So you're looking for your first home.
Where do you start? Pick a suburb? Pick a style of home? Decide how many bedrooms you need/want?
Buying your first home will be the single most expensive lesson of your life so far.
So, my best advice by far is to check your budget, and only then go house hunting in the range you can afford. You'll avoid some heartache thinking you can afford more, or that a type of home costs less than they're asking.
Let's start with the money you've got now.
- How much have you saved? Check the couch cushions, the lint filter in the washing machine and your car's ashtray.
- How much are you earning at the moment? What sort of job is it - permanent employee, contract position, casual, self-employed?
- Are you buying solo or with someone? A partner? Are your parents helping you? Or is this home going to be all yours?
And what about the future?
- How much money do you need to buy that place?
- How much can you borrow?
- What, if any, grants, concessions or subsidies are you entitled to?
- Are you happy with those numbers? Or are they a bit low, or a bit scary?
Buying your first home is a big deal. It requires planning, research and careful budgeting.
ASIC's Smart Money website is a great place to get started. The website offers these tips to get you thinking:
Are you ready to buy a home?
You are ready to become a homeowner if you have the following things in place:
#1 A substantial deposit
The bigger deposit the better when you're saving for a home. A deposit of 20% of the purchase price plus enough to cover costs is ideal.
The bigger your deposit, the lower your loan to value ratio (LVR). This is the amount of the loan divided by the purchase price (or appraised value) of the property. If your LVR is higher than 80%, you will need to pay lender's mortgage insurance, and the lender could charge you a higher interest rate. Avoid these extra costs by saving a bigger deposit to lower your LVR.
You should also think about how you will pay for other up-front costs like stamp duty and legal fees.
You should also consider whether your family can help you out at this stage by considering a guarantor arrangement. It is especially helpful if you have a small deposit and would like to avoid Lenders mortgage insurance (LMI). A security guarantee from family is a serious step but, handled correctly, it can save you thousands of dollars by short-cutting your deposit savings time and removing the need for your lender to require an insurance premium on their loan.
#2 A regular savings habit
A history of regular savings in your bank account and a solid track record of employment will make it easier for you to get a home loan.
#3 Pre-approval for a loan
Compare a few different loans before you decide.
Talk to your mortgage broker and compare lenders before you decide. Asking for a comparison report between each home loan so you can compare more easily. Keep in mind not all brokers are accredited with all banks. It is a good idea to ask which banks are on their panel of lenders. Once you choose the loan and have been pre-approved you'll know what the repayments will be and how much you can afford to spend on a property.
It can be a good idea to have a play with a mortgage calculator to get a feel for the repayments you could be expected to make on different loan sizes and with various interest rates. Can you comfortably afford that amount given your current earnings?
It is also advisable to have some additional savings to act as a buffer for when interest rates rise and your repayments increase. Your broker can also provide loan options that allow extra repayments if you want to pay more off your loan, saving you interest down the track. This is also useful to build a buffer early on and then redraw it later, but only if you absolutely need to as I'm not keen on you using the redraw feature. Why? It just means your going to take longer to repay your loan.
The ASIC website also has a great budget planner you can use to work out how much you can afford to save, and how you'll afford your repayments.
The website includes some sage advice from Scott Pape of Barefoot Investor fame. He advises would-be first home buyers to:
Widen your property search
If you're trying to get a foot in the market consider moving out of your comfort zone into an area you may not have considered before. Areas further out from cities or towns can be good value for money and offer a great first step into the market.Consider a smaller property
If you really want to live in a particular area you may have to start small and work your way up. Consider an apartment or a smaller house that you can add to over time.Compromise on finishes
Properties that are dated or in need of renovation can be a cheaper option for home buyers. Look for a home that is structurally sound and then clean it to your standard. Add a lick of paint here and there to improve the look and renovate as your budget allows.Consider an investment property rather than living in the home
Investment properties outside capital cities or in smaller towns or rural areas can have decent rental yields, making up for much lower capital gains. The benefit of a positively geared property is that a tenant repays your loan while you build equity. This allows you to sell the property later and use the proceeds as a deposit on a property closer to where you want to live. Find out more about property investment.Get an interest-only loan
You might consider an interest-only loan if you're trying to get into the property market but you need to think carefully about whether it will be the best loan for you in the long run. Read about the risks and benefits of interest-only mortgages.What type of property can you afford?
A good way to find out what type of property you can afford is to create a household budget. Then you'll be able to see what you can afford on home loan repayments. Use our budget planner to work out how much you can afford to repay. Remember that on top of the repayments, when you buy a home you will also have ongoing costs like land and water rates, house and contents insurance, and repairs to put in your budget.
Finding the right property
There's no point looking for a waterfront mansion if you can only afford a boatshed. Once you've set your price range, identify the suburbs that have properties in that range - it will save you a lot of legwork. Go to the Australian Property Monitors: Home Price Guide to see property prices in different suburbs.Take your time and consider things like proximity to schools, transport and amenities, and the condition of the property. Does it need major repairs?
Before you buy, arrange for building and pest inspections, and have the contract checked by a conveyancer or solicitor before you sign. Make sure the person inspecting your future home is qualified to do so, such as a licensed builder, architect or surveyor.
In some states you can also have inspections during the 'cooling-off period', or the 5 days after you sign the contract, as long as you don't buy at auction - where there is no cooling-off period. If you withdraw during the period you will lose part of your deposit.
So you can see there's a lot to consider when you are taking your first step onto the property ladder. Let me help you make that first step easier by helping you with your finance pre-approval. Just drop me a line on email, private message me on facebook, or call me on my mobile to get started. Happy Househunting!
If you'd like help with assessing your personal and financial situation, as well as comparing the loans in the market to see if you're truly getting the right deal for you, then call Bob Malpass now on 0431 862 136, email [email protected] or send us a message via our website for a quick response.
Bob Malpass 0431 862 136 or [email protected]
Thanks for reading,
Bob
