By Melissa Lim (guest contributor)
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 roller coaster, with emotions ranging from excitement to uncertainty. If we are not careful, buying a new home can become exhausting and scary.
Even though it’s likely to be the largest financial transaction one will ever make, it’s common to find home buyers who are poorly prepared and unable to make a good purchase decision. More often than not, it results in heartaches and regrets down the road, not to mention a big hole in the pocket.
Here are some errors that can be very costly to make:
Mistake #1 – Underestimating the full costs of buying a home
One thing I observed in my years of experience in the mortgage industry is that most first-time buyers tend to focus on the downpayment and monthly loan servicing amount when calculating how much they can afford but often forget to factor in additional costs such as the stamp duty(additional buyer stamp duty fee for buyers with one or more properties), legal fees and valuation report costs.
Besides the upfront payment, don’t forget your monthly fees as well! On top of your monthly loan repayment, home owners are 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.
Mistake #2 – Not getting your loan pre-approved
Another common mistake to avoid when buying a property is not obtaining an In-principle Approval (also known as Approval in Principle) for your mortgage.
So what is an IPA? In short, 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 Singapore, 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 a 100% chance of obtaining the loan from a bank, especially 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 facility payments are made on time.
Mistake #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 tell you otherwise.
For instance, don’t buy a smaller unit (think: shoe-box apartment) if you are planning to settle down and have kids. Don’t buy a condominium just because of peer influence. Buying because whoever tells you to do so is a BIG NO!
There are times when the market favors buyers. Conversely, there is what we call the “sellers’ market”, and that is when prices are booming. This is the property market cycle. 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”.
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. Hence, be rational, do proper research and empower yourself with the knowledge you will need.
Mistake #4 – Seeking mortgage advice from the real estate agent
Real estate agents may not be the best people to offer appropriate mortgage advice to us since they are unlikely to have the time to compare every mortgage package in the market.
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 home loan, a mortgage broker is also an invaluable resource for newbie buyers trying to understand how this complex undertaking works.
Mistake #5 – It’s not all about the price
Price is what you pay, value is what you get. This means you don’t make your buying decision based purely 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 appropriate. You can check URA’s website to find the latest transaction prices.
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.
Whilst it is exciting to buy your first property, it can also be stressful and overwhelming avoiding the 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.
By guest contributor Melissa Lim of Redbrick, an established mortgage advisory that assists investors and homeowners in sourcing for the best financing option catered for their needs. After graduating from University of Bradford in 2009, Melissa entered the finance industry and spent the last 9 years in the banking sector. She gained experience working in both local and foreign financial institutions, the majority of which as a mortgage specialist. To get a free consultation on your new loan or refinancing needs, please head to www.propwise.sg/mortgage/