The hire purchase

If you also dream of owning your own four walls, but do not yet have the required finances, then a hire purchase can be interesting for you.

The principle of the hire purchase of a property

This type of financing involves concluding a rental agreement that allows the property to become the property of the tenant over time. The final purchase price of the property is determined when the lease is concluded.
This means that even tenants with less equity can find the desired home of their own. There are 2 types of hire purchase, the classic variant and the option purchase.

The classic hire purchase

This variant of real estate financing is binding for both parties and obliges them to purchase the apartment or house. The landlord and the tenant specify in advance in the relevant contract the conditions under which the property initially leased becomes the property of the tenant. It is customary for 20 percent of the purchase price to be paid in advance in the case of a classic hire purchase. This down payment corresponds to the actual equity capital which must be raised when purchasing real estate and is due before the notarial deed is drawn up.
The purchase sum and the resulting interest is deferred in the case of hire purchase, i.e. a fixed payment period is granted. The tenant pays his debts in the form of a monthly rent. Depending on the agreement and the amount of the rent, the total costs can either be paid by the monthly rent alone or by additional payments. The remaining debt can, for example, be covered by a loan. In the case of full payment of the monthly rent, the term of the hire purchase is longer, but no additional and initially unforeseeable payment obligations are to be expected in the end.

The

option purchase

This type of option purchase is often offered by cooperatives and only grants the option to buy the property when the lease is concluded. The tenancy agreement therefore does not automatically oblige the tenant to purchase the apartment or house in which he lives. However, he gets the right of first refusal on his home. The period in which he has to decide to buy is normally around 25 years. After the deadline has expired, the property must then be purchased at the price set at the time of conclusion of the lease agreement. Future increases or decreases in real estate values must therefore not be taken into account.

The advantages and disadvantages of hire purchase

Like everything in life, the hire purchase has certain advantages and disadvantages, which should be considered thoroughly and weighed up against each other before conclusion.
A very clear advantage is that the acquisition of a home of one’s own by means of hire purchase can also be managed with little or no equity capital. no credit has to be taken out. Debt cannot be created in this way. The monthly rent payment is partly included in the repayment of the hire purchase. The purchase price is fixed and is therefore fixed for the entire term. The long term allows the remaining amount to be saved so that no additional loan needs to be taken out.
One of the serious drawbacks is that the final purchase price for hire purchase is usually considerably higher than for traditional financing. In addition, there will be acquisition and brokerage fees, which will have an additional impact.
Even if the Federal Government promotes the purchase of a home of one’s own with different programs, this does not include the hire purchase. All costs must therefore be borne by the buyer himself.