Purchasing a home is usually one of life's most substantial decisions. Whether you are about to buy your very first home or have previous experience with this process, there are several important aspects that require careful consideration. This article aims to empower you with invaluable pre-purchase tips, enhancing your confidence and understanding of the home-buying journey.
At Living Impact and DeleieBolig, our commitment is to make the housing market more accessible while bolstering your confidence throughout this journey. We are delighted to share relevant and practical tips to guide you toward your dream home.
Here are our key recommendations for those approaching this significant milestone:
1. Understand your finances
2. Familiarize yourself with the lending regulations
3. Keep an eye on the market situation
4. Think long-term
5. Explore different areas
6. Get to know the buying process
7. Find the best mortgage
8. Obtain a pre-qualification letter
9. Check the condition of the property
Before diving into the housing market, it is crucial to thoroughly evaluate your financial situation. Create a comprehensive overview of your income, miscellaneous expenses, existing debts, spending habits, and potential areas for savings. This financial assessment will provide a realistic view of how much you can comfortably allocate towards your home purchase and monthly mortgage obligations.
Such a review will also provide a basis for considering your future lifestyle and financial aspirations. Think carefully about how you want to live after you buy a home and have to deal with housing costs in addition to your current expenses. Do you desire frequent dining out? Do you have a passion for traveling and want to allocate funds for it? It is wise to consider your needs and desires when assessing the size of the mortgage you can safely handle.
Before you buy a home, it is crucial to be aware of the prevailing rules and regulations related to mortgages, as this can affect loan terms and your ability to buy a home. Understanding these regulations helps you know what conditions to expect and how much equity you need to prepare. The Norwegian lending regulations include that:
· You must have equity of at least 15% of the home's value when obtaining a mortgage. This means that you must have at least NOK 600,000 to get enough loans to buy a property worth NOK 4 million. It is important to remember that the house price for calculating the 15% equity includes the sum of the final bid, joint debt, and costs.
· Your total debt cannot exceed five times your gross income. This means that if you earn NOK 500,000 and have NOK 200,000 in student loans, you can borrow a maximum of (5 x 500,000) - 200,000 = NOK 2,300,000 for housing. Other types of debt such as car loans and credit card balances also count in the calculation.
· You must be able to withstand an interest rate increase of 3 percentage points. This is a so-called interest rate stress test, which the banks carry out to check whether you will have sufficient funds to cover normal living expenses in the event of an interest rate increase of 3 percentage points on your total debt. That is, if the mortgage interest rate is 4.5%, your finances must withstand a mortgage interest rate of 7.5%. At the same time, your finances must at least withstand an interest rate of 7 percent.
The lending regulations also stipulate that the banks have a flexibility quota, which means that the banks have the opportunity to make some deviations from the rules. Outside Oslo, the banks can deviate from the rules by a maximum of 10% of the lending volume each quarter, while the flexibility quota in Oslo is 8%. This means that the banks can give you a loan even if you do not have enough equity, or you can borrow more than five times your income. This nevertheless entails a greater risk of debt problems and higher expenses for servicing mortgages.
The lending regulations do not include any requirements for permanent employment. Thus, you do not have to have a permanent job to get a mortgage. Nevertheless, the bank will have other requirements for you and require more documentation to check whether you have sufficient security, ability to pay, and willingness to pay.
By familiarizing yourself with the lending regulations, it will be easier for you to navigate the home-buying process.
It may also be a good idea to stay updated on the current state of the housing market. Property prices, supply, and demand can vary significantly over time and in different areas. Staying informed about the current state of the housing market can be useful for making well-informed decisions in the home-buying process. This involves keeping an eye on market trends, analyzing price changes, and evaluating the availability of housing in your area of interest.
Market trends: Check how property prices have developed over time in your area of interest or different areas. Are prices rising, falling, or relatively stable? This can provide information on whether it is an appropriate time to buy a home or whether it might be profitable to invest in certain areas, especially if you consider selling the property in the future.
Price changes: Consider whether there are seasonal variations in property prices or specific factors affecting the market, such as economic events or market developments.
Availability of homes: Research how many homes are available in the area and how this balance between supply and demand can affect prices and your ability to find the right home.
Changes in regulations: Keep up to date on changes in the rules and regulations. For example, in December last year, the government lowered the requirements for how big an increase in interest rates your finances must withstand, making it easier to borrow money in 2023. Such changes in lending regulations can make it more favorable for you to buy a home.
Changes in the policy rate: The policy rate is Norges Bank's most important tool for regulating price growth and development in the Norwegian economy. So far in 2023, Norges Bank has increased the policy rate from 2.75% to 4.25%, which is the highest level since the financial crisis in 2008. These changes in the policy rate have led to increased loan rates, including the mortgage rate. Several banks have followed in the central bank's footsteps and raised interest rates on mortgages, which has had a significant impact on the finances of Norwegian households. Before you consider buying a home, it is important to keep up to date with changes in the policy rate and how this affects mortgages.
At a time when mortgages have become more expensive, you may also want to explore alternative ways of entering the housing market, such as our rent-to-own scheme. Through the rent-to-own scheme, you can postpone the need for a mortgage, which can be beneficial in a period when interest costs take up a significant part of your disposable income. In addition, our scheme allows you to make a more well-thought-out decision about when it is the right time to buy a home.
Before buying a home, it's wise to think long-term and carefully consider the future. This involves carefully evaluating how your housing choice fits into your upcoming plans and life goals. A home purchase is typically a significant long-term investment. If you plan to live in the property for many years, it would be essential to consider your current life situation and think about how it may evolve, including any changes in family needs, job status, or financial prospects.
If you consider selling the property in the future, it would be important to have a strategy that includes residing in the property for at least four years, especially considering the costs of buying and selling. Another relevant factor is the tax aspect, where at least 12 months of residence in the last two years is necessary to sell the property tax-free. Therefore, it is necessary to keep your plans and goals in mind while searching for your dream home or approaching a home purchase.
In addition to having a long-term perspective, it's essential to carefully evaluate the area where you want to buy a home. The location plays a crucial role in your overall quality of life, so it's wise to thoroughly explore various neighborhoods and areas before making a decision.
Ask yourself a range of questions while searching for your dream home. Are accessible transportation options important to you? Do you prefer to live near scenic areas? Take into account your priorities and assess different areas based on factors like safety, school quality, proximity to workplaces, access to shops, and facilities that suit your lifestyle and needs.
It can be highly beneficial to familiarize yourself with the home-buying process, as this will help you understand what is expected of you as a homebuyer. Take the time to become familiar with the various stages in the home-buying process, including viewing, bidding, contract signing, and handover. Seek advice and guidance from previous homebuyers and professionals when necessary. The more you know about this process, the better equipped you will be to navigate it with confidence and self-assurance.
After purchasing a home, the mortgage will constitute a significant portion of your available income. Therefore, it is crucial to research mortgage rates that suit your situation and needs. The Consumer Council's Finansportalen offers a calculator that scans all their registered mortgage products to find those that fit you. You only need to provide information like the loan amount, the property's value, your age, and the repayment period. With this tool, you can compare different banks in the market. Additionally, it is essential to carefully consider whether a fixed or variable interest rate and which type of loan is most suitable for your financial situation.
When considering a home purchase, it's wise to obtain financing pre-approval. This document, issued by a bank, provides you with a clear overview of the financial parameters for your home purchase. It includes two important aspects:
The most important aspect of obtaining the pre-qualification letter is that it provides you with confidence and insight when participating in the bidding round for your dream home. You would know exactly how far you can stretch your budget in the bidding process, avoiding bidding on homes beyond your financial reach. This can save you unnecessary time and frustration while increasing the chances of having your bid accepted on a home that meets your needs and desires. Therefore, it is advisable to have financing pre-approval in place when you are ready to participate in the bidding rounds. It is important to note that the validity of the pre-qualification letter is limited in time, but can be renewed as needed.
Once you have identified your dream home, it's essential to carefully review the prospectus and/or property condition report before purchasing the property. The prospectus contains a description of the property and all the necessary information the seller can provide. As a homebuyer, you have a duty to inspect. This means it will be very difficult for you to complain against the seller or the home insurance company if you discover defects after purchasing the property. Therefore, it is necessary to thoroughly understand the property documents. If you need more information, contact the seller or the real estate agent and request written answers.
It is also wise to be prepared when attending a property viewing. Viewing is your chance to physically inspect the property and get answers to any questions you have about it. It is essential to gather as much information as possible about the property, and it is advisable to be thorough and critical in your assessment. Remember to check the technical standard of the property in addition to its appearance. Create a list of the criteria you need to check and consider important, such as plumbing, drains, windows, the property's view, soundproofing, or access to various facilities. If important information comes to light during the viewing that is not in the documents, it is wise to confirm these details with the real estate agent.
If you are uncertain about the property's condition, you have the option to request a property sales report. This report involves a more thorough examination of walls, drainage, pipes, and electrical systems than is typically done in a traditional appraisal.
Also, investigate whether there are planned changes for the area you are considering moving to, such as the construction of highways or high-rise buildings, which could potentially impact the property environment and value.
