Buying a house is a dream to have own roof to do things with freedom. When I searched for a house to buy I came to know that it is not quite as easy as one thinks. There are so many things to look at and do before the purchase. Each country has its own property related laws and rules. Property is also a form of investment where you need to be well versed like buying a stock or investing in it before diving in.
In my search for a new home I met many property brokers some who didn’t gave the full information and few who gave the best of advice before I step in to a house of my own. As I said the rules differ according to country or state. In a recent survey it was found that the total household value in the United States grew $1.1 trillion in 2015 and is now worth around $28.5 trillion. In Australia the total household value of the 9.6 million residential properties was worth 5.9 trillion dollars in September 2015.
The value of property increase quite sharply in some countries and also decrease from time to time. Sydney saw the biggest increase, with residential property prices surging by 19.9% during the year 2015, followed by Melbourne, Canberra, Brisbane, Adelaide, and Hobart. On the other hand, residential property prices dropped in Perth and Darwin over the same period. So property value is never the same like most of the other investments.
So no matter in which country you reside you need to know some of the basics things before buying a house.
1. Research the real estate market
This is the first step to work on before buying a house or property. Do research online or ask from other buyers about the real estate market and know what type of house or property you are looking for. Are you planning to buy for yourself or for investing purpose or renting whatever either for the long-term or the short-term. Volatility in house prices varies from state to state and knowing what influences prices is crucial for your own financial security. Also research the macro and micro trends that are influencing the market so you can be the judge of the mortgage deals being offered to you. This is why researching the average closing costs in each state is an important step of your decision making. Make sure you know what kind of fees are a normal and expected part of the process so you know whether your real estate agent is giving you the best deal or not. It is better to ask from other buyers and then come to a conclusion.
2. Calculate your down payment
If you are rich enough then this is not a big issue for you as you can pay the whole amount at the go and have the house you need. But if you are thinking of taking a home loan or mortgage insurance you need to calculate how much you will need as down payment to pay before buying a house.
The main purposes of a down payment are to ensure that the lending institution has enough capital to create money for a loan in fractional reserve banking systems and to recover some of the balance due on the loan in the event that the borrower defaults. In real estate, the asset is used as collateral in order to secure the loan against default. If the borrower fails to repay the loan, the lender is legally entitled to sell the asset and retain a portion of the proceeds sufficient to cover the remaining balance on the loan, including fees and interest added.
A down payment in this case reduces the lender’s risk to less than the value of the collateral, making it more likely that the lender will recover the full amount in the event of default. The size of the down payment thus determines the extent to which the lender is protected against the various factors that might reduce the value of the collateral, as well as lost profits between the time of the last payment and the eventual sale of the collateral.
Also making a down payment demonstrates that the borrower is able to raise a certain amount of money for long-term investment, which the lender may desire as evidence that the borrower’s finances are sound, and that the borrower is not borrowing beyond his or her means. If the borrower is unable to pay off the loan in its entirety, he/she forfeits the down payment amount.
In the United States, down payments for home purchases typically vary between 3.5% and 20% of the purchase price. The Federal Housing Administration, or FHA has advocated lower down payments since its inception in 1934, and currently, borrowers that qualify for an FHA loan pay only 3.5% for a down payment. Thus calculate and know how much you need as down payment on the house you choose to buy. A savings plan is great practice for paying off a mortgage. Lenders may be more willing to lend you money if you have a strong savings history.
3. Know the property taxes
Property taxes vary state by state, and generally are used to fund major state projects such as schools and parks. Knowing what kind of property taxes you can expect will clear a picture of the true cost of ownership, as well as the kind of public investment in the area you are planning to live. This is especially relevant for those who are looking to move out of state, or are hoping to find a more affordable place to settle down. Also many types of society houses build by private builders have in built club membership or entertainment tax and maintenance tax and many other such small taxes that are charged annually or on one time basis. These are the things to be known and clear to you beforehand.
4. Have a good Conveyancer or Lawyer to help in the process
The conveyancing process is your legal documentation to property ownership so it’s important to engage a solicitor or conveyancer who will be able to take care of the legalities for you. Go for registered conveyancers who are experts and specialize in conveyancing work. Though you can feel that you can do it with a DIY conveyancing kits that are available but these are useful only for the most straightforward property transactions.
Remember even the most simple-looking transactions can become complicated by legislation and regulations, making DIY a riskier move on your big investment. Also note that if you have any concerns or additional knowledge regarding the property you’re buying, communicate them to your solicitor or conveyancer to ensure the best outcome. Also ask the lawyer the legal fees and the stamp duty you need to pay to buy the property. It is always better to sit with the owner of the property from which you are buying along with your legal adviser and discuss each and every aspects of the property and clear your documentation doubt if you have any.
5. Know the title and check it before the purchase
Freehold plots or lands or houses have a freehold titles. But there are many other types of titles that exists in different property types and have their own legalities. Some titles are on lease, some on power of attorney, some Strata title as in Australia and some even you will find unregistered. So better check the title of the property. You will need to do some research yourself or ask your lawyer to do this important check for you.
6. Know the legal documentation
AS said above when you hire a lawyer to guide you, you also need to know the the legal paperwork associated with buying property which varies slightly from state to territory. Like contract paper note or contract of sale concerning the property’s information and detailing exactly what is for sale. The settlement date should be specified normally 30, 60 or 90 days. It can be very complex for example, with properties sold off the plan.
A contract usually has other documents attached, including a zoning certificate, drainage diagram, a plan for the land, and a Certificate of Title that confirms current ownership and whether there are any encumbrances on the property.
The contract is effectively made binding when it’s signed at “exchange”. This takes place either at the auction, or after a private treaty sale price is agreed, and a deposit is usually paid at this time.
Settlement is usually six weeks after contracts are exchanged and is when you pay the remaining amount for the property. Stamp duty typically has to be paid within 30 days of settlement, but varies by state or territory.
Then there is a land transfer to be finalized at settlement by your conveyancer before buying a house. If you’re raising finance for your property via a loan, your solicitor or conveyancer will need to supply certain documentation to your lender. When buying a property with someone else, you can usually own it in one of two ways: joint tenants, or tenants in common so that also require proper legal terms and conditions to be documented.
7. Check the house and inspect it thoroughly before buying
Last but not the least this is also very important thing to do. The house of property you need to buy you have to thoroughly inspect it and know before you buy. Like measure the area of the house and see if what is documented in papers tallies with it or not. Then look for the built in area, the rooms that are built, ceilings, floors, whether the electrics and plumbing need to be installed or need some changes or any other requirements. If you find potential faults you need to make it clear with the owner before buying.
These seven things are a must before your buy a house or a property whether to invest or own that is your choice. Though this is the basic information you need to know there might be other things to consider too which you should clarify before hand.