Did you know that it isn't a good idea to skip getting a home loan pre-approval, nor is it wise to surround yourself with too many people?
It’s hard to deny the unmistakable little thrill you get when you first start the journey towards becoming a property owner. And that’s why, more often than not, buying a home can quickly become a very emotional process.
While it can get pretty overwhelming at times, it’s important to always keep a clear head and try to make as rational a decision as possible. Let’s take a look at some of the biggest errors you could be easily avoiding!
1) Not getting pre-approved first
If you want to show that you’re serious about buying a piece of property, what better way to do so than to get a home loan pre-approval?
What that essentially means is, before you’ve even identified a couple of potential properties, you’ve decided to find out exactly how much of a home loan you’d be approved for. Basically, it's how much the banks will loan you for your home purchase. Thus, you’ll know the price range of the property you can afford.
2) Not checking your credit report/score first
Your credit report and credit score are two of the most important parts of getting your home loan successfully approved. So, it’s best to check on these two to make sure both are healthy!
For the former, banks would look at your CCRIS report, which offers a picture of your overall financial health. In other words, it’ll inform lenders if you’re a creditworthy individual.
For the latter, it would be your CTOS score, where the higher you score the better it’ll be for you. Here is where lenders will know if you’re able to repay your debts on time or not, based on your track record for previous payments.
3) Visiting properties that are way too expensive
If you’ve already got a budget in mind AND a pre-approved loan amount, the last thing you’d want to do is window shop at properties above that amount.
You’d only be setting yourself up for unnecessary disappointment, while also wasting your time and efforts. If you’re able to, it’s a good idea to look at homes that are below that figure, and not right on the dot.
In this manner, you’re giving yourself some room for price negotiations with the seller, in case you find yourself competing with other potential buyers looking at the same property.
4) Falling for the first home
It’s easy to get swept up in the rush of emotions and fall in love with the very first property you visit. But if you haven’t compared it to other similar ones, how would you know if it’s really “the one”?
It’s better to check out a few options that tick off the right boxes on your search list, so that you’d at least have an idea of what flaws you should be looking out for.
After looking at other places, return to the first property a few more times (preferably at different times of the day), to see if you can spot anything new and if the overall surroundings are generally pleasant.
5) Neglecting to inspect for important flaws
Speaking of flaws, another common mistake that first-time homebuyers make would be forgetting to check every single corner of the potential property for signs of defects.
You need be fully aware of the condition of the place you’re about to sign for: whether any repairs are needed, how potentially expensive it’ll be (if any), and whether you’re going to be taking on remodelling, restoring or full-on renovating when you move in.
If you discover anything that’s going to put a dent in your funds, you could even have the upper hand in negotiating with the seller to fix the problem, or reduce the price!
6) Ignoring the neighbours and neighbourhood
It’s not just the home you’ll be buying, it’s the environment that comes with the deal too. To avoid unpleasant surprises later on, make sure you ask crucial questions, such as:
- Is there any upcoming infrastructure that’ll be built nearby?
- What are the development plans for the neighbourhood (if it isn’t already fully established)?
- Will the roads become a popular rush-hour shortcut or extremely noisy during peak periods?
- Are there any nearby essential amenities, or is there a great distance to travel?
- Have property prices been generally increasing or decreasing?
And then there’s the question of your immediate neighbours; how are they like when they’re home? You definitely wouldn’t want your peace and quiet shattered by the sounds of someone who’s just started violin lessons!
7) Not engaging a property agent
A qualified and experienced real estate negotiator or agent is valuable in SO many ways! Not hiring one could be akin to dropping into the deep end of the pool without swimming lessons.
They’re able to help you narrow down the list of properties to expect in your price range, check their extensive database of contacts for the latest listings and best deals, as well as negotiate efficiently on your behalf, among other things.
8) Skipping lender comparison and rate shopping
Not all banks have the exact same packages on offer. So if you sign on with your favourite bank, without looking at the interest rates of all the other banks, then you might just miss out on the lowest one possible.
Make sure you look at everything, not just the rates – there are also things like repayment terms, customer service, and how fast your application will be processed.
9) Failing to be (truly) financially ready
You may think that a stable job with a decent pay is all that’s required to buy a home. Not so fast! Do you have enough cash leftover for your daily expenses after you pay your monthly installments?
And how about your savings for a rainy day? Ideally, you should be putting away at least 30% to 55% of your gross income (this is after the mandatory EPF and SOCSO deductions) each month.
10) Carrying around a lot of debt
While it’s necessary for you to have a history of credit in order to show the banks that you’re capable of managing your finances wisely, it’s never a good thing to be carrying around TOO much of it.
This is where the Debt Service Ratio (DSR) comes in; it’s an indicator of an individual’s ability to afford that home loan they’re applying for. If it looks like you’re going to be struggling to even survive, you can kiss your approval goodbye.
As a general rule, you should keep your DSR between 30%-40%. So don’t be late or miss any repayments, and try to only use your credit card sparingly.
11) Saving all your cash just for the downpayment
Yes, the downpayment is the largest financial roadblock that you need to overcome (after all, it’s at least 10% of the property’s price), but that isn’t the only cost to consider.
Did you know that there are also other costs to consider like legal fees for the Sales and Purchase Agreement (SPA) as well as stamp duty fees, to name a few?
If you don’t want to be caught completely off-guard and end up losing your dream home because you realise too late that you’re short of cash, we suggest you check this comprehensive list of all the rates!
12) Surrounding yourself with too many people
Ever heard the saying, “too many cooks spoil the broth”? It means that when there are too many people involved in something, it usually causes A LOT of confusion, and a clear decision cannot be made.
It can be really tempting to bring along a large group consisting of your parents, partner, best friends, and mentor when looking for a property. Not only will their opinions overwhelm you, they may actually even clash with one another!
You should be very selective with who gets to be involved in the homebuying process, especially if you don’t have a solid plan or you’re someone who’s easily swayed by emotions, and that includes the professionals as well – property agents, legal representatives, and home inspectors.
13) Rushing to make an offer (that’s too much)
In a property hotspot where homes have a high demand, it may be necessary to make an offer fast if you find something that you not only like, but is also within your affordability range.
However, if you don’t step back and take a few days to calculate the risks, you may end up offering too much in order to try and avoid a bidding war.
Now, if the official valuation of the property isn’t at (or above) the price that you offered the seller, the bank isn’t going to give you the loan unless the seller reduces the price or you fork out your own hard-earned cash to cover the difference.
This article was originally published by PropertyGuru.