Buying a dream place to call our own can be a daunting task, especially if it’s our first home. We find ourselves on an emotional rollercoaster; emotions are raged with excitement but also full of complexities. If we are not cautious, buying a new home can become profoundly exhausting and scary.
While it’s likely to be the largest financial transaction you will ever make, it’s common to find home buyers who are poorly prepared and unable make a good purchase decision. And it’s not their fault.
Here are some errors that can be very costly to make and may put your aspiration of owning that dream home at stake.
1. Underestimate the full costs of buying a home
One thing I observed in my years of experience in the mortgage industry, most first-time buyers often tend to focus on the down payment and monthly loan servicing amount when calculating how much they can afford but many times, they forget to factor in additional costs such as the stamp duty fee (additional buyer stamp duty fee for buyers with one or more properties), legal fees and valuation report costs.
And many times, homeowners do not realize that they will have additional expenses on top of their monthly repayment as they’ll be responsible for paying property taxes or purchasing a mortgage protection plan to insure their home against disasters. Finally, there’s also the idea of home maintenance so there’s a need to set aside some cash for repair when things start to wear and tear.
I’m guilty as charged when I first bought my property – I suggest homeowners to also factor in the monthly maintenance fees if they are intending to purchase and reside in a condominium.
2. Not getting your loan pre-approved
Another common mistake to avoid when buying a property is understanding what an In-principle Approval (another term is also known as Approval in Principle) is but not obtaining one.
This is such a great avenue but often overlooked by homeowners. Being a new home owner back then, I was advised to put up an AIP application and that really helped me to plan my finances.
Now, I’m a strong believer for obtaining an AIP and highly encourage prospective buyers to put up the application before shopping for a property because the approved amount allows us to plan wisely and shop for a property within our budget.
So what actually is an IPA? In short, it is an agreement with the bank but there is no actual loan issued when the application is submitted. Rather, it is a “promise” that the bank will grant the borrower(s) a mortgage loan when they require it (usually when the buyer has secured a unit by placing the option fee). In our local market, the validity of an IPA lasts between 14 – 30 days, depending on the credit guidelines of each bank.
Having said that, getting your IPA application approved does not equate to 100% obtaining the loan from a bank if your financial health or credit bureau scores indicate negative results when you re-submit your application for an actual loan. The bank reserves the right to reject the application. Keep a good track record by making sure that your credit facilities payments are made promptly on time, this is one of the methods to help improve your credit scoring when applying for any facility with a bank.
3. Being emotional
Don’t be influenced by “the market” or peers more than by your own needs.
“But my mom says…”, “My friends told me….”.
No, you are the one who is going to move in and live in the property, so you should be the one making the call and never let anyone tells you otherwise.
For instance, don’t buy a smaller unit (think: shoe-box apartment) if you are planning to settle down and have kids and will need a bigger house. On the same note, don’t buy a condominium just because of lifestyle influenced by peers or you dislike the lack of personal space living in a HDB flat. Or simply because whoever tells you to do so, it’s a BIG NO!
I have also noticed that there are times when the market favors the buyers. Conversely, there is what we call the “sellers’ markets”, and that is when prices are booming. This is the cycle of the property market as we know it.
However, waiting for the “right time” or prices to go down is gambling with your family’s future. What’s your definition of the “right time”? I personally think that there is never the “right time”. Same goes to finding your “Mr or Miss Right” – to settle down at the “right time”, all it takes is to plan and consistently manage your expectations along the way.
The right approach should be to set the budget, have your finances organized and think about your current and future needs. You should not let the short term market conditions influence what will be your long-term lifestyle decision.
Bear in mind that the concept of your “dream home” changes from time to time. You will probably have to make some compromises to be able to afford your first home. Without a doubt, buying a home is an emotional process. Be rational, do proper research and empower yourself with the minimum knowledge (at least), you will brace yourself through the process. Ta-dah!
4. Seeking mortgage advice from the real estate agent
I know, I know. Real estate agents are like our BFFs, holding on tight to our hands throughout the buying process but they might not be the best person to offer appropriate mortgage advisory to us since they are unlikely to compare every mortgage package in the market.
No doubt they have the expertise and knowledge in selling properties like hot cakes, but if you have an independent mortgage broker to help guide you through the process, you’re in good hands. An independent mortgage broker ensures a seamless customer journey experience by providing buyers with unbiased home loan opinions from your loan selection.
In addition to helping you find the best deal, a mortgage broker is also an invaluable resource for newbie buyers trying to understand how this complex and often tortuous, undertaking works.
5. It’s not all about the price
Price is what you pay, the value is what you get. This means you don’t make your buying decision based purely based on price alone. Get a comparative market analysis or an indicative valuation to check against the most recent asking and selling price of similar properties in the same neighborhood to propose an offer (to seller) that is deemed appropriate.
You need not base your offer on the seller’s asking price. You wouldn’t want to be paying a higher price for a unit, nor would you want to buy a cheap property in an undesirable location, as you may face difficulty trying to sell it off at a later stage.
There are many other issues to consider when it comes to buying your home. Whilst it is exciting to buy your first property, it can at the same time seem stressful and overwhelming and the experience comes with its fair share of potential pitfalls. But if you are aware of the potential issues ahead of time, you can shop with confidence and protect yourself from making costly mistakes. Happy shopping!
Article by Melissa Lim, Associate Director at Redbrick Mortgage Advisory.