It is quite normal that we encounter a would-be buyer who is not ready to buy a house yet.
We advertise our property listings on a few local websites, dedicated to the Tico market. All our agents speak fluent Spanish, so that is not a problem. We often see that a local client is looking at homes but is not ready to buy a house. The problem is that they don’t know it.
I know that quite a few of our readers do not work with a real estate agent, for reasons of their own. Often, they’re quite right: I see the quality of the service and knowledge that some agents offer. That is why I insist on mandatory licensing, for educational reasons.
In the United States and many other countries, a property buyer will call an agent to act as a buyer’s agent. That agent might be recommended by a friend or relative, or could be found online. Some who have the time will do their homework before hiring a buyer’s agent.
In Costa Rica, the process works totally differently, if there is any process at all. There are eight warning signs that you are not ready to buy a house if you haven’t covered these issues first.
1. Location
Are you sure about the location you have chosen for your search? Are the members of your household happy with the location you’re looking at? Traffic jams are a big influence nowadays regarding where you might want to purchase a home in the Central Valley.
2. Pre-qualified by Lender
When someone calls me to see a property we listed on a local real estate listing website, I always ask a couple of questions first.
a. “Are you buying cash or do you need financing?” Often, the answer is “Why do you ask?” This usually leads to an uncomfortable conversation that ends with the interested party hanging up the phone. The buyer who hangs up is clearly not ready to buy a house in Costa Rica.
b. If the answer is yes, without any more discussion, my next question is “Have you been pre-qualified by a lender?” on which I receive a big NO most of the time.
c. When I ask them how they know what their budget to buy a home is, it becomes quiet on the other end of the line. This is another client who is not ready to buy a house in Costa Rica.
In other words, all those who are just looking without knowing their budget, or whether their lender will agree to give them a mortgage, are wasting their time (and mine). This doesn’t mean that I won’t show them the house. I am just trying to find out if they are reasonably qualified buyers, which is all I can do.
Why would you, as a buyer, want to look at and fall in love with a home you can’t afford? Don’t go that route. Talk to different lenders first. Find out what your budget to purchase a home is before you start looking at houses like crazy. If you’re not pre-qualified by the lender, you’re not ready to buy a house yet.
3. Not Making Enough Money
Of course, we all love to live in a house that has everything you want in life. But can you afford it? Do you make enough money to pay for it? Crunch the numbers first. See how much your family income is. Also, see how much you spend and how you spend it. Can you cut back on that?
How much will your monthly payments be? Use an online mortgage calculator to get an idea. What about life insurance (your bank will oblige you to take it), home insurance, property taxes, H.O.A .fees? You’ll need to spend some funds on maintenance, paint, and upkeep, too. What about the almost 3% closing cost? Have you saved up for that? Getting scared now? You should. Crunch the numbers first.
Many financial planners say that the cost of your home should not exceed 28% of your gross income. If you do exceed that percentage, you’re not ready to buy a house. Talk to your loan officer or banker before you start looking at homes for sale.
4. You Don’t Have Enough Savings
Did you know that you need at least a 20% down payment to buy a home? That is if your lender will give you a mortgage for 80% of the purchase price. But there are some other things you’ll need to pay for, too, such as a bank mortgage commission, closing cost, the movers, home insurance and other additional costs that you might not know about. You need appliances and furniture too, don’t you?
You sure also want to build up a reserve before you buy, so you will always have a couple of months house payments ready for an emergency.
5. Not Being Able to Pay
Making enough money to buy and not being able to pay your debt are two different things. Credit cards can save the day, but the interest rates you pay on credit card debt are huge. So are your monthly car payments and schools for the kids. It all adds up, and they come back every month. What happens when you run behind on those payments?
HOA fees, insurance, schools, water, power, and gas go up now and then; will you be able to keep up? Have you built up a reserve in your savings account? Start looking for expenses that you could eliminate when necessary or use a budget calculator. Once you know if you’ll be able to pay or not, go to the next step.
6. A New Job
You earn a very good income, but you’re new on the job. Ask your lender if they’re okay with that. Some lenders will request job stability and will lend only after you’ve worked for two years for the same employer. It is also important to understand that a commission-based income will not qualify as well as a fixed income.
7. You Have Too Much Debt
You’re already over your head in debt. You think you can make that credit card debt and car payments disappear by buying a house? I see it happen all the time. Some buyers request that the seller accepts a 150% value appraisal on a property they want to purchase so they can make these debts disappear by including them in the loan.
Your debt load should not be more than 36% of your gross income.
Believe me: if you can’t make your monthly credit card payments, you are not ready to buy a house. You should be living under a bridge! Before you buy a home, have a hard look at your spending habits and get rid of some of that customary debt first. Your health is very important, but your financial health is even more important when you want to buy a home.
8. The Type of Home
You haven’t really thought about the type of home you want to buy. Do you know the advantages and disadvantages of a condo, a townhome in gated community, and a single family home? Each is unique in its lifestyle, maintenance cost, and upkeep. Do your homework first and see what type of home suits your necessities best.
Final Thoughts
I know that all those new homes and condos advertised by real estate developers look incredible. And the deals they offer are something you have to take advantage of! Don’t fall into the trap and don’t jump the gun.
Do not assume you can afford it and are ready to buy a house. Pay attention to the eight signs and crunch the numbers first. Then make a wise decision.
Ivo Henfling founded the first functioning MLS in Costa Rica with affiliate agents from coast to coast, which has been in operation since 1999. Contact Ivo at (506) 2289-5125 / 8834-4515 or at ivo@godutchrealty.com
