Owning your own home is part of the Singapore dream. However, it takes more than just dreaming to buy and maintain a home. Here are some things to ask yourself before you take the plunge.
Does it make sense to buy?
Buying instead of renting needs to make sense financially. To help you decide, speak to a Ping Property Agent to work out to see how many years it will take before the cost of buying equals the cost of renting. It is called the breakeven horizon and it varies by property price.
If you plan to stay in your home past your breakeven horizon, then buying makes perfect financial sense. If you think you will move to another property earlier, then renting may be the way to go.
Are you financially ready?
Buying a house involves raising a down payment and paying a monthly mortgage, which averagely lasts around 30 years, depending on the home loan you can afford and are offered based on your Total Debt and Servicing Ratio (TDSR). There are other costs such as legal fees as well, but let us focus on the big money.
TDSR sets the limit to how much a homebuyer can borrow. Financial institutions must ensure that borrowers’ monthly repayment for all debts does not exceed 60 per cent of their monthly income. This includes the mortgage, credit card bills, car loans, personal loans, and so on.
Down payment: It is the lump sum you will pay upfront that funds equity in the property and proves to lenders that you have got skin in this homeowner game. Down payments vary. In the past, some lenders dismissed the down payment altogether. Today, 25 per cent is preferred for the first homebuyers and often this gets you the best rates. Sometimes parents or friends can offer help with the down payment. If you have a choice, take a gift rather than a loan to raise the money for the down payment. Not only for obvious reasons, but because lenders will add that additional debt to other monthly obligations and potential mortgage payments to determine your debt-to-income ratio.
Monthly mortgage payments: This is what you will pay each month. In most cases, a mortgage includes the loan principal and interest (both amortized over the life of the loan) plus homeowners insurance and property taxes (pro-rated). The amount the homebuyer can borrow depends on their Total Debt Servicing Ratio (TDSR).
Are you emotionally ready?
Owning a home is a huge commitment so before jumping in, consider if you are ready to make lots of decisions, from picking an agent to picking paint colours. Are you confident enough to select a neighbourhood where you will want to stay for a while? And are you up for devoting the time and attention to maintaining a home? Weekends will disappear under chores like cleaning the balcony, fixing the lights and on and on. Taking care of your biggest investment can be gratifying but only if you are ready.
Do you have the skills?
Your home will require regular maintenance and repair and there is no landlord or property manager to call for help. You will need some basic handyperson skills so you will not go broke hiring a repair professional to remedy every odd sound or smell. Here are some things every homeowner should learn how to do:
• Change a toilet seat
• Shut off the main water valve and outdoor faucets
• Locate and flip breaker switches
• Locate studs to hang shelves
• Paint a room