- Know your credit score
Your credit score is one of the biggest factors in what your loan terms will be. Know your score before you ever try to get a loan, and take the time to repair it as there will be errors ( 4 out of 5 contains errors). Noticed a small mistake? No problem, go ahead and dispute it. Seen a ‘bad blemish‘ on the report? Time to start repairing it now before it’s time for the mortgage application.
Make sure you have ample of time to correct the necessary, so set aside about 6-12 months before you start applying for mortgages! After all, a good credit rating isn’t achieved overnight!
A credit score is calculated by looking at a number of financial statistics, such as one’s payment history, new/old credit, amount outstanding, types of credit, length of credit availability, to name but a few. The better the score, the lower the interest rate at which you will borrow; and subsequently, the lower the credit score, the higher the interest rate!
Shopping for new interior decorations, refrigerators, washing machines, dryers, garden equipment etc. on your credit card whilst the mortgage application process is underway will impact your credit rating. It is stupid for two reasons:
- You cannot afford new
- Buying top quality second hand is better than cheap new (from China)
- Reduce all existing debt
If there’s one lesson to be learnt when applying for a mortgage, try to pay off as much of your credit card debts and other types of debt before you start with the mortgage application.
Most lenders will check your so-called debt-to-income ratio, as well as the timeliness of your payments, types of accounts and overall payment history. Having too much debt when going into a mortgage application process is simply asking to be declined for a loan. There’s only so much credit a lender is willing to extend to you, which is why the consumer debt accounts for such a large portion of the credit score.
- Have a lender pre-approve mortgage amount
What to do before buying a house includes getting pre-approved. In fact, it is one of the most important parts of the home buying process! Pre-approval means you should be able to get the loan as long as nothing changes about your financial situation or your credit score.
A pre-approval letter also helps when you want to compete with another buyer for a home you love. One of the first things most sellers are going to ask their agent when receiving an offer is how qualified the buyer is to purchase. Sellers want to feel comfortable knowing the buyer is not going to get turned down for the loan.
Make sure the bank has verified your employment, income, and credit. If they have not done this the pre-approval maybe worthless.
Remember that interest rates go up. Only borrow an amount that you can afford to repay if the interest rate goes up 2%. Do not worry if things are tight the first couple of years as the situation changes rapidly as salaries rise.
- For your first mortgage shopping around for the best mortgage deal is important
This is one of the biggest mortgage mistakes many first-time home buyers make! The bank you are with may not be flush with a mortgage fund, they may also appraise your risk slightly differently than another bank who wants to have more mortgages on their books. Thus, you will get different offers.
There are so many different elements at play for your particular mortgage loan (i.e. your credit score, size of deposit, mortgage amount needed, repayment period) that every financial institution or lender will each put together a customized package specific for your situation.
Obviously, the interest rate charged and terms & conditions will vary across the different parties. A little time spent shopping around will more than likely result in thousands saved over the period of the loan!
When buying your next house staying with the existing mortgage provider has many benefits such as transfer of mortgage, waiving fees, maintaining the relationship.
Negotiate all bank lawyer charges. I have always had my banks lawyer costs waived, because I asked.
- Know what you want.
If you want to live in an apartment, rent it. Always, always buy a property with land.
Set out a list of ten must haves and ten would like to haves. Find pictures in magazines of houses you like and put them on your treasure map. We are talking about the law of attraction.
|Must have||Like to have|
|Location to sun|
|Location to schools|
|Location to wind|
|Location to shops|
|Size of land|
|Number of Bedrooms|
|Ensuite for master bedroom|
|Storage in master bedroom|
|State of street e.g. tree lined , or lined with broken down cars|
|Front garden to back garden ratio e.g. you never live in your front garden.|
|How much restoration are you prepared to do|
|Separate dinning room or open plan|
|Provision for study|
|Provision for long staying guests|
Understand you are not just buying a home but a location as well. One of the key considerations that many buyers miss when purchasing a home is knowing how to pick a neighbourhood they will love. Often first time buyers focus too much on the house and not enough on the neighbourhood.
- Work with a skilled real estate agent that knows your targeted areas.
Every neighbourhood has its unique qualities that you want to be aware of before you buy. An agent that is well-informed about the area will also know what homes there are worth, which will help you avoid overpaying for a property. You want a real estate agent who knows their stuff locally!
The better the real estate agent knows the area, the better equipped they will be in understanding the differences in market value from one property to the next.
- Do not change jobs mid-application process
Even if you feel horrible at your current job do not change jobs until you’ve closed on the home loan. Financial institutions prefer to see a career history, which shows consistency. Unfortunately, changing jobs mid-way through the process will delay the application process. Some might even argue there’s a big difference between a job change vs. career change during the application process.
- Understand the property cycle
If everybody wants in, houses are frequently auctioned for over 120% of the reserve and during viewing it is crowded, you are at the peak of a property cycle. Buying now could take 7 years before the house value comes back to what you paid. Always better to buy when there is doom and gloom around.
It therefore follows that never buy your first home in an auction . You will be lambs to the slaughter. See a separate section on this.
- Verify all information in the listing.
You need to verify that all the information given about the home is right. Sometimes real estate agents put things in the listing that they may not have verified or may just not be aware of the facts. Some of the more common issues that can crop up in a real estate transaction are understanding what stays with a home and what doesn’t. Many buyers, sellers, and even some real estate agents do not know what is considered a fixture (stays with the house) and what is personal property.
The general rule is if plumbed in or nailed down it is a fixture that stays with the house.
- Try to see yourself in the home.
Sometimes when you view a home, it will be filled to the brim with the current owner’s things. Learning to see past the clutter to the potential of the home for you may allow you to find better deals than you would otherwise.
This is why real estate agents often recommend to seller clients to clear all the clutter before listing their home for sale. Cluttered homes can sell for less money when those with a lack of vision can’t see past it.
Be careful about a staged home. You can bet that unimaginative buyers will offer top dollar.
- Get the building checked by reputable builder.
Select the builder from recommendations from your friends. The builder maybe be needed to do some alterations if you purchase so you have killed two birds with one stone. Get them to check the following
|State of the piles and joists|
|How level the house is|
|State of the roof|
|State of the guttering|
|State of the wiring|
|State of the switchboard|
|State of the plumbing|
|Check key electrical issues:|
|All plugs work|
|Air conditioning / heat pumps works|
|Check for asbestos|
|Check for poor drainage around the house perimeter|
|The extent it was been maintained|
|Any hidden gems like old fire places or tongue and grove flooring|
Even a brand-new home can produce lengthy inspection reports. Your job is to find the important issues with significant monetary value and determine whether or not you would like to ask for repairs on these items or a deduction
If the work done is going to improve the property you should aim to pay half.
For major flaws it is better to agree a sum deducted than get the current owner to fix as they are not motivated to get a great job done. In any case you will have a plumber, electrician and builder on site soon so they can do the remedial work as well as the improvements you have in mind.
If the wiring is very old get a recommended electrician to quote for a rewiring and new switch board. Take half the cost off your offer.
- Get a P test done on the property if it has been rented or owned by young people
The surge in P-contaminated homes – badly damaged from their use as P labs has been likened to being potentially as costly to homeowners as the leaky home crisis.
There are a few checks you can do:
- Be sensitive to chemical odours
- Look for dead vegetation around a section
- Is the house outfitted with elaborate CCTV systems?
- Are there visible stains on curtains, walls and ceilings,
- Is the waste bin showing any evidence of empty medicine packaging, paint thinner containers and coffee filters with white or red powdery substances?
Methamphetamine has been a scourge in New Zealand since 2003. A company that P-tests about 2080 homes a year for traces of meth finds about 20 per cent coming back positive.
Personal use is less of a problem and can be washed out with vinegar.
- Review all property records in the local council
In New Zealand you get a Land Information Memorandum (LIM) which identifies any issues with the land the house is built on, such as drainage and landslip risks and includes copies of all plans filed with the council.
You need to look for:
|Any structural alterations that have not been approved by council. E.g., no evidence of the drawing and approval of a new addition to the house, a new garage etc.|
|The routes of the storm water and sewerage. You will have a problem if garages etc have been built over them.|
|Correspondence about prior problems|
|Public access rights|
|Actual boundaries – existing fences may not be on the boundaries.|
Do not worry about kitchen, bathroom and bedroom alterations as these seldom need a permit.
There are reasons why property owners do not get a permit for work done on their home:
- By obtaining a permit for an addition, you will pay more rates because your assessed property improvements value will go up with a larger home.
- It costs money to get permits. Many owners just don’t want to bother paying the fees.
- Pure laziness as it takes time to get permits for work.
Buying a home without necessary building permits will become your issue in the future when you go to sell. It is advisable that you ask the seller to get the permits issued on all structural improvements before you buy the home.
- Ask a couple of neighbours
If you are keen, come back to the neighbourhood without the agent and knock on 2-3 neighbours’ homes and ask:
- What was the background of the people who are selling?
- Is there anything about the house we should know about before we buy?
- What is the neighbourhood like to live in?
- Be sure you understand any Home Owner Association (HOA) that you will be part of
Some homes are part of a homeowner association. All condominiums also have HOAs. These organizations are mandatory if you live in the area, so you will have to pay dues and rely on the association to take care of certain things, like maintenance of common areas. Some homeowners associations are great, some are not. Know what you are getting yourself into before purchasing in a block of houses with an HOA. One of the best ways to find out is by asking a few of the people who already live there.
- Schedule your final walkthrough and closing
A final walkthrough is a standard practice of walking the property before closing to make sure that there are no new major issues with the property that would prohibit you from purchasing the home.
It is best to schedule the final walkthrough at least 24 hours before closing, to allow time for any issues that need to be worked out.
|1. Is all rubbish removed from house, garden, garage, loft|
|2. All promises in the agreement have been met – e.g., electrical equipment that you have agreed to purchase|
|3. Damage to the walls by their movers|
|4. The keys and remotes are all present ( their agent may still have a set)|
|5. Code for the security alarm|
|6. Any additional damage that has been hidden from your previous inspections|
If you schedule your walkthrough an hour before your appointment with your lawyer, you may not be able to work these issues out in time.
- Know every cost
There are a lot of fees that come with a home purchase above and beyond the mortgage.
|Electrician’s inspection (if necessary)|
|Roofer’s inspection (if necessary)|
|Bank fees (if not waived)|
|Immediate improvements before moving in|
|Repairs and renewals (1 to 2% of your property’s value ought to yearly be going towards routine maintenance of the property) or Association charges if part of an housing association.|
|Rent if over lapping|
|Acquisition taxes e.g. UK stamp duty ( only in certain countries, often over a certain value)|
- Never buy your first house in an auction
You will pay too much for it, auctions are a sign of the top of a property cycle meaning that it can take seven years for your house to come back to the price you paid. Besides, you will pay a lot of costs (builders report etc) and you have less than a 25% chance of being successful at a good price.
- Negotiate a deal
Once you have processed through all of the homes that you are interested in, and have found the home that you like the most. Which may be the first one you see.
It’s time to move on to the next step: writing a sales contract and negotiating the deal. This is where all of the details of the transaction are documented and signed by both parties through written contracts.
The competency of your lawyer will play a major role in your success through this process.
A common first-time homebuyer mistake is to try and submit a low-ball offer on their first deal. As a new buyer in the real estate market, you may feel as though you are entitled to a great deal. This is possible, but great deals do not usually happen unless you are buying a distressed mortgagee sale. No one gives anything away in real estate.
That means that a lowball offer of 90% of current offer price may be off track if the home is priced at market value and in good condition.
If the property has some key furniture that fits the room e.g., large dining table consider including a price for that item.
- Don’t be romantic, get a flatty in to help in the first couple of years
Unless you have young children, get a flatty in to help you over the first couple of years.
When I bought my first house at 22, I rented out three bedrooms. We had a great time and I doubled my money in three years.
This is an extract from a book called ‘Don’t say I didn’t tell you’.
The past has great lessons to offer. Whilst technology and the evolving pace of change may lead millennials to thinking that what is ahead of them is unique. In fact, it has all happened before. I am a father in my 60s who has gathered many lessons from the past, and I set them out here for my daughters in the vain hope that they will be a guiding light long after I am physically gone. Some of the suggestions may seem ridiculous at first, but I ask you to chew the crud and make an informed decision later. For a list of topics covered see here.