Buying a first home can be a daunting thing. You’re entering into unknown waters and trying to triumph and come out a winner while grappling with your hopes and limitations
Having worked in the housing development industries for decades and from observations, the following are the top common mistakes made by buyers and how you can overcome them.
- Buying a property without financial planning – Over budgeting
A lot of buyers fall into this trap of buying a property that they can hardly afford financially. Knowing what the bank can lend you is a very important factor in buying a property. However, being aware of what you can afford realistically is also very important.
From observations, many buyers when in a market of increasing value have a tendency to buy the most expensive property that they can get hold on, fearing that if they do not buy then property value will continue to increase beyond their means. In this regards you are buying a property that may not give you the best returns. In the course of doing so, they have to sacrifice their lifestyle, thus making it a very stressful commitment for the family. They failed to understand that this purchase is just a first purchase and not the last, and this purchase should be considered as a stepping stone to buying more properties. Unless you come from a wealthy background you will generally buy a lower price property and upgrade it as you accumulate more wealth.
Overextending financially will cause you financial hardships in the long-term and having no extra funds to access to should anything go wrong in those “what if” situations.
To overcome this problem always plan your budget and stick to it. Make sure your funds are sufficient to cover the monthly loan servicing, unexpected interest rate hike or unexpected costs
- Buying without knowing all the buying process and hidden costs
There are buyers who buy a property without knowing some of the “hidden costs” that will surface when they take up the loan i.e. loan stamp duty, loan legal fees and disbursements, insurance and so on. A substantial number of buyers failed to set aside funds to pay for the stamp duty on Transfer, especially for landed property with a qualified title.
To overcome this problem first time buyers in particular needs to first understand the whole buying process and get the developer or solicitors to explain to them in detail all costs to be incurred in buying a property.
Some of the major costs in buying a property are:
- Stamp duty on loan
- Loan legal fees and disbursements
- Stamp duty on Transfer
- Differential sum between the Purchase price and the loan sum approved
- MRTA for some cases
- Interest charges to be paid to bank for loan sum released to the developer
- Penalty interest charged by developer due to bank late release of loan progressive payment
- No or not enough market research
Market research is one area that most first time or even a multiple property investor failed to do. You need to do research of the area. Research comes in many forms such as visiting the site, surroundings area, prices both online and offline, connectivity, amenities and facilities in the area. With the detailed information collected you will feel more comfortable when buying as decision are made based on research.
First time house buyers are advised to give themselves enough time to explore the market, both online and off, before diving into a purchase.
Tip: Create yourself a research plan that involves visiting the area daytime and night time, weekend and weekdays, check on surroundings, the community, check with agents on price, look at the number of For Sale/To Let banners, online property portal like I property, Propwall, Propertyguru etc. Then evaluate all findings before you are ready to put money down onto a property.
4. Getting impatient
If you have been looking for a property for a while, you can get tired and frustrated. You are tired of someone getting the deal last minute while you are getting everything ready. In such instance out of frustrations and fatigue you will have a tendency to just buy whatever comes along without taking into considerations your checklist or requirements for you just want to move on. This is when you need to take a BREAK from property hunting and then start again to renewed your vigour. There are many cases of buyers jumping in and then regret it later when the right property comes along in a month or so.
- Buying on emotion
It’s natural to feel emotional about purchasing property. After all, it takes years to save up the money to buy and you will likely be living in the said property for years to come. In short a place you called home. Hence, you will have a tendency to buy at first sight, having fear, indecisiveness, desperation and excitement and may ended up buying a much bigger and more expensive property or a property you love but does not meets your family needs and budget or you may even buy based on impulse out of fear of not getting a unit when response to a launch is successful i.e. herd mentality fearing that the price will be much higher the next round if you do not buy now.
To overcome this problem forward planning and research ahead will ensure that purchase does not vary from the budget fixed. It will also be good to bring along a friend whom is knowledgeable in property investment along to play your “devil advocate” questioning your decisions. Doing this will save you plenty of money in the long run.
- Not understanding the T & C of purchase or offer.
Relying on a oral agreement or information when buying without getting it all right and in writing.
This is prevalent amongst buyers of properties wherein Sales & Purchase Agreement (SPA) is not under the jurisdiction or control of the Ministry of Urban Wellbeing, Housing and Local Government (MOH). There is a tendency for buyers to sign whatever that was told to them by the vendor without clearly understanding the terms of offer or the terms in the SPA.
By the time the buyers found out about any unfavourable terms it is already too late. For example one needs to be able to differentiate between a SOFO, SOVO, SOHO and a service apartment. The latter two comes under the jurisdiction of the MOH as the unit has a living component in it and the agreement should be a standard Schedule H agreement. The Payment Schedule amongst other is another area to be aware of for purchase of commercial properties such as shop, shop office, offices, SOFO and the list goes on.
Tip: You need to understand what you are signing before you sign on it. Ask for documents in advance, make time to read them and ask questions. To get the solicitors to explain all the clauses in the Agreement before signing and bring along a friend or family member who is knowledgeable in property legal terms to seek clarifications on all the clauses before signing.
- Overbuying or Over leveraging
In times of boom and rising prices, there is a tendency for investors to buy as many properties as they can hoping to flip the property and make money upon completion. Please bear in mind that you may be qualified to buy however can you afford to pay for the monthly commitment without sacrificing on your lifestyle and family needs? Do you have sufficient funds or some excess funds to cover unexpected costs or do you have the holding power to hold the property when a crisis occur or market slump? If you are not able to you may have to sell fast at a lower price to cover your loan. Buying more properties in such condition is not a wise move.
- Buying based on recommendations by those not expert in the line/industry
It is also common to see buyers buying a property based on friends, colleagues or family members without being aware that these friendly parties may not be an expert and their evaluations criteria may have flaws for example just looking at the product and not understanding the current market scenario
It is recommended that you speak to one that you can trust and who is qualified. In this aspect networking and joining investment groups or club or agent will provide some insights too. However, you need to know how they get paid and their motivations for giving you the information.
With all this said and done, one of the most common slip ups for first home buyers is simply analysis paralysis, or delaying without reason to or always looking for the perfect home. If you have undertaken your research and prepared yourself, there’s no reason you shouldn’t buy a home.
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