5 Foolish Mistakes First-Time Homebuyer To Avoid!

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5 Foolish Mistakes First-Time Homebuyer To Avoid!

Moving into your first home is never a breeze. Furnishing and logistics aside, there are other important decisions you (and your partner) have to make before moving in. While it may be overwhelming to keep track of all these issues, neglecting to do so can potentially cost you thousands of dollars in the future.

Here are 5 mistakes first-time homebuyers must avoid at all costs!

Mistake #1 – Not Creating a Feasible Budget

For a first-time homebuyer, it is always a good idea to know how much you can afford to pay for your new place. With that in mind, there are two cost categories to consider as a prospective homeowner. First, it is important to understand the upfront cost of a down payment. Those choosing to use a home loan from a bank will have to make a down-payment of at least 25% of their home’s value, including a cash payment of at least 5% of the home’s value. These loans tend to be the cheapest option due to their competitive interest rates; however, those financing their purchase with an HDB loan only have to make a down payment of 10%.

Minimum Down Payment by Home Value and Loan Type by ValueChampion Singapore sg

On top of the down payment, prospective homeowners must consider the ongoing costs of homeownership. As a general guideline, experts recommend that prospective homeowners spend 30-40% of their gross monthly income on housing. For homeowners, this includes mortgage payments, utilities (e.g. gas and electricity bills), homeowners insurance and maintenance costs.

Monthly Housing Budget Guildelines by Annual Income by ValueChampion Singapore sg

Mistake #2 – Confusing HDB & Bank Loan Options

Choosing a home financing option is one of the more complicated aspects of becoming a first-time homeowner. Before even comparing the different rates available, individuals must consider HDB loans and bank loans. Recently, bank loans have been a more affordable choice as they tend to charge lower interest rates than the Housing & Development Board (HDB). Additionally, banks have fewer eligibility requirements and allow borrowers to purchase private residences.

A common misconception is that first-time homebuyers must utilise an HDB loan when purchasing their first flat. With the current concessionary interest rate for HDB home loans at 2.6%, borrowers can actually save a significant amount of money by applying for a more competitive home loan offered by a bank in Singapore. With this in mind, it is important to compare the best rates available before applying for any home loan.

Mistake #3 – Failing to Negotiate on Sale Price

A first-time homebuyer can also fall victim to real estate agents who are incentivised to close deals quickly. These agents may try to rush home buyers into making a quick decision, which ends up in a higher sales price than is optimal for the buyer. To avoid this, thoroughly research similar properties before viewing a flat and engaging in negotiations. Once you have a feel for the average cost of a similar home, you’ll have a good idea of whether you are receiving a fair offer.

Average Resale Price of 4-Room HDB Flat by Neighbourhood by ValueChampion Singapore sg

Mistake #4 – Forgetting Renovation Expenses

Depending on the scale of your plans, renovation projects can be expensive. The average home renovation for a 4-room HDB flat in 2019 is around S$55,000. Due to this high cost, households often opt for renovation loans to make their projects feasible. If you’re interested in a home renovation and may need a loan, it is worth researching the best loans and promotions available, to cut down on the total cost of the project.

Total Cost of 5-Year, S$15,000 Home Renovation Loan by ValueChampion Singapore sg

Mistake #5 – Not Shopping Around for Home Insurance

Finally, for those that choose to protect their homes with homeowners insurance, it is important to understand all of your options before signing up for a policy. While the cost of home insurance may seem like a drop in the bucket compared to other expenses in this article, it is possible to save as much as 35-50% on a home insurance policy, without sacrificing protection, if you do your research. Compare the best deals to save several hundred dollars for your homeownership.

Avoid costly mistakes with careful planning. Your new home is not only your residence but also an investment in your future. Like any investment, it is easy to make mistakes that cost you unnecessary expenditure. Steer away from these common mistakes to ensure the highest return possible on your purchase.

*Article repurposed from 5 Common Mistakes of First-Time Home Buyers by William Hofmann.*

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