Savings, strategy key to buying
First-home buyers should speak to industry professionals and do as much research as possible before leaping into a purchase
GETTING on to the property ladder may not be as affordable as a generation ago, but for those committed to stepping on to the first rung, it’s all about savings and strategy.
This is the message from Mortgage Choice CEO Susan Mitchell (pictured right), who said the first step any prospective buyer should take was to work out exactly how much they could borrow.
“Buying property is likely to be the most significant financial commitment most people will make,’’ she said.
“As such, first-time buyers should do as much research as possible and speak to qualified professionals before jumping in with both feet.
“To start, first-time buyers should speak to their local mortgage broker in order to identify their borrowing power.
“Knowing how much you can afford to borrow will give you a guide to what type of property you can afford and where you can afford to buy.”
The deposit
Regardless of the type of property, all lenders require a deposit and expect to see proof that a home buyer can save.
A standard deposit is 20 per cent of the property price, but in some cases that figure could be less.
The key thing to remember is the greater the deposit you have, the less you need to borrow.
“There are options available to those who do not have a 20 per cent deposit, with lenders on the market offering loans to those who have 10 per cent deposit or less,” Ms Mitchell said.
“Those with smaller deposits may have to pay lender’s mortgage insurance which is a one-off fee that protects the lender in the event the borrower defaults on their loan.
“Alternatively, first-home buyers may choose to ask a family member to go guarantor on their loan. A guarantor is a third party who can provide additional security to help a family member buy their own home.”
First-home buyers may also be eligible for a range of incentives including a first home buyer’s grant and/or stamp duty concession, which go towards making a first home purchase more accessible.
Additional costs
Buyers should be aware it’s not just the deposit they will need to cough up.
Additional fees include stamp duty, pest and building inspections, insurance, conveyancing or solicitor’s fees, and moving expenses, all of which add up. So, between the deposit and additional costs, how do you save such a significant sum?
A savings strategy
According to Ms Mitchell, saving for a first home does not mean forgoing all your favourite things but rather prioritising what is important.
“First-time buyers need to prepare a budget and start a disciplined savings strategy which can demonstrate to lenders that they can service a loan,” she said.
“To start, create a budget that includes all your incomings and outgoings and a define a savings plan with realistic goals.
“You should aim to review your budget regularly and stick to it. Monitor your discretionary spending and avoid reaching for your credit cards where possible.”
Think outside the box
Meanwhile, the location of the property affects affordability, and first-time buyers may not be able to afford to buy in the suburb where they wish to live.
This has given rise to a trend called “rentvesting” where first-home buyers buy a property in a more affordable suburb and then rent it out as an investment.
“It could give first-time buyers the chance to get their foot in the property market without having to sacrifice on their lifestyle,” Ms Mitchell said.