Buying a home is a long-term dream for many of us. Fulfilling that dream is not easy unless you plan ahead, and with perfection. Sometimes, despite all the planning that goes into it, people end up making mistakes when it comes to execution. It’s important to be aware of every little detail before you take the plunge. Here are some costly mistakes to avoid and helpful tips to remember.
1. Being unaware of different loan options
Most properties are purchased using mortgage loans and not cash. This is where uninformed and ignorant decisions are made often — mostly due to inadequate research. People just approach any bank recommended by a friend or a real estate agent — a potential financial hazard. Several banks provide various mortgage options. It is important to go through them carefully and select one that fits your needs.
2. Missing out on pre-approval details and credit score check
It is often harder to get a loan than finding the perfect property. Banks may not provide the total amount applied for, as they will also take your minimum monthly income and credit score into consideration. Life can be much easier if you get your mortgage sanctioned first, and then search for a property accordingly.
3. Compromising on the wrong areas
It is totally understandable that first-time buyers want their dream home to be as perfect as planned. However, it is important to get the essentials right. For example, it is probably unwise to let go of a property with great location and uninterrupted water supply with one that has better interior decor. Things like design issues can always be tackled at an appropriate time, and it probably wouldn’t be right if the decisions are driven by impulse instead of logic.
4. Inadequate research on the locality and prices
According to a recent survey, first-time buyers pay more than what is worth for a house, whereas an experienced buyer will buy it for a lower price. This is obvious as some real estate agents may take advantage of a buyer’s naiveté. First-time buyers should visit the locality, enquire about the price of the properties in the neighbourhood, check average prices per square of comparable properties in the area and negotiate accordingly.
5. Being ignorant of additional expenses
Buying a house doesn’t just involve paying for the property, but there are many additional costs involved like the Dubai Land Department fee, valuation fee, property registration, real estate agency fee, mortgage registration fee and mortgage processing fee to name a few. All these may come up to as much as 25-30 per cent of the total payable amount. It is worth planning for these costs early enough.
6. Ending up with no savings
Not all of the additional fees and charges will be covered by the bank loan. Most banks will provide only 70-80 per cent of the property value. The 20-30 per cent down payment and fees involved should be borne by the buyer. If a purchase is not planned carefully, buyers could end up spending their savings — one cannot really back off from a deal at this point. After spending all their savings, a lot may end up without cash or other liquid assets — and this is an extremely risky place to be. It is necessary to have some buffer/emergency funds.
7. Underestimating the responsibilities
Once you have purchased your dream house, the hardship isn’t over yet. As a new homeowner, a slew of new responsibilities will come barging in. For instance, it is now your responsibility to take care of additional expenses like repairs, water, monthly bills, property taxes, home insurance, home maintenance, etc. If it is a first home and the buyer is unprepared, the expenses can be quite overwhelming. It is wise to be prepared and make sure you can fit these into your monthly expenses effortlessly.
Purchasing a house is as stressful as it is exciting. Finding a perfect property can be even more formidable if not planned properly. So the only way to avoid this stress is by strategic planning and being financially prepared.
Nikhita Devi is a senior analyst at MyMoneySouq.com who writes about personal finance, mortgage and technology in the UAE. The views here are her own.