Buying a house happens only once in a lifetime for most. That too, if you're lucky. But besides luck, one has to actively work towards owning a house. HongKong Bank, in its series on personal finance web lessons, talks about how to go about buying a house.The bank says that before deciding on the kind of house that you want to buy, determine how much you can borrow. So it's the other way round: Set a limit for yourself, and then choose a house.
``Once you know how much you can afford, you'll know what you're looking for and you'll save time by avoiding flats that aren't suitable,'' advises the tutor. ``This will also put you in a good position to negotiate the price once you've found your dream home,'' the bank adds.
The lucky ones, who already have a house and want to go for a new one, must use the profit from the home being sold to make the down payment on the new one. Again, you must have an idea of how much you can get for your existing property and how big a mortgage you can afford for your newhome.
The next step is to set the mortgage term. Make it as short as you can afford it to be, according to the bank advisor.
As the mortgage term goes up, so does the interest you pay in the long run. But interest is not the only factor while selecting the mortgage term. The other things to be considered are your age, marital status, career, etc.
A maximum-term mortgage could allow you to afford your own home at a time when your salary level has yet to reach its peak. As you begin to earn more, you can increase your mortgage repayments by shortening the term of your mortgage.
Also, as you get along you may feel that with inflation, money is becoming cheaper. So perhaps half-way through a maximum-term mortgage, your mortgage payments will be relatively lower.
But if you are older and at the peak of your earning power, the mortgage modalities will be different. For instance, the maximum mortgage term may not be available to you when you are older. ``And you will almost certainly want your mortgageterm to be completed before you retire. Remember, the home you buy now could be your investment for the future.''
The bank says that taking a mortgage does not always mean that you don't have enough to buy a house. ``It could be that you have enough money to buy your new home outright, but it may still benefit you to take out a mortgage. This will give you the opportunity to invest your money at a higher return than that of your mortgage. Thus, at the end of your mortgage term, you will own your property and still have the capital plus interest. In this case, the term of the loan must be calculated carefully to match the optimum term of your investment.''
The maximum size of the mortgage you are opting for depends on three factors:
How much you can afford for your monthly repayment.
You should add up your out-goings, plus other expenses related to your purchase, to see how much disposable income you are left with. If the figure you arrive at is 50 per cent or less of your total householdincome, you can use this figure to calculate your mortgage
The mortgage term
The interest rate
Once you have worked out the right mortgage, it's time to focus on other aspects such as status of the property, location, developer's reputation, the description of the floor area, the completion date and the prospective occupation permit. You may also be required to sign additional legal documents upon issuance of the occupation permit. Extra legal costs may also be involved in doing this.
The following are likely to be some of the deciding factors:
Is the location convenient?
This depends on the individual. For instance, your prospective home may be in a good area, but if you have young children, is there room for them to play and is it close to schools? Also, check the travelling time to your place of work and, if you have a car, whether a parking space is included in the price.
Is the flat or house large enough for you and your family?
It's very commonfor people to choose a location at the expense of size. It's difficult in many cities, but try to make sure you have enough space to live in reasonable comfort, especially if you're planning to expand your family.
Is the property in good condition?
Whether you're buying a new property or an old one, it is advisable to have it surveyed by a qualified surveyor for your own protection, to check for illegal alteration and any structural work that may be necessary. Also, bear in mind renovation or redecoration costs.
Is there any major construction work going on nearby?
As it can be sheer misery living next door to a pile driver, it would be wise to find out what is planned for the area around the home you want to buy. And if the property has a view, check that it won't be hidden by some yet-to-be-built development.
Is the vendor the legal owner?
Make sure that the person(s) who is selling you the property is the sole, rightful owner of it. If it is jointly owned,all owners must give their consent to the sale. Either you or your solicitor can check this at the appropriate government bodies.
To sum it up, buying a house means going through the seven steps listed below:
Calculate how big a mortgage you can afford. Then start looking for the home you want to buy.
When you've found the property you like and it suits your budget, approach your bank for a preliminary property valuation, which is normally free of charge, and get a rough idea of how much you can borrow.
Agree on a purchase price and completion (of transaction) date. You will then be asked to pay an initial deposit and sign a temporary sale and purchase agreement.
Apply at your bank for a home mortgage loan and appoint a solicitor for a land search and the arrangement of legal documents.
Sign the formal sale and purchase agreement and make the deposit payment to the vendor.
Sign other legal documents and arrange to pay the outstanding balance (can be partiallyor fully paid by your home mortgage loan) to the vendor. For uncompleted flats, additional legal documents will have to be drawn up on receipt of the occupation permit.
Take the key and step into your new home.Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
Printer-friendly page
