Translation: Julie Summers

Buying real estate can be complicated, especially when you’re buying your first home and aren’t sure what to look for or how best to go about it. Elín Sigrún Jónsdóttir, a lawyer who operates her own law firm, BÚUM VEL, is an expert in real estate and inheritance law. In other words, she’s the perfect person to turn to for some advice, which I hope will help people who are considering making their first real estate purchase.

Your first real estate purchases

In her work, Elín has witnessed firsthand the shock and other consequences of real estate transactions gone wrong, but by preparing well, you can prevent mistakes and bad experiences. “I emphasize warmth and methodical preparation and encourage people not to rush into things, buy the first place they see, and hope that it’ll all work out. There’s often a lot of competition for small but nice properties, which is what most first-time buyers are after. To avoid mistakes, people need to be ready when the right property is advertised. That means having a clear view of your finances and knowing what you want,” says Elín.

Credit rating

First of all, you have to ask yourself how expensive a place you can buy; that is, how much capital you have and what you can afford. Add up your expenses from the past year by looking at your credit card statements and bank accounts.

· Clothing purchases

· Medication costs

· Entertainment and leisure

· Essential goods

· Subscriptions

· Gifts

· Car payments and maintenance (or other transportation costs)

· Summer vacations

· Monthly living expenses

Unfortunately, conditions can change, as in the case of temporary unemployment and/or illness. “Don’t forget that buying a home comes with additional costs, like property taxes, maintenance costs, homeowner’s insurance, and homeowner’s association fees,” says Elín, adding that you should also compare your credit rating with the lender’s credit rating.

Financing real estate purchases

“[Equity] often comes from a combination of regular savings, supplementary pension savings, and support from loved ones,” says Elín, adding that capital usually totals about 20-30% of the purchase price for a first home, with the balance coming from loans. “It’s important to compare the terms offered by each lending institution,” says Elín, pointing out that lenders generally have mortgage calculators on their websites that you can use to calculate your monthly mortgage payment based on the loan conditions, whether the loan is indexed or non-indexed, and the total cost of the loan amount in relation to the loan term. The website Aurbjörg.is also allows you to compare loan conditions. “Taking out a home loan is a big decision and a major commitment. Give yourself time to look around and get a feeling for prices in your neighborhood. Look at a minimum of 10 homes to get a sense of the price range,” says Elín.

Indexed and non-indexed loans

“In general, the difference between indexed and non-indexed loans is that non-indexed loans have variable interest rates, while indexed loans may have either fixed or variable interest rates. Inflation affects the principal of indexed loans but has no direct impact on non-indexed loans. With indexed loans, you pay less up front, and your mortgage payments are more even. Finally, you build equity more quickly with non-indexed loans. I especially want to urge borrowers to look at how the loan term impacts their mortgage and the total cost of the loan,” says Elín. It’s always good to be able to pay into the loan itself and reduce the principal, but with indexed loans, your initial payments go toward fees and interest, so you don’t build equity right away. With non-indexed loans, your monthly mortgage payment is higher, but that money is split between fees, interest, and the loan principal itself, so you build equity faster. However, inflation can impact how much you pay each month.

Graphic / Margrét Aðalheiður Önnu Þorgeirsdóttir

Buyer’s inspection obligation and seller’s disclosure obligation

“The buyer is responsible for inspecting the property, and the seller is obligated to disclose everything they know about [the property]. Buyers should closely study the property’s renovation history, keeping in mind its age and appearance. Is the roof in good condition? What about the sewage system, heaters, electricity, and windows? It’s important to check carefully for damage from humidity or mold. In each individual case, you have to judge how thorough an inspection is needed and decide whether there’s reason to bring in a professional inspector. If you’re looking at property in a shared building, it’s important to carefully study the homeowner’s association’s declaration of rules and regulations, any planned maintenance, the balance of the association’s fund, and find out what you would pay into the fund each month,” says Elín. It’s also a good idea to check the pet policy; in most cases, pets are not allowed without the consent of all residents.

Making an offer

“When the owner has accepted an offer, it’s time for a binding agreement, which is made in the form of a contract of sale, usually one to four weeks after the offer is signed. First-time buyers most often make a conditional offer, subject to approval of financing. In many cases, when dealing with older properties, it’s also advisable to include a provision about a professional inspection. It’s a judgment call in each case,” says Elín, pointing out that sellers prefer unconditional offers if given a choice.

Contract of sale – what are the most important things to keep in mind?

Ask the real estate agent to send a draft of the contract and deed the day before you’re set to sign the contract. This gives both parties a greater sense of security about the process.
Read over the offer and contract together. Make sure all the information is correct.
Are there any outstanding loans on the property? When will those loans be repaid? The date is very important here. It’s also important to ensure that the loans will be repaid before the property is paid in full or that the real estate agent agrees to handle the payments and ensure that they are used to pay off the outstanding loans.
Before signing the contract, it’s important to decide who will be listed as the owner(s) and, if there will be two or more owners, what share of the property each one will own.

Closing

“Closing day is usually two months after you sign the contract or when the price of purchase is paid. The timeline often depends on how long it takes to process the loans. The same rules apply as with the contract – prepare, read over the deed, and make sure you understand the financial settlement. At closing, the seller transfers the property to the buyer, thus declaring that the purchase price has been paid in full, and the buyer declares that they are satisfied with the condition of the property. When you close, property taxes and interest on assumable loans are settled. The seller continues to pay the mortgage and interest on assumable loans, as well as property taxes, until the occupancy date, at which point the buyer assumes responsibility for those payments,” says Elín.

Take your time, and get help if something is unclear. “Listen to your doubts and pay attention to your feelings about the property. Real estate disasters can weigh heavily on you, both financially and emotionally. It’s important that the seller, buyer, and real estate agent trust each other and have a good rapport, because the goal is that the new home will be filled with happiness.”

Buying Your First Home: Advice from an Expert