Growth & Jobs | Save for your mortgage deposits and associated fees

BUYING A home requires a large financial commitment, and it may be the largest purchase most people will ever make in their lifetime. So, if one is intending to purchase a home soon, they will want to start saving for the various costs involved and explore options that will make the process as simple and affordable as possible.

Petal Hall, sales executive at the JN Group, realtor associate with JN Properties Limited and a well-known authority on mortgages, said the upfront costs of buying a home are significant, adding that there are also extra costs which, in many cases, prospective homeowners are unaware of as they set out on their real estate acquisition journey.

Among the associated fees is the deposit, or down payment, which is normally required by vendors upfront, in the home purchasing process.

“Let’s say you’re interested in purchasing a home for $18 million, which falls in the mid-income market segment. You’ll need to come up with a deposit of at least five per cent, or approximately $900,000,” she said, explaining that some vendors request as much as ten per cent of the going purchase price.

Hall said some additional coststhat are not readily known by some prospective home buyers, are the closing costs, escalation fees, legal costs as well as transfer, registration fees and stamp duties.

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“Some buyers are aware of the deposit, but many are unaware of the fact that in some instances, they will also need up to 25 per cent cash, up front, to cover the cost of a series of professional and other fees,” she said.

Against that background, Hall said it is important for prospective homeowners to carefully plan and save in advance to prepare for making their deposits and paying the additional fees.

According to the JN Group sales exec, it could take approximately three years for the average person who wishes to purchase a home in a middle-income community, to save the deposit.

She said one practical step towards saving for the deposit is preparing a budget and sticking to it. She noted that a budget can also aid homebuyers to reduce any existing debt at manageable levels and prove to mortgage lenders that they can meet their monthly payments.

“Avoid spending on non-essential items and impulse purchases as this type of spending impacts negatively on your ability to save and will delay your dream of owning your home. Access less credit and save more of your income. The more you save means you are able to put away more for your deposit on real estate, and other costs associated with purchasing a home,” Hall advised.

“If your debt-to-income ratio is close to or higher than 45-50 per cent, you may also want to take steps to reduce it. You may want to consider increasing your monthly debt payments. The additional payments will help to lower your overall debt quicker,” she added.

She also recommended opening a separate bank account for saving for your home purchase. She said this account should ideally be a high-earning savings account that remains off limits no matter what.

“It can help if you set up an automatic pay day transfer for the account, or you can choose to make top-ups to it whenever possible,” she said.

Additionally, Hall stressed that prospective homeowners should strive to save 100 per cent of any windfalls or unexpected cash inflows.

“Your NHT refund, or a nice year-end bonus, are perfect examples,” Hall advised. “Therefore, use those funds to increase your savings. And while it is tempting to splurge a little, even as you save a little, achieving a down payment for real estate acquisition requires a lot of restraint. Hence, you should be realistic, and examine every source of expenditure, including your day-to-day expenses and one-time cash infusions to determine how much you can really save.”

Hall said while mortgage fees can add up when buying a home, “the end product, becoming a homeowner, will be a most rewarding achievement”.