Six Mistakes to Avoid when Buying a House
Traditionally, Filipinos believe that the best investment is buying a house. It is considered by many as a major purchase — a lifetime decision; hence, must not be done in haste. Yet, many are still a victim of regret as they hurried signing on the dotted lines without giving it so much thought. There are do’s and don’ts that prospective buyers must be cautious about.
And to help future home buyers, here are the blunders other have committed that need to be avoided:
1. Going on a home search prior to undergoing an income and qualification assessment.
Buying a house before you’re financially ready will mean sleepless nights. It is imperative to seek the professional help of the bank to assess your income and qualification (citizenship, work tenure etc). The bank can evaluate and usually provide borrower an idea as to how much he can purchase based on his current paycheck. Pre-qualification and pre-approval process must not be skipped upon by borrowers.
So, how would you determine then if you are ready? First, you must have at least a cash equivalent to 25-30% of the budget allotted for the purchase of the house. On top of that, you should have an emergency fund equivalent to three to six months of current living expenses. There are uncertainties that you have to be ready for.
2. Not checking other banks for rates and other services.
Brand [Bank] loyalty is not something you will consider when buying a home. Having your favorite, reliable bank is a great experience. But when applying for a loan, it is best to inquire to at least three banks. Get to know their interest rates, checklist of requirements and loan terms. Appraisal fee is a minimal expense compared to having a strategic position when negotiating with a bank. Let the bank be aware that you are canvassing around so you can request for a faster scheduling of property appraisal, better interest rate and other value added services. Compare banks and get better deals.
3. Not Factoring in Home Loan Fees and other charges
Home loan application doesn’t come free. Initially, you have to pay for appraisal fee. Once approved, there are bank charges and fees that need to be settled such as registration expenses, mortgage redemption insurance (MRI), fire insurance, handling and notarial fees. Bank fees do not come in few digits – better allocate extra cash solely for bank charges aside from the down payment you’ve already saved up. Word of advice: ask and fully understand these charges before plunging into buying a property thru financing.
4. Placing a low down payment — or no down payment at all
Home buyers may find it enticing to approve a low down payment scheme. A borrower may think of it this way : Less cash to shell out, the better it is. There are loads of expense to consider – new furniture and appliances are on top of the list. Practical move? Actually, it isn’t.
Opting for a low down payment means a bigger portion is now subject to interest. Do take note that in the Philippines the interest is computed based on the diminishing balance of the principal loan amount. In this particular method, monthly amortization is constant; hence, a bigger portion of the amortization goes to interest compared to the principal during the early part of the loan term because the loan balance is still big at that time. Simply put, the first few years of paying the loan goes to the interest and not on the principal. It is the reason behind why after paying for so many years, the principal almost have not changed.
5. Failing to consider resale value
While it can be a love at first sight when you finally decided to say yes to your dream house, plans do change and oftentimes inevitable. It is a smart move to consider the resale of value of the property so it will likely fetch a premium price when the time comes that it is time to put it up in the market to sell. A family home, after all, is an investment. Make sure to be able to turn it into liquid when the unexpected happens.
Hire a reliable real estate broker to know more about the market conditions, local government infrastructure program within the vicinity and future establishments. Gentrification is now a buzz word in property investment.
6. Waiting for the perfect house to come along
Finding a perfect property is like finding a needle in a haystack. Looking for perfection may frustrate you as there is no such a thing. Have an open mind with what’s available on the preferred location, stick to the set budget, be firm on what are the non-negotiable features of the house and be flexible on other factors. Separate the must-haves from nice-to-haves. Also, repair if you must, especially if the After Repair Value or ARV will drastically improve the price in the future.
Armed with this info, you can now go to the bank to accomplish item#1.
Happy House Hunting!!!