Purchasing a property is one of the biggest and most valuable investments any person can make during their life. Whether you call it home or it’s a business, your finances are the first thing that has to be assessed when considering a property investment.
Buying a new property is time-consuming and takes a lot of research to find one that you can afford. There are many factors that you need to consider concerning your financial status because it’s a long-term agreement that requires legal documentation, home inspections, and more. Here is the down-low on what you need to deliberate when arranging to finance a property purchase.
You Need an Agent
Unless you are an experienced real estate agent yourself or you have done property financing for decades, you will need a representative. Every process of financing a property purchase works with different parties. You need a lawyer to draft the contract, home inspections by assigned contractors, and you will deal with more than one bank during this time. An estate agent is well trained in handling all of these processes so that you can focus on finding the right property for your needs.
Real estate agents can be your most valuable asset because they will know the ins and outs of the property, which areas are safer and closer to shopping centers, plus they can negotiate the selling price. Estate agents only get paid a commission based on the value of the property once it’s sold, so they want to find you the best deal to secure that sale.
What Deposit You Can Afford
This is the amount that you can put down as an initial payment to secure your property loan with the bank. The more you can put down, the less you need on the loan, and subsequently, the less you will pay back over the term. A few decades ago, it was common for people to take out a 100% loan for a property purchase, but the rules have since changed. In most countries, 20% is the minimum that you need to qualify for financing.
The interest rate of the loan will also be determined by the amount you borrow. The more you can put down, the lower the interest rate will be on your repayments. If you can manage to save 40% or more, you will be eligible for the lowest possible interest rates that banks can approve.
Minimum Salary Earned
To arrange to finance a property purchase, you need to consider how much money you make as a basic salary. Most lenders will only approve applicants that earn within a certain salary bracket. If you earn below this, you will have a harder time convincing the bank to loan you the money. Every country and state will have a different minimum amount that you need to earn, so you must check the specifics in your area.
Some countries, like Singapore, offer public governmental housing to low-income families but this is grounded on the fact that you have to be native to the country. Foreigners cannot purchase property unless they marry a Singaporean. Even then, there are strict regulations and criteria set up by the board that need to be met. It’s managed by the Housing and Development Board (HDB). In Singapore, hdb loan interest rates offered via Property Guru are much lower for native families than foreigners. Property Guru caters to the entire Asian community to assist with financing a home loan and securing competitive prices. You can choose between varying fixed periods from one year to three on your loan repayments.
Type of Mortgage
There are a few different kinds of mortgages that you can apply for, and each will have a different interest rate, loan term, and monthly installment. One type is the standard variable rate (SVR) mortgage where the bank calculates the interest rate, but your instalments can go up and down during the lifetime of the term.
A fixed-rate mortgage will allow you to secure a fixed interest rate for a few years. You can choose the term, for example, 10 years. This means that your interest rate will remain the same for a decade, after which you will switch to an SVR mortgage. This is the most popular choice for property buyers to secure a desirable rate for as long as possible, which saves on monthly payments.
Most people cannot afford to buy a property outright, so they need to arrange finance from a bank or lender willing to invest in them. All financing options for a property purchase start at a minimum of 15 years and can go up to 30 years, depending on your affordability. Keep these four aspects in mind when you consider how to finance your new purchase and use the resources around you to guide your way.