Buy a home you can afford
First home buyers are back in the property market – that’s good news
AFTER being squeezed out to the home buying wilderness for years, the regulatory and banking measures to dissuade investors (particularly from overseas) are starting to have an impact and the door for first home buyers is opening.
Figures out last week showed the proportion of first home buyers in the property market hit a four-year high in July, while their demand for loans for new houses hit a 38-year high.
That’s great. Now the key is to make sure the home you buy is one you can afford. Here are seven steps to make sure you’re on the right track:
1 CHECK CREDIT SCORE AND LOOK AT YOUR CASH FLOW
Knowledge is power and you want to know how good a customer you will be for the financier if you borrow from them. You can find out how you rate, free, at a number of credit score websites.
The higher your score, the better the interest rate on your mortgage you may be able to negotiate. Good credit can mean lower monthly payments, so if your score is not great, consider delaying such a big purchase until you’ve repaired your credit score.
Banks have an advertised home loan interest and then discount that rate according to how good a payer or customer you are. Having other products, like insurance and credit cards, with the bank should also qualify for a discount.
As for monthly payments, experts say a good rule of thumb is to make sure the total monthly repayment doesn’t consume more than 30 per cent of your take-home pay.
Because trading houses is so expensive plan to be in this first home for at least 10 years.
2 HAVE CASH FOR A DEPOSIT
Technically you can negotiate any deposit with the vendor. These days it can be as low as 5 per cent and is often contingent on the length of the settlement. A rule of thumb is the shorter the settlement, the smaller the deposit can be negotiated.
But your financier may stipulate a higher deposit so that you have greater equity to protect the value of the home loan from falls in property values. If the deposit is less than 20 per cent the financier may require you to take out mortgage insurance which will cost 0.5-1 per cent of the value of the loan each year.
3 PLAN FOR SURPRISE EXPENSES
Even if you can afford the monthly payment, be aware of hidden costs. Buying a home means stamp duties, legal fees, insurance and council rates that can add up to hundreds a month. For people who have been renting, these extra costs can be a shock so make sure you have a bit of a slush fund.
4 GET PRE-APPROVED FOR A MORTGAGE
Once you have the budget and have decided to take the plunge, determine how much you can afford to spend and stick to it.
Talk to the bank about a preapproved loan up to a certain limit before house hunting.
When you’re in a bidding battle. a vendor will usually take an offer from those with a preapproval letter before those without one.
It’s generally good practice to aim for a home that costs less than the maximum approved amount.
5 FIND THE RIGHT REAL ESTATE AGENT
Always remember real estate agents are working for the vendor. The higher the price they can get out of you, the more they receive in commission from the seller.
Having said that, finding a good real estate agent can pay dividends in the long run. Ask friends for recommendations.
6 START HUNTING WITHIN YOUR PRICE RANGE
Start off by determining your general needs – where you want to live, how many bedrooms and bathrooms you need, and certain school zones you’re trying to be in.
Then, become your own expert. Technology has empowered people like never before to do a lot of the searching online.
7 PUT IN AN OFFER YOU’RE COMFORTABLE WITH
Buying a home is a very emotional process. It’s important to remain rational and stick with your price limit while buying. People get caught up in bidding wars, and will go way over what their price limit because they love the house.
Don’t just put in an offer because you’re emotionally drained and desperate to finish the process. Expect to miss out on a few before you find the one.