with standard monthly mortgage payments to the bank. However, it’s always advised to have a solicitor examine the relevant contracts so as to avoid any unpleasant “surprises.”

There’s a trend in some other countries where the customer purchases, e.g., only 70% of the property for a lower price and then repays the rest later on or continues renting it for the time being.

We’ll help you rent, rent-to-own, or secure a mortgage

Whether you decide on one form of financing your home or another, you’ll need to carefully meet all the legal requirements. Don’t risk losing your money or even your new home. We have plenty of experience with renting and buying property and will gladly assist you in taking care of everything, so that owning your new home becomes a pleasant experience.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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