To help you avoid costly mistakes and regret, here are 10 simple steps you should follow when choosing your next home.
1. To Buy or Rent; That is the Question
Renting a home is usually faster and easier for the short term, but you should carefully consider the long-term returns a home purchase would bring instead. Rent paid is consumed and forever gone. While mortgage payment consists of two components – principal repayment and interest. Interest is similar to rent as in it will be spent. But the principal repayment will like force savings on your part and goes on to add to the equity to your property which you can unlock fairly easily should the need arise.
2. How Much Do You Have to Pay?
Can you afford the property? And not just with the money you have in the bank, but also your CPF. Note that for every private property purchase, you will have to fork out 5% of cash before you could pay the remaining 20% downpayment with CPF. And if you already have at least one outstanding loan? That cash payment will increase to 10%.
Your monthly debts are also an important factor to consider as that will affect the total amount of loan your bank will loan you. Most banks will only lend up to a 30-60% Debt Service Ratio (your total debt payments divided by your monthly income).
Finally, you will need to set aside some funds for the miscellaneous expenses that are typically associated with property purchases including and not limited to stamp duties, conveyancing fees, agent fees, property tax, conservancy or maintenance fees, etc.
Read this article for a quick guide to choosing the right financing. Should you prefer to do your own calculation, you can make use of this excellent affordability calculator from the CPF Board.
3. What Type of Home? Location, location, location!
Now that you’ve worked out your sums and set aside the amount you will need to pay, it’s time to consider options open to you. Of course, budgeting is just but one aspect. A property can only be a home when it fulfils your needs. What about the distance to your parents’ home? Or being close to your frequent haunts? How convenient is it and is it well served by amenities?
Are you married? Should you go for a 2-bedroom or even a 3-bedroom property even when you have no kids?
What about the kind of property is the best for you? A landed property with your own garden? Or an apartment complex that is small and exclusive? How about mid to large-sized condominium developments with full facilities?
These are important factors you need to think about before rushing in to pick just any kind of fancy home with a nice pool.
4. Know Your Options
Based on how much you can afford and the type of home you want, the next step is to see what is available in the market that is the closest match. This entails studying and understanding the market that you wish to enter. From price trends, the supply of new homes, volume of secondary market transactions, apartment sizes, current trending property features, current and future economic climate etc. Having these in mind will help you make better decisions. You might want to leverage the expertise of a real estate professional when making one of the biggest commitment of your lifetime. Of course, you can go at it alone, and there are certainly some advantages of doing so. We will cover this in detail in a future article.
5. Research the Market
As we all know too well, the economics of demand and supply will determine prices. And prices will, in turn, will affect demand and supply. Population growth, either naturally or from migration, will drive demand. As will demographics. While supply will be controlled by the government through the release of land for sale, urban planning and building of public housing. In addition, the real estate developers will act to increase or decrease the supply of private housing following the demands of the consumers.
Understanding these trends is imperative if you are investing, however, if you are purchasing your home, a roof over your head should take greater precedence than investment returns. That said, you should always kind in mind to select a home that will be fairly desirable, and hence easy to sell off when it comes time to upgrade.
These days when you are doing your research, there are plenty of resources available online. From transaction prices of private properties, upcoming new launches, prices of units sold by developers to rental statistics, these are all available from the Urban Redevelopment Authority’s website. Although there is a lot of free resources, your real estate advisor should be able to give you a clearer presentation of data and in greater detail as they will have paid subscriptions to the latest information.
6. Time to See the House for Yourself!
Shortlist some suitable candidates from property listings and make arrangements to go view them. Even with the popularity of property videos and virtual tours, it still doesn’t beat having a look and feel for yourself. As lighting, ventilation and the “feel” of the house can’t be effectively conveyed through videos. How about the layout of the property? Does the position of the various space in the home make sense and does the space feel comfortable to you?
In addition, the layout of the development, from the entrance to the car park, the side gate to the lift lobby, and the various facilities are all observations one should pay attention to. How about the neighbours or the residents of the estate?
Visit at different times of day to see what the environment, noise level, and traffic congestion is like, then further narrow down your list to the top few units you like. Arrange second viewings if necessary.
7. Indicative Valuations and Pre-approved Mortgage
Even before you zoom down to a unit you want, it’s advisable to approach your bank and ask about the kind of loan options they could offer you first (before you confirm with your property agent that you wish to buy anything). And here again, your property advisor can assist you in selecting the most suitable loan package. Be sure to get an indicative valuation from the bank for the unit you are eyeing and in-principle approval for a mortgage. Remember: if you already have an outstanding loan, your LTV (Loan to Valuation) limit will be lowered from 75% to 45%, so be sure to prepare extra cash in that case.
Also, banks will only lend to you based on the LOWER of the valuation limit or purchase price, so if you are buying above the bank’s valuation you will need to pay the difference in cash. If you are selling your existing home to purchase a new one and hope to borrow at 75% LTV, you now need to present proof to qualify for a loan. The proof will be a signed purchase agreement for your current home and certification showing that the stamp duty for your existing property has already been paid for by the buyer you are selling it to.
8. It’s Time to Make an Offer They Can’t Refuse!
Or at least one that’s attractive enough that they can’t ignore.
Once you know that you have a sufficient amount of money to pay for your target home, it’s time to make an offer to the property agent – but only if you are sure that your bank could definitely back you up without issue. There have been cases where buyers lose their deposits because they realized later that their banks would not finance their purchase, so be careful and be sure! It helps to have several financing options on hand in case this happens.
9. Sign on the Dotted Line
If everything goes well and the seller accepts your bid, you’ll have to fork out 5% of the purchase price in cash – 1% deposit to get the Option to Purchase (OTP) and 4% of the property price when exercising your OTP. Once you get the OTP, liaise with your lawyer and a mortgage banker to settle the procedures. After which, all you have to do is sign on the dotted line and your purchase is official!
10. Give Me My Keys!
Once you have exercised the Option to Purchase, the conveyancing lawyer will do the necessary to make sure the title will be transferred to you and the appropriate funds are withdrawn from the bank and your CPF to the vendor. This process typically takes around 12 weeks or about 3 months, one pro-tip before the completion – arrange for an inspection to ensure what was negotiated and agreed upon is held up on the vendor’s end.
And just like that, you have a new home in only 10 steps! Easy, right? Hopefully, the above tips will help you in your home search and avoid pitfalls.
For more advice on each of these steps, feel free to consult your trusted advisor to better understand the details on what you should do. Good luck!Recommend0 recommendationsPublished in