So I know your story. You’re one of those “millennials”, those twenty/thirty somethings – somewhere in this great world of ours – fed up with rentals, parents or roomies and looking to buy your first home.
It is part of the timeless quest for freedom, independence and control.
But your quest is far from easy – because of that fearsome monster: high property prices.
Everyone is in the same boat. Land/property everywhere is expensive – they stopped making land years ago – and we’re still years away from colonising another planet…
Okay let me start with a serious declaration. This is not just another of those mindless bot-like lists masquerading as a blog.
I wanted to absolutely nail down the most important top five tips for new homebuyers – and not just a homebuyer here in my base England, UK, but right across the world, on every continent, in every country.
I wanted something essential, universal – something that’s as good for Seattle as Sydney, Lagos as Liverpool and Mumbai as Montreal.
I have been wrestling with the list for the best part of a week now. I have changed it countless times, but I finally have the finished item.
I have kept it short, and here is the easy to remember summary…
Buying your first property is about:
Finding the right property,
Getting the money together,
Seeking help if you don’t have the whole amount,
Making sure you don’t get sold a pup and
Using a good property lawyer.
When I use the word “property” I mean land and any property built on it. Americans say “down payment”, Brits say “deposit”.
1. Find the right property
You definitely wont see this on any bot-list blog. It is a human thing. It is the starting point. The heart bit.
What you are doing here is not just finding a property you really want – you’re also looking for a property you can actually afford and will like enough to really look after and benefit from personally, emotionally, spiritually and financially.
One thing about finding the right property is you need to be flexible with your location.
If your preferred area is too expensive or doesn’t have the right sort, size or style of property, have the courage to look elsewhere.
Perhaps you need to move a few miles, perhaps you need to move one thousand miles.
Find the right location and property for you by:
- Questioning honestly what you really want
- Deciding what’s best for you now and in the foreseeable future
- Taking account of your plans for the future, such as a family
- Talking to people who know a lot about property and can give you knowledgeable advice
- Talking to family, friends and business associates.
Be thorough and diligent in your efforts to find a property which is a good price, preferably a bargain.
Depending on where you are in the world, zoom in on things like:
- Word of mouth opportunities
- Personal contacts
- For sale signs
- Sales agents
- Property websites
- Property portals.
Don’t just consider what the location and property offer today (and the more the better), assess also the future and the likelihood of property price increases.
Think about things like:
- Availability of work and business or investor opportunities
- Planned development, buildings and infrastructure
- Transport hubs and links
- Local facilities and services such as schools, hospitals and shops.
Look for a property you can truly afford with comfort, not one which matches your ambitions but is really more than you can afford and you could end up losing in the future.
2. Getting the money together
Perhaps the most important thing is getting the money together. I call it Operation Purchase Price.
This is where you need to work out how you’re going to get the cash you will need for the purchase price.
Your options depend on where you live and your credit status. You may need:
- The full purchase price or
- A down payment or deposit plus the balance of price, which you can borrow and then repay over a fixed number of years – typically 25 or 30.
If you’re in one of those countries where you only need a down payment to buy, you really should jump with joy at the opportunity, the ease and the simplicity.
In many countries home loans are available only to the elite and having to find the full purchase funds makes property buying even more difficult.
Where you are relying on a home loan or mortgage, the greater the down payment you can provide the better the repayment rates you are likely to receive from your lender.
In many countries you can get going with a relatively small down payment. In the USA you can start with a down payment of just 3% (0% for some military personnel); in the UK, 5%; in India, 20%; in Australia and New Zealand, 5%; Nigeria, 30% and Canada 5%.
If your deposit is below a certain level, you may be required to take out some form of “mortgage default insurance” which pushes up purchase costs.
There are several major ways you can raise the full purchase price or a down payment/deposit, including:
- Saving up
- Getting a gift of loan from a parent or family member, the so called “Bank of Mum & Dad”
- Borrowing by relying on another property owned by someone you know
- Selling assets or a business.
If you have no-one to help you, no assets or collaterals, you need to do it the challenging way, the good, honest, honourable way:
Work, earn and save – the more the better.
Think bravely, think smart, think outside the box.
Here are a few smart moves to remember:
1. Many governments think homeownership is a good thing and actually provide financial help to homebuyers.
In the USA, Federal programs to help people pay for a home include: FHA loans for first-time homeowners, homeownership vouchers, Indian Home Loan Guarantee Program, home loan programs for servicemen and veterans and programs for rural residents. Details of state programs can be obtained from state housing finance agencies or state HUD offices.
In the UK, government initiatives for first-time homeowners include: Right to Buy, Right to Acquire, shared ownership, help to buy equity loan, help to buy ISA and stamp duty relief.
2. If you can’t get a home loan say because you are too young or your credit record is poor… think guarantor, purchase by relative or joint ownership.
3. If you don’t have enough money to buy on your own, find someone you know and fully trust to buy with!
4. In countries like the US and UK, mortgage interest rates are usually below 5%; but in some up and coming countries banks typically charge 15-25%.
If you are living in a country with very high interest rates, look into a family or group purchase to eliminate or reduce the amount you need to borrow from a bank. Further, investigate if you can source funds more cheaply from private lenders. Of course, you should always engage a lawyer for the paperwork to ensure your interests are adequately protected.
I wrote this book for UK first time homebuyers, but most of the principles and practices are good for any country – requiring only local adaptation.
3. Seeking financial help
You are going to need financial help to buy if you don’t have the full amount you need to buy; in other words, you are not a cash buyer.
As a borrower, your can seek to rely on:
- An institutional lender such as a bank, building society or home loan company and/or
- A private lender such as a family member, friend, employer or business colleague.
In deciding whether to lend to you, institutional lenders are interested in the level of risk.
Best practice is to make sure your credit worthiness is in good shape before approaching a lender:
- Check your credit report or file and deal with any negative entries or defaults
- If possible, clear existing borrowing such as loans and credit cards because existing credit may stop you from getting the lowest interest rates
- Ensure that your credit rating or score is good before making any application.
Something you can do to gain an edge is to obtain “loan pre-approval”. This is called different things in different countries but it is basically written confirmation from a bank that they have considered your financial position and are prepared to lend you a stated amount of money.
A loan pre-approval will give your seller confidence in knowing that you are a serious buyer and have the money to complete your purchase.
You can use it to your advantage by gaining preference over other buyers without pre-approval or even as a device to negotiate a price reduction where market conditions allow.
When deciding whether to lend to you, a bank will primarily be concerned with whether you can afford to repay the loan by paying the monthly instalments, including interest.
Before approaching a lender you should put together an accurate personal budget – setting out your monthly income and expenditure – so that you know exactly how much you will have for home loan payments each month.
Use a mortgage calculator or home affordability calculator to work out the amount you can comfortably afford to borrow.
If you rely on a family member, friend, employer or business colleague for funds, avoid the temptation to be loose, lax or vague with the agreement or arrangements made.
It is best practice to put any agreement in writing and you should consider whether legal input is desirable…it usually is!
4. Don’t get sold a pup
As a property buyer you certainly don’t want to be “sold a pup”. For those of you who don’t know, the phrase means “sold something not as good as you thought it would be”.
Because a property is a really complex thing, perhaps very large, with many aspects, features or parts not readily identifiable or apparent, it is very easy to be sold a pup.
The general rule when buying a property is “let the buyer beware”. That means it is up to the buyer to carry out all necessary surveys, searches and enquiries to make sure they are buying what they think they are buying.
If you engage a lawyer to deal with the purchase for you – something that I would always recommend – they will be tasked with dealing with the legal formalities on your behalf.
However, if your lawyer has no personal knowledge of the property (which is the norm) it is vital that you bring to your lawyer’s attention any concerns, issues, questions or comments you have in relation to the property – before a final and binding contract is entered into.
One of the best things you can do when buying a property is to make sure you have a full picture of the area or locality in which the property is situated.
Things you can do include:
- Speak to neighbouring property or business owners to get an idea of your neighbours and the locality
- Visit the property at different times, for instance: at night, during the rush hour and at weekends
- If the property is an apartment and managed by a managing agent, look for any news or information about the agent online (or elsewhere) and consider any reviews
- If you’re buying a plot of land on which to build a house, ask other plot owners about the reputation, reliability and track record of the developer.
5. Use a good lawyer
We all like to hate lawyers but the fact is we can’t do without them, and we especially need a good one when we are buying something as important and expensive as a piece of real estate.
In most countries in the world, buying a property is a complex legal transaction, with many moving parts and many things that can go wrong for perfectly innocent reasons.
Things can also go wrong because of greed, fraud or dishonesty.
Nightmares which can arise after you have paid over your money include:
- The seller didn’t own the property to be able to sell to you and you have been scammed
- Ownership of the property is disputed
- Part of the property belongs to someone else
- Someone else has rights in relation to the property
- The property was built without the necessary government permits
- There are building defects which were not spotted and will be expensive to fix.
You can minimise the risk of these and other nightmares by hiring a first class property lawyer to safely transfer the legal title of the property to you.
You want to be sure that your lawyer is:
- Fully qualified
- An expert in property law
- Skilled and experienced
- Honest and reliable.
The best way to choose a lawyer is to obtain a personal recommendation from someone you know and trust who has used the lawyer in the recent past and can vouch for their competence and integrity.
If your country has a system for registering and regulating lawyers, check that your intended lawyer is duly registered and has an unblemished record in terms of complaints or malpractice.
Go online to see if there is any negative news or information about the lawyer and check out reviews by former customers or rating agencies.
Buying a property is the biggest, most expensive and most important purchase most of us will ever make.
It makes sense to follow any tip which can make the whole process safe, stress-free and successful.
Are you looking to become a homeowner for the first time? Do you have concerns or worries you are prepared to share? Please leave your comments below.
Rebel Property Coach
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