Buying a house is the biggest investment in many people’s lives. Therefore, you should thoroughly familiarize yourself with things before making the decision to buy.
This guide will try to identify and explain the things you need to pay special attention to when you, as a first-time buyer, go out and buy a house.
There should always be a lot of consideration in buying a home. Especially when you do it the first time. Finding around loans, interest rates, repayments, etc. can be tricky, but things, like determining their needs and assessing the state of the home, are very important when investing in owner-occupied housing.
We have gathered here a number of considerations that you should at least make before signing the purchase agreement.
- Define your needs
- Investigate how much you can borrow
- Study the market thoroughly
- Examine the house thoroughly – Several times!
- Investigate the possibility of getting impartial advice
- Examine your loan options
- Investigate insurance options
Define your needs
It is a natural first step to settle on yourself what needs you have for your home. That way you get a more targeted home search and find only what is relevant to you.
As a first-time buyer, dreams and needs can easily come together. So it is important that your needs are realistic in relation to your finances. Many first-time buyers will find themselves struggling very financially in their first home.
As it is usually a bad investment to buy a home, you only want to live for a few years. Can this have long-term consequences for your finances?
Therefore, you should do away with “nice to have” and “need to have” right from the start of the housing search.
Investigate how much you can borrow
It is always a good idea to find out how much you can borrow early in the buying process. You can always talk to your bank advisor about your home purchase considerations and get a pre-approval also called a loan certificate.
A pre-approval is a bank’s statement about how much you can borrow for home purchases. At the same time, you get an overview of your economy after buying a house.
It also comes to the forefront in the home hunt, as you can show the seller that you can borrow the money with a pre-approval. It is quicker to take out the loan when you have this pre-approval since you have already been rated.
Another benefit of a pre-approval is that you know how much you can borrow and therefore also which homes are realistic for you. It’s really hard to find the dream home and to be told that you can’t borrow that much money.
It is possible to get a pre-authorization from banks other than your own. Therefore, obtain pre-approvals at several banks and see where you can borrow most.
Generally, it is always a good idea to get more deals when it comes to loans.
You can also use our calculator to see how much you can borrow for home purchase right here.
Study the market thoroughly
Once you have determined your needs and how much you can buy a home for, home hunting can begin.
With these two things in place, you have minimized the range of possible housing and the search is, therefore, more efficient.
Always research the market thoroughly as there may be a lot of money to save on it. If you know the general price level in the area, you have a better bargaining position if you think the price is too high in relation to the prices in the area.
You can also look for indications such as bed days, previous price reductions, etc. to try to negotiate a more advantageous price.
Examine the house thoroughly – Several times!
Once you have found the dream home, it is important that you investigate it thoroughly. Like several times!
Because the condition report shows only the visible faults and defects of the home, it does not give the full picture of the condition of the home.
Therefore, always check the home thoroughly before turning on. It can be a costly pleasure if there are some big bugs and missing somewhere in the house.
If you find these errors before you turn on, you can use this to negotiate the price down.
Or, alternatively, make an agreement with the seller to correct the errors.
If you are not a construction engineer yourself, you should look into the possibility of impartial advice.
Investigate the possibility of getting impartial advice
It may be a good idea to have independent advice in several places in the home buying process.
The first place is something the house needs to be thoroughly reviewed. Here you can hire an independent building consultant to review the house and find the damage that is not in the tin level report. It costs around DKK 5-7000 to get a construction consultant out.
So if there should be saved damage somewhere, this money is really well spent. If not, you have peace of mind before you buy it
Another place in the process is before the purchase agreement has to be signed. Here it can be a really good thing as you ally yourself with a buyer advisor or a broker.
The difference between the two is one a buyer adviser is often a lawyer or a bank that only helps to ensure that the legal entity is in order in the purchase agreement. A buyer broker, on the other hand, can help you right from the start. You can thus get advice in connection with the housing search, inspection of selected homes, etc.
It is always a good idea to have independent professionals in the process. The seller has the real estate agent to look after his interests while you as a buyer are very much alone.
If you have any doubts about your home purchase, it is, therefore, a good idea to hire independent help.
Examine your loan options
When you need to finance a home purchase, there are a lot of things to pay attention to.
These include the “80-15-5 rule” these figures are the maximum limits for how the loan should be distributed on different loan types. The rule states that:
You can borrow a maximum of 80% of the purchase price from a mortgage institution.
You can borrow a maximum of 15% of the purchase price in the bank.
You will have to pay a minimum of 5% yourself. So you have money for yourself from savings, for example.
Makeup with yourself what type you are
Since a home purchase is such a huge investment, it is important that you make up your mind about what type you are.
By type here is meant how risky you are.
When you go out and finance a home, you have to take out a mortgage. And when you need to take out a mortgage, you need to decide whether you want a fixed-rate or variable-rate mortgage.
This decision must be made based on your type of person and how risky you are.
Read much more about mortgages and the choice between fixed-rate and floating rate right here.
Freedom of interest or not?
You have guaranteed to become acquainted with the term “interest-only” in your search for housing finance.
Interest repayment is, as is often the case, linked to a mortgage loan. and simply means that you are free to repay the loan for a given period. However, interest and contributions still have to be paid during the interest-free period.
It is very different from person to person whether freedom of interest is a good or bad idea.
As a general rule, it is always a bad idea to pay off interest if you use the extra financial leeway to increase your spending.
If, on the other hand, you pay off more on more expensive debt, it can make good sense.
See a more in-depth explanation of interest-free in our blog post “interest-free”.
Always compare loans
It is important that you compare several borrowers when you have to borrow for a home. This applies to both the mortgage loan and the bank loan.
By comparing loans, you can find the best loan terms for you and your situation.
Investigate the possibility of taking over seller’s loans
It is sometimes possible to take over the seller’s current home loan. It can be a really good idea from an economic point of view.
The reason for this is that it is really expensive to take out a mortgage because there are large set-up costs associated with it. It is e.g. costs for registration of mortgage deeds.
You will be able to save these costs by taking over an existing loan. Seek advice from your bank regarding this.