MOST of us aim at building personal and family wealth through different legal means. One of popular methods used globally is owning properties.
By its nature, owning a decent home is not only a means of building your personal wealth but also the home saves as both a shelter and security for yourself or your family. However, not all homes derive the same utility to owners.
For the sake of our discussion, and to bring the discussion in our Tanzanian perspective, a decent home means a home built on a registered land with access to basic and necessary infrastructure services such as water, roads and electricity.
As a Tanzanian living in a country that is still a low income country which is making strides to graduate to a middle income status, you could be required to save for many years before you can be able to own a fully completed home.
And even fewer people have had the privilege to own registered homes as only less than thirty percent of homes are fully titled countrywide.
Among others, access to affordable housing finance is one of the biggest hindrance that prevents people from owning decent homes particularly the low and middle income group whose monthly income cannot make them qualify to housing financial products currently available in the market.
With this understanding it is obvious that it is more challenging to own a decent home in less developed countries such as ours compared to the case of developing countries.
Despite these challenges, one must strive to build personal wealth by taking advantages of several initiatives that the government as well as financial services providers have taken to enhance access to housing finance to prospec tive home owners.
It is agreeable that an individual or a household may not easily be able to save and accumulate all the money that is needed to buy a house and pay for a house in full at once. Luckily, most housing finance solutions offered by banks and other mortgage lenders seek to address this particular challenge.
Globally, it is generally perceived that a house is one of the most important investments that an individual or a household can make. One of the reasons that make a house a good investment is the fact that a house is the only investment in which a normal average family can utilize financial leverage or it can have access to funds that exceed what the family can raise at that particular point in time.
A property bought under mortgage arrangement involves professional works of several parties including developers, town planners, bankers, municipal authorities etc. These experts give assurance to the buyer that what is being bought has passed all levels of scrutiny.
In this case a bank can be willing to give you a loan of up to TZS fifty million by allowing you to deposit just five million! On the same note, the bank manager may not be comfortable to lend you TZS fifty million for you to buy shares worth the same amount.
The manager will likely argue that financial markets are too volatile to preserve the bank’s money and shares do not provide strong collateral. For this reason, the financial leverage that you get by buying a property becomes more than enough reason to purchase it rather than renting.
Other reasons that one should consider taking a loan to buy a property is that the loan forces one to save money over time and the fact that the property bought under this arrangement will in most cases attract higher value in future.
As the country’s income levels dictates, most prospective homebuyers have limited disposable incomes. The disposable income of many individuals has even gone further down due to various austerity measures that have been recently undertaken by the government particularly in the public sector.
This development has resulted into adjustment of individual’s as well as households’ saving plans at least in the short run in a manner that makes saving money to buy a house on cash basis to be a difficult undertaking.
With this scenario at hand, buying a home by loan can be a good solution as it provides an opportunity to save for a good course. The bank loan that you take has to be repaid through monthly installments.
The monthly loan repayment amount comprises of two parts namely; the principal and the interest. The longer the loan the more the amount of interest paid and vice versa. Of recent, there have been some complaints that interest rates charged by banks on home loans are too high.
The amount of interest that the bank charges on home loan is influenced by many factors within the economy includ ing the cost of finance, your credit history etc. While these complaints could be somehow true, borrowers need to find ways that can help to reduce their interest rates burden.
This can be achieved by saving for a reasonable deposit so that amount to be borrowed is smaller, building a good credit history, reducing the number of years that you stay with the loan or prepaying the loan whenever you are able to do so from other financial sources.
In conclusion, taking a home loan is poised to be a preferred option to many as the renting option has an obvious disadvantage that at the end there is no asset to own despite payment of rent over the period.
In connection with this, the home provides the financial security to the household. A bank will not be willing to provide a financial leverage to the borrower who is buying a home in a lo cation that doesn’t have prerequisite government approvals as doing so will be putting bank’s money in jeopardy.
The scrutiny exercised by the bank do not only protect its money but also is poised to protect the home buyer too. Owning a property built by professional developers such as Watumishi Housing Company, National Housing Corporation, Tanzania Building Agency, Avic Town and other private and public developers gives guarantee of the availability of basic infrastructure services such as water, roads and electricity which add value to your property and hence your wealth.