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You might think that buying a house is just something you do, rather than a skill that must be learned. But the truth is quite the opposite: for a typical non-millionaire, a house is the biggest purchase, thus the opportunities for both grand mistakes and massive gains are plentiful.
No matter how much a developer may pressure you with deadlines, or how attractive the offers sound, remember that your hard-earned money is at stake. Invest a lot of time and effort into researching and choosing the right property.
Where you buy the house of your dreams is probably the most important factor. Consider at various aspects in the area of your choice, such as house prices, schools and amenities, resale value, transportation, etc. Decide on the property that meets your criteria and sign on the dotted line only when you are fully satisfied.
Once you know the pricing in your desired area, you will also know how much you will need to put aside for the 25 per cent down payment required by most lenders. If you have been wise, you will have saved this amount ahead of time, through proper financial planning.
The first rule of financial planning is to set aside six months worth of income as an emergency fund. Ensure that you do not use this for the down payment. I know people who have done this and faced a severe liquidity crunch during emergencies.
Put aside 50 per cent of your monthly disposable income in a savings account for emergencies and don't touch it except in emergencies.
Negotiating mortgage rates
You will be surprised at the variety of mortgage products in the market and researching the pros and cons of all them may not be up your alley. Employ a mortgage consultant to find the best mortgage to suit your situation and negotiate the best rates for you. Most importantly, have them scrutinise the fine print in the mortgage papers as well.
Most lenders in Dubai require a proper term life assurance policy to cover the mortgage amount in case of death and assign the policy to them.
When applying for such a policy, ensure that the mortgage provider approves the life insurance company you choose.
What happens in cases of critical illness or disability? The life cover won't pay out if the policy holder is alive. So make sure the life assurance policy covers for disability and critical illness for at least five years worth of income.
This will allow you to take a break from work, recover from the illness and then get back to work while maintaining your mortgage payments. If you are disabled, the policy should cover the majority of the balance mortgage payments, if not all.
Remember that the monthly instalment is not the only outgoing amount each month. You may have to pay the maintenance and service charges. The life assurance policy premiums are to be included as well in the total outgoing.
Try and ensure that this amount is not more than 30 per cent of your income.
After the purchase
Protect your home and belongings. Fire, floods and other natural causes can damage your home. When you add up the cost of all your belongings, it can total around Dh100,000-Dh200,000 or even more. Imagine if you have to replace all your belongings in case of fire.
Good home content policies in the UAE are very cheap and comprehensive. The right policy will cover the structure of the house, as well as the belongings and the mortgage amount for at least three to six months.
Cover can be obtained to protect your home and belongings for fire, theft and natural calamities. Avoid local insurers and choose a reputed international provider.
When on holiday
Ensure that your utilities are disconnected if you are going out of the country for extended periods. Most home insurance policies do not protect against water damage when the owner is away, especially if precautions are not taken.
Your home insurance policy will not pay out if you fail to secure your house and a theft happens, or if a fire breaks out because you did not take appropriate precautions.
Your home is considered a fixed asset in your estate in the UAE. If something happens to you and you have no will in place, the UAE government will follow Sharia for the disposition of your property. To avoid complications, a married couple, who are joint owners of the property, should each draw up a will and include the home in it.
Ensure that the wills are done through qualified and licensed service providers and that they are registered with the right authorities.
Your home cannot go with you should you decide to move overseas, so keep monitoring the real estate market and the prices in your area for opportunities to exit. Sometimes it is prudent to sell your home at the right time and make a profit.
Click on Value of home for more advice in purchasing
Source: Amit Mitbawkar, Special to Property Weekly
The writer is a Senior Wealth Manager at Acuma