If this is your first experience of purchasing a property or being a first-time home buyer, your excitement about the prospect will be understandable. You have been living with your parents for long or have spent most of the previous years at college. Now, imagine moving up to the next level of life to purchase a property for you and yours! The experience is sure to keep you awake all night in excitement. Purchasing your first home is a huge milestone but you need to be careful lest you end up with disappointments. The milestone requires meticulous planning to help you get it right. You also need adequate financial readiness and sufficient knowledge of the homebuying process. This will require a lot of effort on your part but your effort will surely pay off. In this informative write-up, we will open your eyes to some of the very important things you must bear in mind as a first-time homebuyer.
What Does It Mean To Be A First-Time Buyer
A first-time home buyer is someone that had never purchased a home before and this is his first time of doing such. Such individuals might have been living in a rented apartment or staying with acquaintances up till now. Those purchasing homes for the first time are given certain incentives by the government. However, you can only qualify for the incentives if there is no record that you have any property anywhere, whether in your country or in any other country. You will not be eligible for some of the first-time buyer schemes or relief if you have ever owned or inherited property.
Each of the important things you must bear in mind when making the move to buy a home for the first time will be discussed below:
Before you conclude on buying a home, you need to check your purse and determine how much you can afford for the project. If your income is limited, you should combine several properties and go for the most affordability. You should check your earnings, monthly expenditures, and savings before purchasing the home. If you do not have sufficient funds for the home yet, you can quickly build up funds by cutting your daily expenses and increasing your savings. In case the total amount is not amassing as quickly as you desire, you can go for a mortgage. Many financial institutions are open to giving you loans for your home purchase. Thanks to the amount you have already saved, you will not have to depend solely on loans to purchase the property. This will help you to pay back the loan faster. If you want to add a loan to the fund for purchasing the home, you can use online mortgage calculators to help you compute your monthly payments at different loan amounts, interest rates, and terms.
Check the terms
If you want to go for a mortgage loan to purchase a home, it is advisable to properly investigate each of the lenders around you lest you make the wrong choice. Whether you are a first-time home buyer or not, check the terms and conditions of the lending house before you partner with them for a home loan. Many of the ending houses demand that you deposit a particular amount before they approve the loan. Each of them also has its specific mortgage terms. Go for a lending house that demands an affordable deposit limit and friendly mortgage terms. In most instances, you will be required by the lenders to deposit 5% of the total value of the home you want to buy. Nevertheless, you can get better mortgage terms from the lenders if you deposit a higher amount, like 10% of the home’s total value.
Many of the borrowers allow their customers to choose between a fixed-rate and variable-rate mortgage, depending on what works for them. In a fixed-rate mortgage, the interest rate is locked and will not change while the loan repayment lasts. The monthly repayment will also remain constant until you finish paying back. In addition, a fixed-rate mortgage can offer you a repayment period of 2 to 10 years, which can sometimes be extended to 30 years.
The advantages of fixed-rate mortgages are highlighted below:
- Market fluctuation does not impact monthly payment
- An increase in interest rate will also not affect monthly payment
- Because it offers payment certainty, you can make financial plans better.
Its disadvantages are:
- It has a higher initial interest rate than variable rates
- You cannot benefit from a reduction in the market rate
Variable rate mortgage, on the other hand, is more or less the opposite of fixed rate mortgage. Therefore, its interest rate changes periodically since it will be determined by Euribor, prime rate or any other benchmark index together with lender-determined fixed margin. The repayment term for a variable-rate mortgage is usually higher than that of a fixed-rate mortgage. So, you can enjoy payment terms of up to 40 years.
Some of the benefits are:
- The interest rate on the first payment is very low
- The amount you have to pay can reduce if the interest rate reduces
- The penalties for overdue payments are usually limited and this type of mortgage offers better flexibility
Some of its limitations are:
- Your repayment will increase as the interest rate rises. Consequently, variable-rate mortgages are not predictable.
- Market fluctuation can expose you to greater financial risk.
It is better to get a pre-approved mortgage so you are aware of your amount of credit and show sellers you are a serious buyer.
Aside from the costs described above, you should also make provision for the closing fee; which can be between 2% and 5% of the buying price. The closing fees cover lender fees, lawyer fees, and taxes. Some other costs to consider include maintenance fees, homeowner insurance, and relocation costs.
How To Manage The Home Purchasing Process
The purchasing process can be tasking and confusing, especially because this is your first time. However, the steps provided here will guide you on how to manage this process so that you can emerge unscathed.
Get your priorities right:
- This can be done by first creating your wish lists and necessary lists. It will help you to differentiate between your needs and wants, helping you to focus on what is necessary when buying a home. Prioritizing the purchasing process will prevent spending money on unnecessary amenities and features in the home you want to buy, thereby helping you to cut costs.
- In addition, you should make up your mind on the type of property that best fits your budget and needs. Will a condo, a townhouse or a single-family house be sufficient for you?
Market research is necessary:
You should take some time to research the neighborhood where the property is located and this property’s market demand as follows:
- When researching the neighborhood, find out how secure it is to ensure the safety of life and property. You should also look for a neighborhood close to your place of work so that you do not have to spend extra on transportation to work. If you have school-age kids, look for a neighborhood that is not too far from their schools. In addition, you should find out how close the property is to public transit and other essential social amenities.
- Furthermore, you should explore emerging new up-and-coming neighborhood areas for long-term potential for value growth. This is necessary in case you have to sell the property you are about to buy in the future. Purchasing a property in an up-and-coming neighborhood will help you make a huge profit when you resell.
Get a team together:
You need a team of professionals as a first-time home buyer to help you get it right. The team members can include house inspectors, attorneys, mortgage brokers, and even real estate agents. To cut costs, you do not have to hire any of these individuals; you can simply visit any of them for professional advice when you need such. Some of them can offer you the helpful insights you need for free if it is within their power to do so.
It is time to search:
After putting together a reliable team, it is time to start searching for the property to buy. Since you already have a team in place, the burden will not be on your shoulders alone; your team members can also assist with the search.
- To make the process a lot easier for you, you should make use of real estate agents and listing companies, imploring each of them to search for houses according to your parameters. Make sure everyone is on the same page regarding the type of house you are interested in.
- You should also spare time to attend viewings and assess the condition of the property extensively. A house inspector can assist you with the inspector. Since he is a professional, he should be able to see things that your untrained pair of eyes miss.
Negotiate like a pro:
After locating the particular property that meets your criteria as a first-time home buyer, it is time to make an offer and negotiate with the seller. Make sure your offer is sound and attractive while also helping you to save money. Before making the offer compare it with existing market conditions to put you on the safer side. Since this is your first time, you may not know how to negotiate property. However, as a first-time home buyer, you can rely on your team of professionals can provide you with helpful information on market conditions. Do not forget to also negotiate completion dates, repairs, and other contingencies.
Inspect properly:
- Since you are new to the process, it is better to hire a professional inspector to help you examine the state of the property before closing the sale. The professionals can help you inspect its structure, plumbing, electricity, and appliances to make sure they are in perfect condition.
- In addition, you should get your house appraised for or above the purchase price for mortgage endorsement.
Close the sale:
To close the sale, you need to do the following:
- Close the mortgage documents and pay the necessary closing fees earlier discussed.
- Sign all the associated legal documents to convey the property and completely place it in your name as the new bonafide owner.
- It is also essential to purchase home insurance for the property to cover investment.
Essential Legal Documents For First-Time Home Buyers
Check below for some of the highly essential legal documents you must obtain as a first-time home buyer.
Sale Deed / Deed of Sale
It is the most important document with the legal implication of transferring ownership from seller to buyer. It includes details about the property such as location, boundaries, price, and parties. It must be registered in the concerned government office (e.g., sub-registrar) to become legally binding.
Title Deed
It determines the absolute owner of the property and its background. It must be marketable, clean, and free from encumbrances or disputes.
Encumbrance Certificate (EC)
This certificate verifies that the property is free from any dues, mortgage, or financial liability. It is issued for a certain period of time and ensures the buyer with a free title.
Building Plan Approval / Building Approval Plan
It is issued by local authorities and it verifies that the property has been built according to sanctioned schemes and bylaws.
Completion Certificate
Make sure that the building is ready and meets all the building and safety norms. It is usually required to get utility and occupancy certificates.
Certificate of Occupancy
This document confirms the property is ready to be occupied and is usually required for loan sanction and legal possession.
Power of Attorney (POA)
If you are buying the property through an agent or representative, this document gives them the authority to act on your behalf in the transaction.
Sale and Purchase Agreement
It is a contract with terms and conditions agreed between seller and buyer, price, payment schedule, and property details.
Payment Receipts
This is the documentary proof of payments made to the seller or developer, token amount, and installment payments.
Mortgage Documents
It includes sanction letters, loan agreements, and others if funding the purchase via a mortgage.
