Are you ready to buy a house now?

Buying your first house involves a lot of self-reflection. If you are a first time homebuyer, consider asking yourself these four questions before making your down-payment on a house.

What’s your ideal lifestyle? 

Your home should fit your current and future needs, so it’s always a good idea to take some time to understand what life may look like for you a few years down the road. 

Imagine this: You’ve just got engaged, and now you’re budgeting for a cozy two-bedroom apartment. However, you and your partner are planning to try for a baby in a year, and your in-laws may move in to help with babysitting. Would each family member have enough space to live comfortably in three or four years? 

Another factor to consider is your working arrangement. With hybrid work here to stay post-pandemic, staying in the city centre may no longer be a necessity. That means you could consider purchasing a bigger and more affordable house in the outskirts. 

Having a clearer picture of the future will make it easier to plan and budget for your first home. 

Are you ready to take on a loan? 

Taking on a mortgage is often one of the first major financial commitments you make. Here’s how you can check if you’re financially ready to take on a mortgage: 

1. Build a financial safety net 

Firstly, you should have around 6 months’ worth of expenses for any unexpected situations that may come up. This emergency fund can be kept in a liquid, low-risk, and interest-earning portfolio, so you can grow your cash with peace of mind. Find out how you can build your financial safety net in this article.

2. Assess your financial health

Review the stability of your income sources and financial health to determine if you’re ready to purchase your first property without stretching yourself too thin. 

Then, stress-test your existing assumptions. If interest rates go up, you may have to pay significantly more for your monthly loan repayments. Will you be able to manage a sudden 1% increase in interest rate? How about 2%? Having a buffer helps you to prepare for the possibility of higher loan repayments. 

3. Review your credit score

A better credit score will grant you access to better loan terms and rates, and also increases the likelihood of your loan approval. Start building a good credit history early by consistently paying all your existing debts in full and on time. 

How much mortgage can you afford?

Now, it’s time to start estimating the housing loan size that you can afford. Calculating your loan-to-income is a good way to determine if you’re buying a house within your means. 

Loan-to-income ratio = (Total monthly payments + mortgage loan you’re applying for) / total net income

As a good rule of thumb, your housing loan costs should be within 40% of your income (after accounting for emergency funds). 

Have you accounted for other miscellaneous costs? 

Many first-time homebuyers forget to account for additional costs on top of their down payment. Such costs can include an initial booking fee, legal fees, stamp duty, property tax, and valuation fees, among others. These typically require an upfront payment and could easily add up to a hefty sum.

You also want to move into a house that is fully furnished – and renovation costs can easily go up to 5-6 digits. Even if you intend to keep things simple and renovate later, there could still be immediate repair work needed – especially if you’re purchasing a lived-in property from the secondhand market. 

Start planning today 

Owning your first house is an exciting milestone – one that should be celebrated without unnecessary financial stress. Planning ahead and checking in on your financial health regularly can help you stay on track with your goals. 

Ready to get a new place that you can call home? We’ve teamed up with EdgeProp to help you budget and save up for your dream house.