Most renters aspire to finance and own their own properties. After all, home ownership offers plenty of perks and there is nothing like owning your very own home. Homeowners, unlike renters, have equity in their properties.
Homeowners also have the freedom to upgrade their properties as they see fit, and ideally receive returns on their investments at resale.
However, while this is true in most cases, it does not mean it's the perfect solution for everyone. There is a lot to think about - from finances through to hiring lawyers - and the truth is that sometimes buying a home can lead to disaster, if not executed properly.
Here are some key concepts you need to consider if you want to make the transition from renter to a homeowner as smooth as possible.
Before you buy The best way to make a smooth transition starts before you buy the property. A proper inspection can alert you to problems that already exists with the property. New homes shouldn't have many issues, but it's always wise to get an inspection anyway to ensure that everything has been installed properly. After inspection, the next step is to work on your budget. It is advisable to come up with a home maintenance plan and upkeep into your monthly budget.
It is, however, different if you're buying an existing property. New roofs, kitchen overhauls and plumbing repairs can cost you thousands of ringgits. Unless you are happy to make do for a while, it's something you will need to do-to save up a significant amount of money. While some improvements are elective, such as bathroom remodels and upgraded floors, more critical issues that threaten residents' safety are not optional.
Understand the cost of home ownership There's more to it than just the mortgage payment, though. It is advisable to compare current rent payments with projected monthly home ownership fees. Add together the principle, interest, taxes and insurance to roughly estimate your potential post purchase expenses.
Here are some home ownership costs to consider before you take the plunge.
- Maintenance. When you own your home, there is no relying on a landlord/management company (if it's a strata titled unit) to fix any problems that may arise. You will be responsible for any repairs and routine maintenance that your home needs.
- Property assessment fee (cukai pintu). This is a tax generated twice a year by the local city council where the property is located. You are required to pay this to the local authorities for their provision of services to the residents.
- Quit rent (cukai tanah). This is a form of land tax collected by State Governments and is imposed on owners of freehold or leased land. The amount of quit rent you need to pay varies from state to state.
- Homeowner's insurance. When you have a mortgage, you are required to take out a house contents policy to cover any necessary repairs or even rebuilding costs after a disaster.
- Homeowner's management fees. If you're living in a condominium or townhouse, you may be required to pay a monthly homeowner's management fee that covers shared community amenities. This fee varies annually depending on your management.
Keep these costs in mind as you decide how much you can afford to spend on a home.
Check your credit score If you are planning to buy a home in the near future, it is never too late to pull your credit report and start making positive changes to increase your credit score. Your credit score is a key factor in securing approval for a mortgage, and a higher credit score will get you the best mortgage rates available.
Think long term Buying a home is a huge commitment, and not just financially. Renting a home is a short-term solution to housing that gives you the freedom to move around.
Becoming a homeowner allows you less flexibility, so it is important to think long and hard about whether you are ready to commit to home ownership. Ask yourself the following questions.
- Do I plan to stay in the same place for a long time?
- Does buying a home match up with my career and lifestyle goals?
- Am I prepared for the extra costs of home ownership, like maintenance and insurance?
- Is my credit score high enough to afford me a favourable interest rate?
If you answered YES to most of these questions, then you may be ready to transition from a renter to a homeowner!
Research mortgage options As customers, you have the opportunity to shop around for the best-fitting financing.
Compare mortgage rates based on loan type, location, purchase price, down payment and credit history.
Much like renters, it is advisable to calculate your budgets prior to searching for a new home. When you are serious about buying, you should consider getting your mortgage pre-approved. Having a predetermined budget before house hunting helps you eliminate unpractical options, ultimately saving time, and minimising emotions over out-of-reach properties.
Consider resale value Tenants can live in trendy neighbourhoods without speculating on home value trends for the future. On the other hand, buyers should opt for locations with appreciation history over popular, but boisterous neighbourhoods that might deter future homebuyers.
Completely open-concept spaces with no formal dining or living rooms may create social atmospheres for some but may discourage homebuyers in the latter. Regardless of trending layouts, many buyers still prefer designated areas for formal entertaining in their homes.
Find your dream home Now, the fun part: finding the home of your dreams! In today's market, it is important to hire a real estate agent or negotiator to help you along the process for many reasons.
Hiring a professional who knows the market, capable of negotiating and is willing to spend time finding you the perfect home which will help save you both time and money.
Buying a home is one of the largest and one of the most important purchases of your life so it is best to make sure you are doing it right.
Although the commitment to owning a home might seem scary at first, making the transition from renter to homeowner isn't as difficult as it seems. In most cases, it will be worth it - but make those financial checks beforehand to ensure you can afford it.