Buying your first property? Then here is a simple step by step approach to guide you on that important purchase.
Determine your budget The first step is to determine your budget. How much can you afford in monthly payments? Most banks use a rule of thumb of a maximum of 35% of your monthly income. If you are a husband and wife buying your first property then its 35% of your joint monthly income. For example, if both your salaries together add up to $13,000.00 a month, this qualifies a monthly payment of $4,500.00 a month. With a $4,500.00 monthly payment at 7.00%, 25 years amortization, your mortgage amount will be approximately $650,000.00. Assuming you have to make a 10% personal downpayment on the property, this will be approximately $70,000.00 from your savings. Making the buying price of there property to be $720,000.00. So you begin by looking at properties in the $700,000.00 price range.
Credit Score and Mortgage Availability The next step is to determine your credit status with your personal bank and explore options with other banks and mortgage institutions. Visit your bank mortgage loans officer and shop around for the best mortgage offers, considering your credit and your savings.
Real Estate Agent Having a good idea of the price range you can afford, you then go shopping. We strongly suggest you choose a reputable real estate agent. Agents registered with AREA are reputable and professional in their dealings. AREA registered agents have a wide listing of properties and can cater to your unique needs.
Select Property After considerable shopping, visiting alternatives, make the best possible choice. We suggest you consider the following in making your decision:
- Is it in the approved price range?
- How will this location affect your work and school commute?
- Is this a relatively safe neighbourhood? Ask the neighbours about crime. Is this a safe place to bring up children?
- Do you see this neighbourhood improving over time or deteriorating? Are there squatter settlements encroaching? Are the neighbours young or old?
- What about utilities? Water, electricity, garbage disposal…
- Does the are flood easily?
- What about the street? Rule of thumb: do not purchase the best house on the street, go for a mid-range property.
Offer Having selected the most suitable property you can find, after considerable searching, but before you make a firm offer you should ask your real estate agent, whether properties in this neighbourhood have been approved by banks for mortgages. Ideally, you should contact the mortgage institution you have selected for your mortgage and tell them about the property you have selected. Between the AREA real estate agent and the mortgage institution loans officer, you should have sufficient information to make a wise decision on the suitability of the property for a mortgage. On receiving a tentative consent from your mortgage institution, you can go ahead and make a firm offer for purchase. Usually, there is a legal document to sign and a down payment to make.
We strongly suggest the following:
- Have a legal representative look at the document before you sign.
- Make sure the period for closing the transaction is sufficient to obtain the mortgage payment. Give yourself an extra month between the period for the mortgage institution says will be required to complete the processing of the mortgage and the time frame the seller is offering before final payment is made. For example, if the mortgage institution is saying it would require 3 months to complete the mortgage, ask the seller for 4 months to make the final payment.
- Ensure the real estate agent can provide all the documents the mortgage institution requires, such as WASA payment up to date, taxes up to date, deed documents free of any debts, before making the deposit. (This list of documents would be provided by the mortgage institution).
- Make a property inspection with a qualified person to determine the structural soundness of the property. Are there any foundational cracks? Any land slippage? Is the property properly wired for electricity? Is the roof sound? Is there good property drainage?
- Sign and make the deposit. This can be handled by your AREA Real Estate Broker or by your legal representative.
Appraisal Before the mortgage institution can process the mortgage they would need two important documents:
- A value appraisal – The mortgage institution would require an independent value appraisal carried out on the property. Each institution would have a list of approved valuators. you would be required to have one of these valuators value the property at the akin price or above. This is a critical document and it would seriously jeopardize the mortgage if the property is appraised for a lower value than the asking price.
- This is the reason we earlier suggested you ask the real estate agent and the mortgage officer, whether properties in this neighbourhood have been appraised in this value vicinity. Also, the property inspection suggested earlier would help here, since these are many of the same things the valuator would be investigating.
- A title search – The mortgage institution would require a title search to be done on the property. This is to ensure that the property is free of any encumbrances, i.e. free from another mortgage or claim on the property. Once again, this is why we earlier suggested you ask the real estate agent for a clear mortgage deal on the property.
- The mortgage institution may also ask for approved Town & Country planning and building documents.
Closing If all of the above are in order, the bank would finalize the legal documents of the mortgage on the property and issue a cheque to the seller or real estate agent. Please note there would be closing fees for the finalization of the mortgage, such as stamp fees and legal fees. Once again, it would help to be prepared for this by first asking the mortgage institutions their closing fees, while still shopping around for the best mortgage facilities.
This article by no means covers all the details of making your first real estate purchase, but it provides a simple set of steps that if followed, can certainly make your first real estate purchase a pleasant experience.