We’ve seen tons of articles online about the various mistakes that newbies in the property market commit as they search or apply for their first home; whether it be an HDB flat or private property.
Amid so many “don’ts” and negative examples, we decided it’s more useful to positively state what you should do if you’re a first-time homebuyer. Here are several best practices that every new homebuyer should apply as you plan for your first property purchase.
1. Set Clear, Detailed Goals
“I want to buy a house” is not a goal – not enough of one, anyway. “I want to buy a BTO 4-room flat within three years with a maximum budget of $400,000, and pay off my home loan within 25 years,” is an example of a detailed goal.
Setting a clear and realistic goal that is specific, measurable, achievable and has a fixed timeline helps keep you on target to achieve the house you want. If you’re searching for a house as part of a couple (as many new home buyers are), then this is all the more important, as each of you may have different financial goals and it’s important to align the two to prevent unhappiness further down the road.
2. Plan a Realistic Housing Budget
Many people attempt to plan a budget for themselves. They take stock of how much they currently have and will have, and they figure for themselves how much a house might cost, how much a mortgage might cost, and how much they can afford each month. Some may even use our affordability calculator to help them do the math on their prospective property and their own finances.
However, many times, property seekers leave out important costs. Buying a house is not just about determining the property value, figuring out loan amounts and choosing mortgage interest rates. It’s also the small little fees and not-so-little stamp duty costs that surround the big-ticket sums.
Essentially, when it comes to budgeting for a new place, you also have to factor in the costs of what you need to turn your house into a home and how to keep it that way. That means considering renovation costs, monthly utility bills, installation charges, insurance, Town Council or condo maintenance fees, and more.
Many of these are recurring costs and can mount up to a large sum in the long run. So, you’d do well to factor them into homebuying costs, even buying a smaller or less lavish home, if necessary.
You can use the 3-3-5 rule to govern your basic finances up to the point of purchase for maximum prudence. Your initial capital should be 30% of your target property’s value, your monthly mortgage payment should not exceed a third of your monthly income, and the price of your property should not exceed five times your annual income.
3. Keep a Savings Buffer
Many first-time homebuyers assume that their first home will burn all their savings, and have no issue putting all their cash into the downpayment. But this is bad dealing for yourself.
A prudent home buyer keeps a savings buffer at all times, both before and after they buy their property. Before purchase, this savings buffer helps them pay for various fees and costs through the purchase period and beyond, as well as functioning as savings, in case of rainy days.
After purchase, this buffer becomes an emergency reserve for rainy days in the future, to help cover things like mortgage instalments in the event of income disruptions such as having your pay cut or losing your job. To that end, it makes sense to keep a buffer amounting to at least six months’ costs for your house, mortgage and other debts.
4. Do Your Research on Property Prices
For instance, if you’re looking for a resale market flat instead of a BTO flat, then you need to do your research into what a reasonable price for the area might be. With a red-hot HDB resale market and resale flat prices at an all-time high, you might be tempted to offer sellers more to secure your dream unit.
Given that the difference in the HDB valuation versus the offer price of a flat can be five or even six digits, it’s important to have a solid idea of a flat’s value. You don’t want to end up paying a large Cash Over Valuation (COV) sum.
So, check up on recent HDB resale transaction prices to know whether “you won’t find a better price in this area” for real, before committing to a purchase.
5. Carefully Consider Bank Loan Packages
Loans differ in many respects and features from one to the other. A good practice to inculcate is to take care and time to look through various loan packages and understand for yourself which one best suits your particular profile and goals, and resist the urge to simply go with the first one that looks “okay”.
Take the time and start early, to gather information on various loan offerings and narrow down those that appeal to you. You can use our home loan comparison tool to easily cross-compare the various mortgage packages offered by the major banks in Singapore.
6. Know When to Seek Advice
As a new home buyer, there may be much that you don’t know, simply because you haven’t had the time to read up yet. In such a case, it’s better to admit that there are many things you don’t know and ask for help and advice from knowledgeable people, than to bull through based on your own limited knowledge and miss the smoking guns that could later shoot you in the back when you least expect it.
If you need guidance on choosing the right home loans, reach out to our mortgage experts for unbiased, personalised financial advice. They can provide recommendations at absolutely no cost. Whether you require a simple consultation or prefer to be handheld through the entire home loan financing process, they’re happy to help.
Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.
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