First Home Buyers
It can be scary buying a home. You can become anxious, nervous, fearful, doubtful and excited. Sometimes all at once. One thing to know is that the more knowledge you have the more confident you will be.
Below is a list of tips to help you through the process.
- Home loan pre-approval: Before you start looking at properties, find out how much money you can comfortably borrow. Then you can focus your attention on finding a home well within your budget.
- Mortgage options: Get advice from a mortgage broker and/or specific lenders to discuss your options and the different types of loans available and compare costs and interest rates.
- Borrowing within your means: Lenders will assess your history of savings and your servicing ability of the loan. Be careful not to borrow over your limit otherwise you may not be able to enjoy life in your new home, or worse, have to sell your house before you have substantial equity in it.
- Pre-purchase inspection reports: Pre-purchase building and pest inspections may cost you a few hundred dollars but can potentially save you thousands. They will uncover any issues big or small. The purchase contract you sign will be subject to you being satisfied with your inspection from a builder and pest/termite inspector.
- Additional costs: Make sure you budget for all the extra costs involved in buying a property including property valuation, transfer/stamp duty, solicitor/conveyancing fees, council rates and possible body corporate costs. If you’re buying an older home, it is wise to stash some extra cash to cover for any unforeseen maintenance issues once you move in.
- Choose between ‘wants’ and ‘needs’: It’s very easy to confuse your ‘wants’ with your ‘needs’, but it’s important to distinguish the two when buying. Do you really need that brand new four-bedroom house with all the trimmings or is it something you want? Take a good look at your salary, debt levels, costs of living and what the repayments would be like for your dream property. Can you afford it? If not, it’s time to prioritise what features are the most important in your new home. Your first home won’t be your last, so it’s ok to compromise!
- Start saving now: House deposits can take a while to save, so it’s smart to start saving as soon as you can. Save the biggest deposit that you can. This not only demonstrates to your lender that you can exercise enough discipline to accumulate a large amount of savings, but you will also have a buffer of equity in the property from the beginning.
- Pay your mortgage weekly or fortnightly: Paying your mortgage weekly or fortnightly rather than paying monthly means you pay more off your loan quicker and save thousands over the life of the loan. Banks want you to pay monthly because it means you pay more interest over the life of the loan.
- Mortgage insurance: Unless you have a deposit of at least 20 per cent of your purchase price, lenders may require lenders mortgage insurance (sometimes known as LMI) to safeguard the lender should the homeowner default on their debt. LMI is calculated as a percentage of your loan amount and varies depending on your loan to value ratio. It can be substantial so make sure you check before committing to anything.
- Making extra payments: Some loans will not allow you to pay off more than the agreed amount each month – which can be frustrating if you have a windfall or bonus that you’d like to use to reduce the amount on your mortgage. Extra payments are essential if you want to shorten your mortgage term and own your home outright sooner.
- Exit fees/break fees: It might seem a little premature to be thinking about at this stage, but it’s an important question to ask, nonetheless. Depending on the type of loan you end up with, the costs to end your mortgage early can vary substantially. Fixed rates, for example, can be costly if you need to pay off your loan during the fixed term.
