We’ve seen many articles online from first-time homebuyers sharing the various mistakes they made when navigating the real estate market for their first private property.
After reading so many “what not to do” articles and cautionary tales, we believe it’s more practical and effective to clearly state what first-time homebuyers should look out for. Here are 6 tips that every prospective new homebuyer can apply:
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1) Set Clear and Detailed Goals
“I want to buy a house” is not a goal; it’s far from it. However, “I want to buy a 2-bedroom condo built within the last 3 years, with a maximum budget of S$1.8 million, and pay off the mortgage within 25 years” is a detailed goal.
Setting clear, realistic, specific, measurable, achievable, and time-bound goals will help you stick to your plan and realize your dream of buying a property. This becomes even more important if you have a partner (like most new homebuyers) and are looking for a property together. Since you both may have different financial goals, it’s necessary to discuss and reach a consensus to avoid future disagreements.
2) Create a Realistic Home-Buying Budget Plan
Most people create their own budget plans. They do this by estimating their current and future savings, purchasing costs, mortgage costs, and monthly expenses. Some even use our affordability calculator to assess their potential property and financial situation.
However, in reality, property buyers often forget some important costs. Buying a property is not just about deciding on the property’s value, estimating the loan amount, and choosing a mortgage rate. It also includes several smaller fees and stamp duties associated with a large purchase.
Essentially, when budgeting for a new place, you also need to factor in the costs of renovating and maintaining the house. This means considering renovation costs, monthly utility bills, installation fees, insurance, condo maintenance fees, and other expenses.
Most of these are recurring costs, and they will add up to a significant amount in the long run. Therefore, you need to include them in your home-buying costs, even for a smaller or less luxurious home if necessary.
You can use the 3-3-5 rule for basic financial management to purchase a property most prudently. The initial funds should be 30% of the target property’s value, the monthly mortgage repayment should be less than one-third of your monthly income, and the property price should not exceed five times your annual income. This is the 3-3-5 rule.
3) Maintain a Buffer of Savings
Most first-time homebuyers think it’s okay to use all their savings to buy their first home and put all their cash towards the down payment. However, this is not a proper approach.
Prudent property buyers understand the importance of maintaining a buffer of savings, both before and after the purchase. This buffer can be used to cover various costs during and after the home purchase, acting as a rainy-day fund.
After the purchase, this buffer can serve as an emergency fund for unforeseen circumstances. In case of a personal income interruption, such as a pay cut or job loss, it can help with mortgage payments and other issues. For this reason, it’s reasonable to save at least six months’ worth of housing expenses, such as mortgage and other debt costs, as a buffer.
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4) Conduct Property Price Research
For example, if you are looking for a resale condo instead of a new one, you need to research the reasonable prices in that area. As the condo resale market is booming and prices continue to rise, you might be tempted to offer a higher price to the seller to secure your dream unit.
Therefore, it’s necessary to investigate recent resale transaction prices for that condo development and nearby projects. This way, before you buy, you’ll know for sure whether “you can’t find a better price in this area” is true.
5) Carefully Consider Bank Loan Options
Loan packages differ in various aspects, each with its own features. It is advisable to spend time and effort researching various loan options, considering which one suits your personal situation and goals, and avoiding the impulse to accept the first “okay” offer.
Take your time, start early, gather information on various loan products, and narrow down the ones that appeal to you. You can fill out our home loan form, and we will recommend the best bank mortgage based on your situation and loan requirements.
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6) When to Seek Professional Advice
As a first-time homebuyer, it’s normal to not know many things because you haven’t had the time to delve into them. In this situation, it’s more effective to admit what you don’t know and seek help and advice from professionals, rather than haphazardly applying your limited knowledge and missing out on important details that could seriously affect you later on.
If you need advice on how to choose the right property or mortgage, you can contact us for objective, customized professional opinions.
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