Search for Savings & Loans
Homeownership Option 1: Buying a Ready House - All you Need to Know
Homeownership Option 1: Buying a Ready House - All you Need to Know
See The Best Loans Available in Kenya Today
Money Management

Homeownership Option 1: Buying a Ready House - All you Need to Know

Money254
Farah Nurow
July 18, 2022

Homeownership is on everyone's bucket list. It's a dream you've been saving for since you started working. And as you prepare to accomplish this financial goal, you need to learn about all the intricacies involved in the process. 

There are many paths to take to accomplish your homeownership dream, but if you are looking for the most convenient one that will give you absolute ownership fast: nothing beats buying a ready house in cash. 

In the first edition of the six ways you can own a home in Kenya, this article will explore everything from the things you need to consider before buying a house in cash, the pros, and cons, how the process works, and finally, the pitfalls to be on the lookout for. Read on. 

Read Also: Planning for Big Purchases: All You Need to Know

4 Things to Consider Before Buying a Ready House

Affording to buy a house in cash is one thing; if it is the right path for you, is another. Before you head to the market to buy your dream house, here are four things you should consider. They'll help you determine whether buying a house in cash is the best option. 

Funding: You should plan how you will finance your homeownership process. It could be easy if you have been saving for it and finally reached your goal. If you haven’t, you should explore the saving options and investment vehicles that could help you accomplish your goal. 

Another way to fund your homeownership process is liquidating. You could sell some of your assets to get the money to purchase a home outright or use them as collateral to secure a loan. You can also borrow against your pension to fund your homeownership. Your pension provider allows you to redeem up to 40% or Ksh7m to buy a ready house.

The Housing Market: Is it better to buy a house, or is a mortgage a better homeownership option? Is building cheaper? You should look at the housing market to get inspiration on the path to take. A mortgage might be better for you if the housing demand and interest rates are low. If house prices are through the roof, consider getting a quotation on how much it will cost to build from scratch and compare it with cash buying. 

Your Goals: You should consider your intentions and future plans. Do you plan to generate any income from the house? Are you buying it as a retirement home? Your goals can help you determine your budget, the location to choose, and how quickly you want to close. 

The Economy: Your reason for owning a house should mirror the economy. Buying a house, for example, can cushion you in times of rising inflation and low-interest rates. During harsh economic conditions, houses are cheaper than when the economy is booming.

Is Buying a Ready Home Right for You? 

Homeownership is something you've been looking forward to checking off your bucket list. But before you commit all the money you've worked hard for, you must weigh your options. Compare the financial implications of buying a ready house with other options like mortgage and rent to own. Let's list the pros and cons of buying a home with cash.  

Advantages 

1. The seller will give you a priority, and you will have a competitive advantage over other buyers.

2. You will have a negotiation edge and can command more significant discounts, especially when the seller is looking to sell faster.

3. Quick buying process as you don't have to wait for lender approval associated with home loans or construction to finish. The whole process will take 90 days max.

4. You will significantly cut costs as you won’t pay fees associated with another buying process like mortgage insurance and also avoid high interests. You will pay less in closing fees and real estate agent fees.

5. You get to own the house outright as the title is transferred to your name after you make the payment. 

Disadvantages 

1. Dead Capital - Buying a house in cash can narrow your investment portfolio and reduce your asset diversity. It can leave you with no money to invest in income-generating vehicles or attend to significant emergencies. 

2. You miss out on the Ksh300,000 mortgage interest tax relief the government offers homebuyers. 

3. You will still pay other costs associated with homeownership like legal fees, real estate agency fees, stamp duty, land rates, and home insurance. 

Read Also: Can You Own a Home in Your 30s?

The Process of Buying a Ready Home in Kenya 

The home buying process can be stressful, filled with a lot of paperwork, and will require that you stay alert. You have to be watchful of con artists selling ghost properties, real estate agents looking to rip you off, and corrupt government officials who might make the process more challenging. 

But this homeownership process doesn't need to be complex. This simple guide will help you make it bliss.

1. Find the Perfect Home 

The first step is finding the perfect house - one within your budget, your preferred location, has the amenities and design you are looking for, and meets all your other needs. 

Searching for a house usually is the easy part. You can browse listings on real estate websites and magazines, walk around your preferred location looking for a home on sale or retain a reputable broker/agent to help you find a property. 

2. Conduct Title Search and Due Diligence 

At this stage, it is vital that you retain a real estate lawyer or agent to help you through the process. They will help you approach the seller and demand copies of documents like title deed, identification information, land rate receipts, etc., which will help in ascertaining ownership and searching for other red flags. 

You will then visit the lands ministry to conduct a title search to confirm if the seller owns the property and check for previous owners. You will also use the document to obtain a land clearance certificate that will help you determine if the owner is owed any arrears in land rate by the government. The certificate will also assist in property valuation, which will be helpful when you want to make an offer. 

If you are buying an apartment, you also need to conduct a background search on the seller to confirm they're genuine and the owners of the building. You should also check that the building has no court cases against it or its owners. 

The next step is to conduct a property inspection. This ensures the house you are about to buy meets all the standards that you and the government demands. The seller should provide a certificate showing the house complied with all building codes and laws and is suitable for occupancy. 

3. Make an Offer to Purchase 

Once you have identified a house that meets all your criteria and conducted your due diligence to ascertain it is clean, it is time to make an offer. 

Most houses in the market will have prices attached to them. You can instruct your representative to make an offer that is low or matches that price. You can also make a higher offer, especially if competition for the building is stiff. 

The seller will either accept, make a counteroffer or reject your offer. In all cases, they'll typically give you a reason. You will then proceed according to the outcome of your offer and the response you get from the seller. 

If your offer is accepted, the next step is signing a sale agreement with the seller. The contract will contain all the selling terms and is valid for 90 days or the period you mutually agree on. 

You will pay a 10% deposit to show your commitment to buying the property. The down payment is held in an escrow account until the transaction is complete. You will pay the rest of the money when the property transfer has been initiated, and you've received the title certificate.

4. Closing on The House.

This is the final process and will include the formalities associated with buying a house. After you have paid the house's total price and the seller has initiated the property transfer, it is your responsibility to complete the process. 

You will start the property registration process with your lawyer or agent to transfer the deed to your name. The land rate and rate clearance certificates will also have to be registered in your name, a process you can complete at your local lands office. 

Depending on location, you will also be required to pay a stamp duty tax of 2 to 4% of the property value. The tax is calculated based on the government valuation of the land your house sits on. 

Once all your documents are in order, it is time to pay your real estate agent, collect your keys and move to your new house. 

Pitfalls to Avoid When Buying a Ready House 

When buying a built and ready home, you can't afford to just wing it. A lot of precautions and diligence are required. Any mistake you make has the potential to cause you exponential loss. Here are some pitfalls you must avoid. 

Making Assumptions: Don't assume anything when doing a home inspection. Go an extra length and get certified engineers to check the quality of the building and ensure it's up to standard. Don't ignore minor things. Check if the house has incurred any utility debt by not paying water and electricity bills. 

Costs Add Up: The little payments you make along the way will add up and, if not careful, might affect your budget and force you to cut short your plans midway. Factor in all the fees you will pay and include them in your budget. 

Doing it Alone: You won't get all the answers and help you need from Google or your friends. To ensure you don't fall into any pits, hire a qualified and experienced lawyer and/or real estate agent to guide you along the process. They'll bring expertise and keep you away from the vultures on the market. 

Involving Emotions: Buying a house is one of the most significant financial decisions ever. You should not make this decision based on emotions. Consider all the financial implications it has on you and if it is the best route to take. 

Read Also: Emotional Money Decisions Can Make You Poor - Money Psychology

Going Broke: Houses are expensive, and if you are not careful, it might lead you to drain all your savings or emergency funds and damage your other financial goals like retirement planning. Ensure you can afford a house and keep up with the recurring maintenance and other homeownership costs. 

WRAPPING UP 

When it comes to homeownership, information is power. Buying a house in cash is the fastest way to own a home and comes with few complications. Before taking this route, you should examine other options available and only settle on this if the option that suits you best financially. 

A house is a long-term investment, and you'll probably see no returns if you don't plan to resell or rent a room. You should consider the possibility of losing it and invest in home insurance. 

Read Also: Should I Buy A House? 5 Signs That You Are Ready

Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.

Learn more about Personal Loans available in Kenya on Money254

Money 254 is a new platform focused on helping you make more out of the money you have. We've created a simple, fast and secure way to find and compare financial products that best match your needs. All of the information shown is from products available at established financial institutions that our team of experts has tirelessly collected.

Instantly search loan products from established providers in Kenya and compare on the terms that matter most to you.
Money254
Find the best Personal Loans for me

Stay up to date with your money - sign up for our newsletter today.

Get updates from the Money254 team on financial news and new Money254 features.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.