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Your financial and emotional checklist for buying a house

06 February 2023

5-minute read

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Buying a house requires an honest look at your current and future financial situation. (Credit: Shutterstock)

Buying a house can be a massive commitment. This decision may affect you long-term and thus demands financial and emotional preparation. Purchasing property, whether a condominium unit or a two-story townhouse, can get tedious and overwhelming. Still, finding your next address can be exciting and fulfilling too.

If you are a first-time home buyer, this guide may help ease the process.

Identify your wants and needs

Before you start looking at listings, Ilyce Glink, author of 100 Questions Every First-Time Homebuyer Should Ask, recommends making a list of what you want and need in a new home.

What type of property do you want?

Do you want a condominium unit with full amenities, an apartment or a gated residence? The answer to this question will ultimately depend on your current lifestyle and expectations for the immediate term. For instance, a young family may have different demands than a single person.

Understanding the type of property you want can help form your home-buying checklist, a guide you can use to review property listings.

Where do you want to live?

Aside from personally checking the neighbourhood you wish to live in, you may also consider surveying the urban master plans of the city. For example, further development in the area can increase the property's market value, making it a clever investment choice.

Some cities may also have certain benefits that fit your needs. In the Philippines, for example, residents of Quezon City may access free health services, including mental health-related medicine. Not all towns provide this perk.

In some countries, your home's location can also come with financial benefits. In Singapore, you can apply for a Proximity Housing Grant (PHG) when you purchase a Housing & Development Board (HBD) flat within four kilometres of your parents' home.

Before purchasing a home, an assessment of your wants and needs can be helpful. (Credit: Shutterstock)

Set a budget

Now that you have a picture of how you want your home to look like, you can get down to the business of getting your finances in order.

Experts suggest no more than 30 per cent of a home buyer's monthly income for a mortgage payment. The Central Provident Fund Board in Singapore advises aiming for 25 per cent to be more prudent. Ultimately, the board says that one's Total Debt Servicing Ratio (TDSR), which refers to the proportion of gross monthly income that can go towards repaying monthly debt obligations, must be at a maximum of 55 per cent.

This ratio is necessary to keep in mind, as the price of a property isn't the total amount you need to shell out. You still have to pay additional fees like insurance and taxes that come with buying a house. It would be best if you also set aside an amount for annual maintenance checks to keep your property in order. As Lawrence Yun, chief economist at the National Association of Realtors in the US, reminds homebuyers: "You must understand your maximum financial capacity."

Moreover, a consumer survey conducted by HomeLight, an online real estate marketplace in the US, found that most homebuyers regret the cost of their home purchase. The trend shows maintaining a sustainable budget is necessary.

Assess your finances

Now that you have a budget, it is time to assess what kind of property you can afford to purchase and if you can get a home loan.

An appointment with your bank manager will be helpful as you can directly ask how much the bank can lend you based on your income. This way, you get a clearer picture of how much cash you need as a down payment when you start shopping for a property.

The more cash you have, the less you need to borrow. Check your savings and how much you can commit as a down payment for a home. You may also check other financial products you have previously purchased. For example, you may have savings insurance with accumulated cash value that you can liquidate to help fund your dream home.

Hiring a real estate agent can make the home shopping process less overwhelming as they share their expertise in the area. (Credit: Shutterstock)

Hire experts

It may be tempting to do the home search all by yourself. However, Glink does not recommend this path. She suggests finding a trustworthy real estate agent who will listen to your wants and needs. She says the relationship with such a real estate agent is like a "short-term marriage." They can help you find the home of your dreams while staying within your budget.

Once you find a property you wish to purchase, Glink suggests hiring a home inspector before closing the deal to assuage any worries. If necessary, you can also hire a lawyer to double-check the contract you are signing. Knowing you won't encounter any legal troubles in the future provides peace of mind.

Be emotionally prepared

Elizabeth Dunn, a Psychology professor who studies happiness and spending, reminds homebuyers to picture themselves living inside the property. It can have a great view of the outdoors, for example, but the location may increase your commute time to work to more than an hour.

Shopping for a home will have its ups and downs. You may find yourself loving a property online, only to discover it does not match your expectation in person. Unfortunately, the home-buying process may have more similar disappointments and may even force you to commit trade-offs. Review your list of wants, needs and non-negotiables to help you decide if you need to keep looking.

Always give yourself the time to weigh options if you feel like being swayed by your real estate agent or loved ones. A house is at least a 15-year financial commitment – some people think renting accommodates their financial condition best. Think carefully about the living situation that suits your current and future needs.

Negotiate the terms and remember you can back out at any time before you sign a purchase contract.

Buying a house is an achievement. But, like most goals, it takes work and preparation. Set yourself up for success in this process with a valuable financial partner. Explore AIA's wide array of solutions that fit your wants and needs.

Equip yourself with the financial skills to achieve the future you want. Finance expert Lachlan Campbell shares his advice on planning for life's significant moments in this episode of AIA Voices.

AIA Voices is a community of influential and educational voices from around Asia to talk about life, health and wellness. A platform to educate, motivate and inspire people to make positive behavioural changes on their health and wellness journey. Providing an opportunity for communities across Asia to connect, collaborate, and learn from each other. Designed to drive AIA One Billion, our ambition to engage a billion people to live Healthier, Longer, Better Lives by 2030.

References:

NPR, 2019. How To Buy A House, In 7 Steps : NPR. [online] [Accessed on November 1, 2022]

New York Times. 2022.How to Buy a Home - Real Estate Guides - The New York Times [online] [Accessed on November 1, 2022]

HomeLight. 2022.Buyer and Seller Insights Report. [online] [Accessed on November 3, 2022]

Central Provident Fund Board, 2021.How much do I need to buy a home? [online] [Accessed on November 3, 2022]

Moneysense, 2022.Buying a property: How much can you afford? [online] [Accessed on November 3, 2022]

HomeLight. 2022.Buyer and Seller Insights Report. [online] [Accessed on November 3, 2022]

Disclaimer:

This is general information only and is not intended as financial, medical, health, nutritional or other advice. You should obtain professional advice from a financial adviser, or medical or health practitioner in relation to your own personal circumstances.