PREVENT YOURSELF FROM BEING FINANCIALLY OVERSTRETCHED IN PROPERTY

MANY HOME BUYERS are feeling financially overstretched after underestimating all the costs that being a homeowner brings. Most homebuyers also found the additional expenses associated with buying a home on top of their mortgage payments had been more than

When you overstretch and put yourselves in an awkward situation like this, you may be reluctant to let anybody know, even your closest friends and family. So, how can you improve your financial situation if you are already overstretched?

SHED THOSE PERSONAL AND OUTSTANDING DEBTS

This is definitely the first thing you must do. Remember, those interest rates do nothing to help your situation. The last thing you want to happen is to see them climbing and making your situation much worse than it already is.

The important thing to do here is to be proactive. Do not sit around hoping that your financial situation will improve on its own. Cancel subscriptions that you do not need, gym membership, premium television channels or magazines can wait till your situation improves. Use this money to lower your debts.

DOWNSCALE PROPERTY

Yes, it is definitely time to take a step back and try to live on less. This means getting rid of everything that you do not need but only serves to complicate your life and your bills. This would be a good time to scout around your house and get rid of anything that you have stopped using.

Old gym equipment, old clothes or even your bike can be written off for sale. Imagine the amount of money you can make from stuff that you have no use for. Do a full sweep and be ruthless. Now is not the time to be sentimental.

GET A LODGER OR TENANT FOR SPARE ROOMS

This is an excellent way to make money on the side while not actively doing anything. This will help you take care of your utility bills and other financial needs. Taking in a lodger can also mean added security for your home, provided it is somebody you can trust for all the time that you are away. There are no statutory rules involving lodgers. So if your lodger proves to be unsuitable, you will have an easier time removing him from your premises.

LIVE WITH PARENTS OR FRIENDS

Before you balk at the idea, remember, this is just a temporary set-up only if you really have no choice but to sell the property that brings you into such situation. A few months is all you need to get back on your feet. Explain to your parents that this is only temporary and if they understand, they should not have any reason not to let you stay for a while.

Just remember to return the favour. Do the dishes, wash the car, water the plants and be helpful. When the time comes that you are making enough money on your own again, graciously say thank you and start looking for your own place again. Do not overstay your welcome.

SPEAK WITH BANKERS

In many cases, banks are the last one who want to see your property goes into foreclosure. Especially when the cost of foreclosing is greater than what will be recovered, it’s not worth the time, effort, and expense to foreclose a property.

Of course, each bank has their standard procedures to follow, but you can always try to speak to them and see if there is any possible way to restructure your loan so that your monthly commitment can be lowered.

Possible means are like refinancing for lower interest rates or longer tenure, or converting an existing loan to an interest only loan. For example, these days, some banks provide customers the flexibility to service interest payments only for the first few years. Ask banks other than your existing lender to find out which one is able to help you.

PREVENTION IS BETTER THAN CURE

There are many costs you don’t have as a renter that materialise when you buy a house. These include insurance, loan repayment and maintenance costs. Hence, before borrowing for a house, you must ask yourselves if it is affordable. You must ask if your future employment is stable.

If you are planning on having children, will one partner give up work, or will there be childcare costs that affect the capacity to service a loan. Most young people assume their capacity to service debt will increase with age, but that isn’t always the case. Having children is one classic example of a huge increase in expenditure that has to be budgeted for.

In summary, to prevent yourself being overstretched financially in property, always ask yourselves the following 10 questions before signing up for a home loan:

1. Is your industry stable?

2. Is your job stable/how easy is it to find similarly paid employment?

3. What percentage of your income will be spent on the loan?

4. Have you factored in the cost of loan, insurance and maintenance?

5. Are you factoring bonuses and commission into the equation?

6. Will you have children?

7. If you have a joint income, is your partner likely to take time off to look after children?

8. Will you send your children to private school or university?

9. How important is your current lifestyle?

10. Could you change your lifestyle to repay a big mortgage loan? Dr Ong Kian Leong (commonly addressed as Dr OngKL) is the creator of GoFinance. He is also the master trainer of Property Method and blogger behind www.REIJB. com (Real Estate Investment Blog).