SINGAPORE - Buying a new home is usually an exciting and happy affair, but it became something of a horror story for a group of owners here who have seen a large chunk of their hard-earned money go down the drain.

The 30 or so owners had the unfortunate experience of choosing crooked home renovation contractors who ended up vanishing with their deposits of between $20,000 and $30,000 each recently.

It is hard for these folk to recover their money because many of the dubious contractors used shell companies that have no assets.

If you plan to buy a home soon, take note of these four tips that can save you from financial hardship due to unexpected events.

The Importance Of Dealing With Only Licensed Renovation Contractors

Some of the affected owners engaged the rogue builders because they were taken in by online ads featuring stylish and well-designed homes. They took these ads as proof of the advertisers' credentials without making further checks.

Those checks would have revealed that these builders were not on the Housing Board's directory of licensed renovation contractors.

Indeed, some of the victims were HDB owners so they could face penalties if they engaged unlicensed contractors to renovate their homes.

Even if you are renovating a private home, it also pays to refer to the HDB list. While doing business with a licensed company may not guarantee you 100 per cent satisfaction with the results, dealing with an unlicensed one will definitely put your home and money at a huge risk.

Licensed contractors have to complete public housing renovation courses so they do not prescribe work that can run afoul of regulations. They also must have at least three years of experience in renovation work and are actively involved in the trade - this alone will sieve out dubious operators who routinely use different names to escape detection.

Never Give Huge Deposits For Renovation

Some of the owners lost close to $30,000 each because they were misled into paying more than half of the total costs of their renovation upfront.

This is certainly not the normal arrangement with many licensed contractors.

Most home owners are required to pay 10 per cent of the total costs upon signing the contract. After that, you should be given the drawings for your renovation and a detailed schedule for the project.

The second payment of 20 or 30 per cent is due only when work starts at your home and after the contractor ships the building materials to the site.

Frankly, as the customer, you can always ask for a fair progressive payment schedule - such as 10 per cent deposit, two payments of 20 per cent each for two agreed stages of the project, a 40 per cent payment when the last stage involving carpentry work starts and the final 10 per cent when the key is returned to you.

If your contractor still insists on collecting 50 per cent of the cost before any work starts, you are probably better off working with someone else.

Buy Home Insurance

If you are taking out a bank loan for your home, chances are you will be asked to pay for a "fire insurance" as part of the loan process.

This policy is not for you but for the bank: If there is a fire, the insurer will pay to restore the property to its original state so that it can be sold to pay off the loan in the event of a default.

SingCapital chief executive Alfred Chia, who is a veteran insurance broker, says all owners should buy their own home insurance to cover the interiors and the contents. He recommends owners to opt for the "all-risk" cover, which range from $100 a year for better protections.

"Such policies will compensate you for accidents such fire, or even water damage due to broken pipes. Some will also pay if the occupants are injured at home. Make sure your policy also covers you for personal liability so that you don't have to compensate your neighbours out of your own pocket if the fire from your home spreads to theirs," he adds.

Higher Borrowing Costs

Before you rush to sign off on a new home, note the Monetary Authority of Singapore's advice about not being over-leveraged with a big mortgage.

Global borrowing costs are set to rise as a measure to curb runaway inflation so home owners will likely have to fork out more for their mortgages every month.

You don't have to postpone your decision to buy your dream home, just make sure you have sufficient extra cash to pay the loan instalments if they go up. Depending on your loan amount and the rate increases, your monthly outlay can go up by a few hundred dollars or even $1,000 or more.

The last thing you should do is to rely on your credit cards as the back-up plan for other household needs because rate increases are usually long-drawn affairs. Home owners with existing mortgages should also start to reduce their household expenses if they already feel squeezed.

It can be tough to own a home but it gets easier if you plan for it.

Credit: Straits Times