Posted Date: Jul 27, 2009
By: Chan Ai Cheng
A home is a place of residence or refuge of comfort. It is usually a place where an individual or usually a family can rest and relax, communicate, share, dine and be able to collect as well as store their personal properties. Therefore it is important that when you consider a place to call your home, it must be a safe and pleasant place to be in.
Buying a house is more often than not, the single largest investment most people ever make. Yet all too often it is a hastily made decision without adequate thought and preparation. In this article we will explore some of the house-buying mistakes to watch out for in your property hunt.
Buying a house is a complex transaction and should not be undertaken alone. You need to enlist the help of these individuals early in the buying process: Real Estate Agent, Banker, Lawyer and Property Inspector. It is also wise to get referrals and advice or tips from family and friends. When assembling your team, remember to choose wisely. The lack of experience in the person who is supposed to be your guide can make your property hunt a frustrating experience.
Love at first sight
You may be in love with the house at first sight, but you have to ask yourself if the house fits your family’s needs and budget. You have to ensure that you make a list of your needs and wants and then check whether the house fits your requirements. Besides that, you should check out the neighbourhood and the communities by visiting at different times of the day and week before you buy. Even if you do not have kids, you should also check out the local schools to make sure that the resale value will be good. Put away the love at first sight impulse and consider what it will really be like to live there.
Pre-qualified and pre-approved financing
Being pre-qualified gives you a general idea of how much you can afford to borrow. It is a good idea to get in touch with your banker or mortgage officer early in the buying process so that you are aware of the amount you can borrow as this will determine your budget for a home. The mortgage officers will also be in a position to advise you on aspects of financing i.e. the possibility of having joint borrowers to strengthen the application or to lengthen loan tenures should a need arise.
Being pre-approved means that your banker has verified your information as well as credit rating and agrees to provide you with a specific amount of money. You are in a better position to go house hunting knowing exactly how much you can afford and that you have the financing ready.
You may be qualified to borrow more, but you have to ask yourself again whether you can afford it or not. Borrowing more would mean higher monthly loan commitments for just the purchase of the house. You have not considered the cost of improvements on the house like renovations and furnishings. What you need to do also is to analyse your monthly costs – food, transportation, entertainment, car loans and other commitments. Therefore you have to be sure to have allocated enough to cover closing costs (often two to five per cent of the purchase price), plus moving and maintenance. Beyond mortgage payments, there will be other costs like insurance. You don’t want your house to deprive you of your lifestyle.
Misplacing your trust
Remember that buying a house is a business transaction. Your decision is binding. You should do your own research and know your support team’s roles and responsibilities. Do not just depend on what they say a hundred per cent.
Get it right and get it in writing. Written agreements almost always trump verbal ones when it comes to contracts. Do not set yourself up for surprises when you move into that new house and some of the items in it are now missing. There are many details that make up the purchase contract that governs the particulars of your house purchase. It is not unusual for an item to be missed – especially those requests made by you to the seller or seller’s agent. If you ask for a toilet to be repaired or a chipped tile to be repaired, do not simply take someone’s word that the item will be repaired prior to transfer of the property. Make sure that every item that you agree on is put in the purchase contract.
Verbal agreements are hard to prove and even harder to enforce. They can lead to an ugly ‘he said, she said’ situation. Once the property transfers to your name, any problems or issues that you thought were going to be repaired are now your responsibility. Do not let miscommunication or failed promises ruin the purchase of your dream home. Get all commitments, no matter how small, in writing.
You need to understand what you are signing. As soon as possible, review the documents you will be signing. You must always ask for the documents in advance, allocate time to read them and ask questions, where necessary. Do not just skim through the purchase contract. Real estate contracts are long and dense, but you need to know what you are committing into. Wrong assumptions, poorly written or missing clauses, and not understanding how the clauses affect the purchase can lead to increased costs or a void contract.
Do not sign documents in a hurry. Do not rush the closing.
You should avoid buying a home that costs much more than neighbouring homes and think before buying the most expensive house in the area. Your neighbours’ lower house values will weaken yours. Remember, markets change. If you buy with the intention to flip your investment but the market falls and forces you to sell, your selling price may not even be enough to cover your mortgage.
Many homebuyers forget that the market value of a house is affected a great deal by its neighbours. The best way to gauge a fair offer price is to get your real estate agent to pull prices comparable homes nearby recently fetched. The listings will show not just the amounts but also how long the house has been on the market and its condition and size. Note that the nearby houses will affect the value of your house. That means the most expensive house on the street may be lowered down in value by its cheaper neighbours, while a low-end one will benefit from better surroundings.
It is good practice to have your offer to purchase the house conditional upon securing financing. The last thing you want happen to you is the forfeiture of your deposits for backing out on a purchase transaction because of failing to secure financing. One thing is to be pre-approved and the other is the property itself. The banks will do a valuation on the property to confirm its market value and then to determine the margin of loan they are willing to offer you. There may be other conditions as well that you might want to add in at this point.
It is well worth your money engaging a house inspector to check out the house before committing to the purchase. These Inspectors know what to look out for and can advise you accordingly on the state of the house – whether it is in need of repairs so that you are fully aware of the additional expenses needed. Do not take the word of the seller that certain repairs and maintenance have been made to the home. A formal inspection of wiring, plumbing, and general structure of the home is needed to avoid nasty surprises.
Inspection reports are great negotiating tools when it comes to asking the seller to make repairs. If a professional home inspector cites specific repairs in the inspection report then the seller is more likely to agree to them rather than if you try to negotiate based on your observations. As we mentioned earlier, make sure that any last minute items that came up based on the inspection report or your own visual inspection during the walkthrough are addressed in writing and completed before you take ownership of the property. If the seller agrees to make repairs, have your inspector verify the work is completed properly. Do not assume that everything will be done as promised.
If you’re buying a new house off the plans from the developer, they will offer the ‘Defect Liability Period upon Vacant Possession’, where they will rectify problems, if any, with the house during handover.
No place is perfect. There will always be surprises. Do not let a few initial blips spoil the whole ride. More importantly, do not miss a great house waiting for the perfect one! Failing to jump on an opportunity, I believe, is a mistake. Too much shopping around can backfire. When you have done your homework and when you see something that matches that, go for it.