This post is for first time home buyer who considers purchasing a house in an installment plan. This article also answers what is a house down payment and how can a first time home buyer prepare for it.
Who is the First Time Home Buyer?
Buying own property can be intimidating in the beginning especially for the first time buyers. And neither I can blame you. It can actually be when the buyer doesn’t know where to look and don’t know where to start.
There are too many choices in the market, the requirements can be a bit overwhelming. The payment terms can be confusing sometimes but once understand, house purchase can actually be simple if the buyer is prepared.
It is important to have trustworthy and knowledgeable people that are advising during these times because purchasing a property is no joke at all. It requires time, energy, patience and a big chunk of money.
Another very important advice is having a Licensed Real Estate Broker to transact with especially for those first time home buyer.
First time home buyers are the ones who have never experienced purchasing a property, mostly these are the newlyweds, young professionals, first-time investors and those starting to build a family.
First Time Home Buyer Tips
Find a trustworthy Licensed Real Estate Broker
A new law has been passed that only licensed brokers and agents are the only ones who can sell properties in the Philippines. This has been done to protect the buyers and even the sellers when transacting with real estate properties.
Also to avoid buyers investing in scams, avoiding double purchase, etc. Real estate brokers have the proper education on ethics, updated real estate law, and other important matters when it comes to purchasing a property.
Real estate brokers will guide the buyer along this journey of having their own property.
Know what you want
As a first time home buyer, all the choices in the market can be overwhelming. That’s why knowing want you want is really of importance when purchasing a property.
Knowing what you want makes deciding easier because it narrows down all the options that will be laid down by the seller during property viewing and presentations.
Here are some questions that might help to get started and know what you really want:
- What type of real estate property? (ex. farm, lot only, house and lot, condominium unit, commercial property, industrial property, beach lot, etc.)
- What is the purpose of buying property? (personal residential home, investment, business, gift, etc.)
- Is there a specific location in mind? (Makati, BGC, Tagaytay, Batangas, etc.) Where specifically in that area? Are there specifics? (Near a hospital, near schools, far from highway, etc.)
- How many bedrooms?
- Residential lot: How big the lot in size?
- Commercial, farm, industrial lots: Is there a specific location requirement? Like does the road leading to it need to be passable by heavy trucks? Does the lot need to be along the highway? Etc.
- What is the budget range?
- What is the preferred payment term? Cash, Bank Financing, Pag-ibig, etc.
- How much cash-out/ Downpayment? How much monthly payment?
- What is the timeline in purchasing the property?
- Are there specific needs/ requirements that you need? (Examples of specific needs of some buyers we had previously: Corner lot, the house needs to have a pool, masters bedroom should be on the ground floor, 2 car garage, non-flooding area, etc.)
Do Some Research
Yes, the broker is there to present, discuss and guide the buyer in the process, but having own research regarding the property will give an advantage of the game. Know if the property is along the fault line, beside a creek, or are there illegal dwellers in the vicinity, etc.
It is better to have a little background about the property to avoid being shortchanged of information.
Prepare (Plan) Finances Plan
Determine the budget range. Don’t just think about the now, think about the future as well. How much down payment or outright cash is available?
Being prepared and having a well financial planning will avoid wrong decisions in the long run. And may also avoid having the property foreclosed by the bank.
Inquire at the nearest bank about their home loans, ask questions, request for their requirements for applying for a home loan.
Another tip I can give is to pay in cash. A lot of developers give big discounts for cash buyers from 7-20%. Grab the promo and save a good deal of cash to improve the property or maybe buy new furniture.
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Personally, view the property
Viewing the property personally is the only way to have a better picture of the property. It will give a chance scrutinize every inch of the property, check every nook and cranny.
Also, observe the neighboring place, the people around, the atmosphere of the place, the road leading to the property.
Even consider checking the actual property as a very vital part of closing a deal. During the viewing of resale properties, the buyers often meet with the owner and may discuss certain issues and address issues that the buyer may have.
Meeting with the seller can also be a venue to discuss payment terms and discounts. For overseas buyers, I suggest having a close trusted relative to do the house/ property inspection. Have him or her take photos and videos to send it via email.
We as brokers do not just want a sale. We want our clients being able to decide for themselves and being happy with the service and product we offered.
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What is a House Downpayment?
A downpayment is an initial payment (usually through cash) to the SELLER that is part of the whole amount that both the BUYER and SELLER agreed upon. The down payment will be deducted from the total amount of the contract price. The downpayment is usually paid when or during the Deed of Sale is being signed by both parties.
The Difference between Earnest Money and Downpayment?
An earnest money is a sum of money that is a percentage of the Total Price of the property that is submitted to the Seller on or after an Offer to Buy or Letter of Intent.
It is to show good faith that the buyer is serious about the purchase of the property. The amount of the Earnest Money depends on the Buyer. If accepted by the Seller and the sale pushes through, it will also be part of the Downpayment.
But, in the event that the first time home buyer backs out of the sale after a few months after he gave the Earnest Money, the Seller may keep the Earnest Money because of the opportunity cost that he may have sold it to other Buyers during that time.
But, it still depends on what both parties have discussed. While a downpayment is a payment that is being required by the Seller to the Buyer which forms part of the Total Contract Price before the Bank loan proceeds come out or if the payment terms are in cash but in a staggered manner to secure the property.
How to Determine a Downpayment for a Home?
Depending on the developer or seller, the downpayment usually ranges from 10-30% of the Total Contract Price. For those who are paying through the home loan or bank financing, the Downpayment will depend on the approved loan amount that the bank will give to the BUYER.
(Example: For purchasing a house worth Php5M. The bank approved your loan with the amount of Php 4M. Meaning, the remaining balance of Php1M, you have to pay in cash to the seller.)
Does the downpayment really need for a house?
Most properties require a down payment, although there are some developers that are offering a no downpayment scheme as their promo. But for most, a downpayment is important as it shows the buyer’s good faith and commitment to the purchase of the property.
Some developers also require a downpayment before they start building your home (for pre-selling houses). For bank loans, yes, almost always, buyers will be required for a downpayment as the bank rarely approves for the whole amount of the property.
The bigger the down payment, the lower the monthly payment can be. Depending on the cash on hand and projected income in the next months and year, the buyer can decide how a downpayment and monthly amortization can go.
There are banks that have options to modify the monthly amortization by paying a bigger amount of downpayment. With that, no downpayment or less down payment will mean bigger monthly amortization.
How to save money for a downpayment?
Saving for a downpayment, or anything in that matter may differ from one person to another. It depends on the job, the amount of downpayment, time frame, lifestyle, and priorities. But, here are some that may help you get started in saving for a downpayment:
Know the amount of Downpayment needed
This is important to know the target or goal. For better saving plan strategies, it is crucial to know how much is needed.
Look at current expenses and see where to cut down
Cutting down on some expenses like your daily Starbucks, Uber bills, lunch outs, shopping spree, grocery, even delaying an out of the country vacation can look futile compared to the humongous amount of the downpayment.
But in the long run with consistency, it can be a good sum of money. And if you are a family working together for it, you’ll be surprised at how it can add up to your down payment goal.
See other possible sources of money
Sell things of no use/ need, maybe do a garage sale of clothes, designer bags just sitting inside the closet, instruments etc. One of the fastest way to earn nowadays is through online business, put up an online business.
Okay, maybe that didn’t come to a surprise. But really, saving is part of the game! Bonuses, 13th, and 14th-month pay are not always for enjoyment! Truth hurts but, if anyone wants a place to call home, he’s got to start saving ASAP.
Not tomorrow, or when the sale is over. Save now. Think about it, bonuses/incentives when spent properly, a few years from now is a very good investment.
Looking ahead can make you see things in perspective and help you decide well.
Take advantage of Delayed Gratification
I think most of the things mentioned above can be under this. Delayed gratification is delaying the wants now for something that is greater or more important.
For example rescheduling that Hong Kong trip to next year, or buying that car in the next few months after the house downpayment. Those chances of traveling and buying other stuff are big even after a few years but having an own home would be the best thing to invest NOW.
Again, these things may vary in level in each one us. But, it is really the first time home buyer who can determine if the purchase is possible or not.
It is really of how much you wanted it and how much you are willing to give up for your dream home. Having your own home may seem impossible for most, but how many of us heard stories of simple people believing and eventually owning their own homes? I bet all of us! And the are’s only two words we only hear them say of how did they do it: work hard.
These are only tips and information, it will always boil down to you.