What you need to know before getting started

Taking that crucial decision to embark on finding your future home is probably one of the most important steps in life. Financial commitment, responsibility and self-satisfaction all come along with the home-purchasing decision package.

Thehomeassistant will be contributing articles from time to time offering suggestion on how to set about buying, furnishing, redecorating or selling your home.

In this first article, we shall start at the beginning.

How much money do I need to get started?

Generally one would need to approximately 15-20% of the purchase price of the property that has been chosen.

Ten per cent is the normal requirement asked for by the vendor at the preliminary agreement stage - better known as the konvenju.

The remaining 5-10% would be incurred at the contract stage. These would include notarial fees, stamp duty and, if a bank loan is necessary - bank charges, contracting life policy and home policy, other legal fees including public registry fees and contract fees.

Financial assistance

Check with your local bank how much you can borrow. This is normally calculated on your gross annual income plus annual bonuses plus any other part-time jobs.

Income from tips, commission or overtime are normally not taken into consideration but every case is normally judged individually on its own merits.

With regard to house loan schemes offered by local banks, the normal monthly repayment should not exceed 25 per cent of your gross monthly income. This is a margin banks like to work with. It ensures that the repayments will not become a strain on you after the loan is taken up.

House loans are normally granted for the purchase and finishing of the property you intend to buy. This ensures that even though you are entering into a long-term financial commitment (generally over 30 years) at the end of fully taking up the loan you will have a habitable home.

To help you budget your future monthly commitments we have come up with this table which will roughly give you an idea how much your loan will eventually cost you monthly.

The example we have taken is for a 30-year loan. The interest rates quoted are just a measure to help quantify the approximate repayment.

Be advised that interest rates can change from the time of publication, as well as during the loan-term, with possible repercussions on repayments.

(Log on to www.thehomeassistant.com and download the loan assistant)

Getting financially ready

Make a budget of your monthly expenses. Trim the fat from your budget. This will also give you an idea of how much you can save to meet a loan repayment and what you're not willing to give up. These factors might appear to be of little significance but a 30-year commitment will introduce you to the ups and downs that come with time.

Save as much as you reasonably can for a downpayment. The more you can put down, the better you look to your bank and the more self-confident you feel when choosing your future home. Start saving before you start looking.

Unless you have a really good opportunity, try to stick with one job. Hopping jobs can look a little unfavourable to your bank. Given the fact that normally being employed in the same job for at least two years is important when being assessed, banks also consider the fact that as long as the moves were always for the better, career-wise and financially, they find no objections.

Once you do purchase a home, insure yourself, your family and your assets. Paying a little more for insurance on a regular basis is better than not being able to make your house payments because of a large sudden bill or due to illness or worse.

Unfortunately in Malta we take insurance very lightly and do not stop to think of the repercussions after one has sustained a loss.

Keep in mind that by taking up an insurance policy you will have peace of mind and financial stability.

Procedure of purchasing property

When you have finally found the right property, and the price and conditions have been decided and agreed upon, a verbal agreement between you and the vendor is made for the owner to reserve the property for you until a date has been set (usually within a week) for the preliminary agreement of sale.

This verbal agreement is subject to a deposit made to the vendor by which you are known as il-kapparra. The amount of such a deposit generally ranges between Lm100 and Lm300, depending on the vendor's request.

At this point it would be a good time to show this property to an architect who can point out any structural flaws which might not have caught your eye.

When the property is to be purchased, a preliminary agreement of sale is drawn up by your notary, is signed between you and the vendor on terms and conditions agreed upon and subject to good title and issue of any relative permits to purchase.

On signing of the preliminary agreement a deposit (normally 10% of the price) is lodged with either the vendor, legal adviser or notary.

This agreement is usually valid for three to six months, all depending on the agreement you have made with the vendor. Sometimes the konvenju can even go on for as long as a year.

Should the purchaser fail to conclude or complete the final agreement for valid reasons at law, the deposit will forfeit in favour of the vendor. (i.e. the deposit is lost completely). With this in mind, should you be taking up a bank loan to enable you to make the purchase, your notary will include in the wording of the konvenju that the agreement will all be valid "subject to bank loan".

During the agreed time the notary will undertake and carry out all the necessary research of the property to confirm good title as well as submit the necessary applications to the relative government departments. Once all the necessary permits have been issued and research has proved clear title to the property, the final contract of sale may be settled.

The total balance (full price) of the purchase price including notarial fees, legal charges and stamp duty are paid on the signing of the contract and vacant possession is given by the vendor on contract.

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