3 questions to ask before buying your next home
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Are you looking to upgrade to a bigger house as your family grows?
Thinking about moving from an HDB to a private property as your career and income advance?
Whether it's for location, convenience, economic status, schools, or amenities, upgrading or relocating is a natural part of life.
However, the most crucial aspect of this process is obtaining the right financial advice. Traditionally, many people secure a home before arranging their loan, but the most savvy individuals find financing before they start house hunting.
With over 15 years of experience in the mortgage industry, both at a bank and as a mortgage broker, I've encountered numerous instances of poor planning that would make anyone wince. My passion lies in ensuring that others avoid such pitfalls, which is one of the core reasons Mortgage Master was established.
I remember a couple who approached me after selling their five-room flat in Clementi for an impressive $1.02 million.
After scrimping and saving for eight years and opting for an aggressive repayment plan on their original BTO mortgage, they had fully paid off their HDB.
With $1.02 million available for a down payment, they had already engaged a housing agent and made a $40,000 down payment (one per cent) on a $4 million condominium in the Newton area. However, when they consulted me, they faced some harsh realities.
Though they had a 25 per cent down payment for their dream home, they were unable to:
Account for the Buyer Stamp Duty amounts in their purchase price. (What was their housing agent thinking?!)
Realizing the gravity of their situation, the couple reluctantly forfeited the $40,000 down payment-a hard lesson learned the difficult way.
This brings me to the key takeaway I want to share: always anchor your property decisions with finance before embarking on your journey.
Buying a home is an emotional experience, and if you don't tie it to financial considerations, a persuasive real estate agent can easily manipulate your feelings and stretch your budget beyond your comfort zone.
This is why I always say, "Always find a loan before a home."
Of course, finding a loan is usually not as straightforward as it seems. On top of just finding your loan eligibility, there are also other considerations you need to think about before buying your home.
At Mortgage Master, every consultant has memorized a set of guiding principles, likely due to my constant reminders. These principles are straightforward and logical, and clients should only begin their home search after confidently answering these questions:
The simplest factor to assess is the down payment needed. In Singapore, the maximum loan amount is up to 75 per cent Loan To Value (LTV), meaning you will need to set aside a minimum of 25 per cent of the property price and the Buyer Stamp Duty. For example, if you have $250,000 available, your maximum purchase price should be around $1 million.
Having the same savings or down payment doesn't guarantee that two clients will have the same loan eligibility. Loan amounts can vary based on income, liabilities, and age.
Fortunately, the government has established laws governing the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR). A qualified mortgage broker can calculate your eligibility in just a couple of minutes.
With your down payment and loan eligibility in mind, you now have a clear price range for the home you can afford. Yet, this final consideration is the most critical. People have varying comfort levels regarding monthly liabilities. For instance, two families may both earn $15,000, but one with three children might have a different capacity to handle mortgage payments than one without children.
Understanding your comfort level with monthly cash outflows is vital. If you can answer all three of these questions positively, you're ready to begin your home-buying journey, whether it's your first home or an upgrade. Always plan your finances carefully.
As the old saying goes, "If you fail to plan, you plan to fail." And failing to plan for such a significant investment could lead to costly consequences.
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This article was first published in Mortgage Master.