Homeownership is a big decision which needs careful consideration

Image credit: harry b/Flickr

Homeownership is the fulfillment of the Singaporean dream. As with any major purchase, you should understand the product before you buy it. However, unlike most other commodities, buying a residence can be a process much more complicated than comparing prices.

Image credit: harry b/Flickr

Purchasing a home will most likely be among your largest and most important investments. Therefore, it is very important that you understand as much as possible about the process of buying a home to ensure minimal stress and anxiety.

Purchasing a home will most likely be among your largest and most important investments. Homeownership offers many benefits, but comes with certain responsibilities. Ultimately, you need to determine the pros and cons of owning a home to make the best decision for you and your family.

In general, homeownership offers several advantages over renting:

1. Homeownership can be a sound investment
As you make mortgage payments over time, you accumulate equity – the term used to refer to your net financial interest in the property. It is the difference between the amount still owed on the mortgage loan and the fair market value of the property. In contrast, rent payments never earn equity.

2. Increasing value
In general, property increases in value over time. This process is known as appreciation. (Note: Real estate value can depend on a number of variables, including the property’s age and location, and appreciation is not guaranteed.) Any increased worth is equity you may be able to borrow against or take as profit upon the sale of the property.

3. Tax advantages
As a homeowner, you can deduct mortgage interest and property taxes from your income taxes.

4. Offers generally fixed housing expenses
Unlike rent, which can increase annually, most mortgage loans have fixed or capped monthly payments. This can provide the financial security that comes from knowing what your maximum housing payments (with the exception of property taxes, conservancy fees, etc.) will be from year to year.

5. Gives you control over your environment
Homeownership allows you the opportunity to customize your environment to match your individual tastes and needs. You can develop a feeling of permanence in a place that you can call your own. Of course, this also means that you are responsible for all utility costs and the cost of repairs and maintenance on the property. There is no landlord to maintain the property or take care of any problems.

Why Buy a Home?

Before you begin looking for a home you may need to ask yourself: “How much can I pay for a house and still have a life?” You do not have to figure this out on your own. Consider getting pre-loan counseling from a mortgage broker.

In most cases, a potential homeowner will need to obtain a mortgage loan – an advance of funds from a lender to a borrower for the purchase of real estate. The mortgage itself is a legal document that sets forth the conditions of
the loan, the manner and duration of repayment, and which pledges the borrower’s property (home) as security for the loan. The mortgage principal, the amount of the loan required to buy your home, and interest, the fee charged for borrowing the money, will typically be large enough to require mortgage payments for a significant period of time – often 15 to 30 years.

Why Not Buy?

A realistic personal assessment may reveal that homeownership is not right for you or you might want to delay the process. Your personal and financial priorities will determine what’s best for you.

Be aware that buying a home:

  • Can be a complex, time-consuming and costly process.
  • May bring unwanted responsibilities such as maintenance and repairs and additional expenses – property taxes, utilities, homeowner’s insurance, etc.
  • Can possibly create financial hardship.
  • May be difficult if your credit is not favorable to a lender.

Shopping for a Mortgage Loan

As with any major purchase, it pays to shop around when looking for a mortgage loan. Different lenders will offer different terms, have different requirements, and offer varying levels of service. It is good to seek out the services of trusted mortgage broker for this. The services of mortgage brokers are free and they will be able to search hundreds of possible mortgages to help you get your best home loans.

Some factors to consider when shopping for a mortgage loan

  • Loan first, house second

Find out how much house you can afford before you fall in love with a house that you will struggle to purchase and maintain.

  • Consider getting pre-qualified or pre-approved

A written commitment from a lender puts a potential home buyer in a better position.

  • Know the application costs

There may be a fee required to apply for a mortgage. This fee might be charged when you apply, when the loan is approved, or at closing. Be sure you know how much this fee is and when it will be charged.

  • Look for a reputable lender

Remember, a lender makes a commission from closing or “selling” the loan, not from looking out for your best interest. Consider the lender’s stability and service record.

  • Understand the interest rate

Remember to ask if the loan has a fixed or adjustable rate of interest. A fixed-rate mortgage charges a set rate of interest that does not change over the life of the loan. An adjustable rate mortgage varies over time. This could make a big difference in what your monthly payments will be.

  • Consider getting the interest rate locked in

Rates quoted prior to closing are subject to change unless they are locked in. Locking in your interest rate on an application is often preferable to waiting until the loan is approved.

Written by Ravi Chandran

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