Buying a home for the first time may cause you to experience some anxiety and we can say that it’s quite normal actually. The decision to buy a first home, regardless of whether it is a sub-sale or an undercon (under construction) house, is indeed a big decision in life. In fact, the process of buying a house can be terrifying if one doesn’t have sufficient knowledge or preparation. This article will explain new home buying tips from developers and common mistakes first home buyers often make to help make your first home buying process simpler.
The process of buying a house is not too complicated if done in the right way. If you are planning to buy your first home, here are seven ways that you need to consider before buying a new home.
1. Financial Ability
Two of the main questions first-time homebuyers ask is how much salary is needed to buy a house or is it possible to buy a house with my current salary? Generally, you can use a calculator on the internet to answer this question. You only need to enter your salary as well as your monthly commitment and loan period to find out the loan amount that suits your ability. Financial experts think that your mortgage or monthly installments should not exceed one-third (⅓) of the gross salary. So, if your salary is RM3,000 per month, you should not pay more than RM900 for the first home loan.
2. Buying the Right First Home
Upon knowing the eligible loan amount, you can do a survey and find a house that fits your budget. You can choose the type of house that suits your needs and tastes, such as a condominium, apartment, terrace house, semi-D, bungalow, etc.
In general, there are many important things to consider before choosing or buying your first home, including:
● House location;
● Total square feet (sq. ft.);
● Other facilities such as schools, supermarkets, places of worship and so on.
If you already know the type of house you want, you can ask the help of a real estate agent to help you. Typically, a real estate agent will advise you on things related to home buying such as the current market value, background and record of the developer.
3. Real Estate Lawyer
Appointing the right lawyer is very helpful especially when it comes to the home buying process. A real estate lawyer can help you better understand the process and the documents involved (including foreign terms in the agreement), ensuring you don’t overlook important clauses in the agreement.
4. Sale and Purchase Documents
Besides that, you also need to understand the documents related to the purchase of a house, including the Letter of Offer. What is a Letter of Offer? It is an official document stating your intention to buy the house. Usually, this document contains information such as:
- Buyer and seller information;
- The total booking fee and the balance of the advance payment that needs to be cleared including the payment clearing period;
- Period for signing the Sales and Purchase Agreement (SPA);
- Loan repayment period.
In addition to the Letter of Offer, the Sale and Purchase Agreement (SPA) contract is one of the sale and purchase documents that need to be paid attention to that states the terms and conditions of your purchase. The following is the information usually stated in the SPA:
- Information related to the house purchased including address, land area or unit and so on;
- The type of ownership – freehold or leasehold;
- Detailed information about the construction of the house (materials used for doors, windows, walls or floors);
- Estimated date the house is expected to be ready.
5. Housing loan
In general, a housing loan or house loan is an agreement between the bank and you. Housing loan is divided into several categories, including:
● Conventional housing loans;
● Flexible housing loans;
● Islamic housing loans.
Loan amount, housing loan interest rate and loan period are important things to pay attention to. It is also worth noting that the terms and conditions of each loan package offered are different depending on the bank – be sure to make a comparison before choosing a loan that is right for you.
6. Home Ownership Transfer
The process of transferring ownership of a house is the process of changing ownership from the seller to the buyer. It immediately marks you as the rightful owner of the house. Here are the documents related to the transfer of ownership of the house that you need to know:
● Vacant Possession refers to the process of handing over the vacant house and any other equipment and furniture listed in the Sale and Purchase Agreement (SPA) to the homebuyer after the home purchase transaction is completed;
● The Certificate of Completion and Compliance (CCC) issued by the local authority states that the property in question has been completed and is safe to occupy;
● A Memorandum of Transfer (MOT) refers to the document signed by the buyer to transfer ownership from the seller.
7. Period of Liability for Disability, Claims for Compensation
Defects Liability Period (DLP) refers to the warranty period from the developer to repair any defects identified after work is certified complete.
All expenses for repairing these defects shall be borne by the developer and no additional costs shall be charged. Typically, the defect liability period starts from the date of handover of vacant possession or the date you receive the keys up to 24 months from that date.
Besides the DLP, there is also a claim of Liquidated Ascertained Damages (LAD) if the developer is late in handing over vacant possession of the property. Basically, a LAD claim can be made if the developer is late in completing the construction as agreed based on the clause in your SPA.
7 Common Mistakes First Homebuyers Make
Everyone should have a dream to own a house as early as possible. However, if done in haste it may affect your finances. Here are seven common mistakes buyers often make when buying their first home:
1. First Home: Property Type
Among the common mistakes made by first home buyers is not doing research on the type of property they want to buy. You need to identify the type of house, bank loan and interest rate offered. If you buy a home such as an apartment or condominium, you need to prepare for the cost of home insurance and the cost of maintaining facilities as well as buildings (strata ownership). In addition, you are also advised to research the record of the real estate developer to prevent your house from becoming an abandoned project.
2. Commitment exceeding the repayment ability
Many first home buyers make the decision to buy a home without considering existing commitments. If you have a high Debt Service Ratio (DSR), you may face problems if you want to make a loan or bank loan. Determine your budget and ability to repay the loan as well as other homeownership costs that need to be borne. Buy a home that fits your budget, income and financial commitment.
3. Taking Home Ownership Costs Easy
If you are planning to buy a second-hand house, you need to be aware that you not only have to pay the downpayment but you may also be bound by the process and costs of buying a sub-sale house such as legal fees, stamp duty and so on. Therefore, it is important that you have sufficient real estate knowledge and information to reduce the impact on your finances.
4. Buy a First Home: Affordable Home Scheme
Buying a first home doesn’t mean you have to start with a modern and expensively furnished bungalow. There is no problem buying a small house as a first home because house prices will increase every year. If you want to get a house at an affordable price, you may be able to consider a housing scheme provided by the government. Usually, there are many housing incentives offered by the government to help people own their first home, such as Rumah Mampu Milik Johor, Rumah Mampu Milik Terengganu, Rumah Mampu Milik Selangor and so on.
5. Neighbourhood Area, Internet and Telephone Networks
Among the things that buyers often ignore when buying their first home is that they take for granted other factors such as the location of the residential area they want to buy. If possible, spend time surveying the neighbourhood, especially at night and identify if there are basic facilities such as schools, LRT, places of worship and so on. It is to ensure that this neighbourhood is safe and comfortable to live in. In addition, also check the telephone and internet coverage network in the area to prevent you from getting a heart attack if your residential area does not have a stable telecommunications network.
6. Not Understanding the SPA Document
Understand the terms and conditions of the housing agreement contained in the SPA. Consult your appointed lawyer if you have any questions. This can indirectly avoid any disputes or problems (if any) later on.
7. Not Checking Your Credit Score
A credit report and score are one of the most important things to be paid attention to before you apply for a home loan. You need to make sure that your credit status is in good condition. The CCRIS report allows the bank to access information to find out the borrower’s ability to repay new loans or identify previous loan payment history. Hopefully, this sharing of real estate tips or home buying tips can help facilitate your first home purchase. In addition, you can also visit the Qoala website for more info on home insurance. Qoala is an easy, transparent and fast insurance buying platform with competitive and affordable price offers.
> This article is written by Hariz Hafiz, Writer – Qoala Malaysia
Qoala is a startup in insurance technology (insurtech) with a mission to democratise insurance through a combination of new product development supported by machine learning-based claim processes. It operates in three countries; Indonesia, Malaysia, and Thailand, offering various insurance and takaful protections ranging from motor vehicles, property, personal accidents, travel, and health that can be accessed quickly, easily and transparently through the Qoala application or website.