10 financial mistakes to avoid when buying a house

BUYING a house for most of us is not just a huge milestone, it’s also a major investment. Unfortunately, sometimes, in the absence of adequate guidance, many of us make decisions, many of which carry hefty financial consequences.

To make sure you don’t fall into a trap, especially in the case of first-timers, attorney-at-law Josemar Belnavis has shared a list of 10 financial mistakes to avoid when buying a house.

1. Not properly assessing your need

Some buyers may purchase a property simply because they think that it’s a good deal. However, especially in circumstances where you intend to obtain mortgage financing, it is important that you consider specifics such as the location of the premises, the size of the house and/or room for possible expansion, and of course, proximity to work/schools/ shopping facilities. Belnavis pointed out that you always want to make sure that the purchase is suitable for the specific intent, whether it to raise a family, retire, etc.

2. Failure to consider resale value/earning potential3. Not reading and/or understanding the terms of your sale agreement4. Failure to consult a surveyor5. Failure to have the property valued6. Assuming that the purchase price is affordable7. Not shopping around for mortgages8. Expecting to buy the perfect home

The excitement of stumbling on a property at a rate that you believe to be very affordable can send all plans for the future out the window. A property owner may need to rent or sell their property for a number of reasons, including a growing family, moving out of the parish for work, or because they are migrating. As such, it is important to consider factors like location of the house as well as the ability of the purchaser to expand or alter the property to suit their needs.

“A property [in a] good location can be sold easily or rented. In the latter circumstance, a person buying into a strata and/or townhouse is to be extra careful as often you will have no room to add on to the building,” Belnavis advised.

“A sale agreement is the contract that will set out the terms which govern the sale and/or purchase of the property. Every term, clause and word are of critical value and it is important that the purchaser and vendor understand them,” Belnavis advised. He said that the document will detail crucial information as it relates to the sale, including the time in which a sale should be completed, and this is important for the purchaser to understand because if they do not meet this requirement because they cannot come up with the rest of the purchase price, for example, then they run the risk of having the sale terminated and their deposit (initial amount paid to the vendor and their attorney) forfeited.

“This is one reason why it is important to seek legal advice because forfeiture of a deposit can result in a purchaser losing millions of dollars,” Belnavis warned.

The purchaser has the right to inspect the property that they are purchasing before the sale is closed in a bid to ensure that they are satisfied with the purchase. Belnavis says that this is facilitated by the sale agreement, which he explains should contain terms which speak to the purchaser being allowed to inspect the premises for breaches and/or defects.

“If breaches are identified within the time set out in the agreement, then a purchaser can indicate same to the vendor and have them remedied at the vendor’s expense. If the breaches or defects cannot be remedied, then the vendor and the purchaser can mutually agree to terminate the sale and the monies paid by the purchaser can be recovered,” Belnavis explained. He pointed out that failure on the part of a purchaser to have the property inspected by a certified land surveyor can result in them buying a property that has structural defects, breaches to restrictive covenants, and/or encroachment issues with adjoining premises and at this time all costs to rectify said defects or breaches will be theirs.

When people come across a property they believe to be ideal they often request the asking price, then proceed to do what most Jamaicans do which is “bawl down” the price. Unfortunately, Belnavis said that many purchasers find the process of having the property valued something they only do to comply with instructions from their mortgage institution.

“Getting the value of the property is an important step in understanding whether you are overpaying on a purchase or if it is in keeping with the market price. It also sets out critical information as to the composition of the property in terms of various pros and cons,” the attorney advised.

Valuation reports are a safety blanket for purchasers and mortgage institutions alike because there are many cases in which the agreed purchase price will far exceed the price reflected in the valuation report.

“In this instance, the financial institution will indicate to the purchaser that they will only fund the sale in keeping with the amount contained in the valuation report. At this point the purchaser will have to make up the shortfall out of pocket, which oftentimes can be costly, or not accessible to the purchaser,” Belnavis outlined.

At face value, the cost of a property might seem affordable. However, sometimes in the middle of a transaction, especially, a purchaser may realise that the fees associated with completing the purchase are more than they had bargained for.

“The cost of purchasing property in Jamaica has been reduced based on the government’s reduction on stamp duty and transfer tax. However, the purchaser will also need to consider costs such as paying a surveyor, valuator, attorney-at-law, paying for the preparation of the agreement for sale and letters of possession. Also, a purchaser will oftentimes need to pay for the house to be insured if they are getting a mortgage,” Belnavis advised. This is another reason he says that the purchaser should seek advice from an attorney-at-law; however, in this case, a banker or financial advisor may be able to help them put things into perspective and prevent them from getting in over their head. Also, he recommends that it may also be prudent to obtain a pre-approval letter from the bank.

Like finding your dream house, you will rarely find the right mortgage company in one go. The same method of “shopping around” should be applied when deciding on which institution to approach for assistance with purchasing your home.

“The current boom in the Jamaica housing market has most financial institutions presenting reduced interest rates, and they have come up with all kinds of mortgage packages to suit different purchasers. It is therefore important to shop around and choose a mortgage package that works for you,” Belnavis recommends. He said among the key features to focus on include monthly payments, interest rates, whether the interest rate can be reduced gradually, the ability to have an inter-generational mortgage, and possible refinancing options.

“Sticking to one financial institution may limit your perspective and limit a purchaser to one set of terms. Some banks are even willing to match terms once you can indicate that another institution is giving you a better deal. Don’t monopolise yourself,” the attorney warned.

It is important that when seeking to purchase property that you have an open mind about the potential of the property. The reason, according to Belnavis, is that nine times out of ten a home or property will require some work to bring it to its full potential or to meet your specific needs.

“So, for example, in the case of first-time buyers, square footage and acreage become even more important. The more space you have, the more you can do. You will be amazed at what a good paint job and new décor can do to old premises. Experienced realtors usually say it’s never a bad deal to buy [a] fixer-upper in a good area because the locale will not change, but the condition can be improved,” Belnavis advised.

9. Second-guessing yourself can be fatal10. House opening splurgeJosemar Belnavis, JP, is an attorney-at-law at Lindsay Law Chambers. He specialises in civil litigation, real estate, family law and commercial practice. He may be reached at josemar@llcja.com.

You love the property, it is all you anticipated in a dream home, yet you fail to go through with the purchase. This, Belnavis says, is a decision you might come to regret.

“If all your finances are in place and you have no obvious obstructions, you should just go ahead. People sometimes lose out on a real deal because of second-guessing themselves or comparing themselves to the Joneses. If you have fixity of purpose and you have found your dream or deal property, proceed! Yes, you should proceed with caution, but proceed nonetheless,” Belnavis said.

“Upon attaining your dream or deal property, get used to living in it and enjoying it before throwing the many and varied lavish home parties. You will soon realise that after your initial investment in purchasing the home, many initial expenses will arise — primarily, furnishing the home,” Belnavis advised. He recommends starting small and smart because the place is already yours so you can furnish it at your own pace.