Buy a home you can af­ford

First home buy­ers are back in the prop­erty mar­ket – that’s good news

The Gold Coast Bulletin - - BUSINESS -

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:

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. If it’s higher, then have a plan to re­duce it over a short pe­riod.

Be­cause trad­ing houses is so ex­pen­sive (stamp duty, con­veyanc­ing fees, mov­ing costs) plan to be in this first home for at least 10 years.

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 in the prop­erty to pro­tect the value of the home loan from any falls in prop­erty val­ues.

Just re­mem­ber if the de­posit is less than 20 per cent the fi­nancier will of­ten re­quire you to take out mort­gage in­sur­ance which will cost 0.5-1 per cent of the value of the loan each year.

So that dis­count on the in­ter­est rate from be­ing a good cus­tomer could be eaten up in in­sur­ance.

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.

And find out whether you qual­ify for a first home­own­ers grant or stamp duty con­ces­sions in your state.

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, which demon­strates to you the real es­tate agent and to ven­dors how much you can af­ford.

When you’re in a bid­ding bat­tle. a ven­dor will usu­ally take an of­fer from those with a preap­proval let­ter be­fore those with­out one. Illustration: TERRY PONTIKOS

But you don’t have to spend ev­ery cent up to the ap­proved loan. It’s gen­er­ally good prac­tice to aim for a home that costs less than the max­i­mum ap­proved amount.

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 who un­der­stands your needs, can pay div­i­dends in the long run. Ask friends for rec­om­men­da­tions, and in­ter­view sev­eral to de­ter­mine their level of ex­pe­ri­ence and ex­per­tise in the sub­urbs you’re in­ter­ested in.

Buyer’s agents are be­com­ing pop­u­lar. They act for you and do all the leg­work of find­ing the per­fect home, and deal­ing with real es­tate agents … for a fee. It can be a flat fee or a per­cent­age of the value of the prop­erty.

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.

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.

If you’ve found the right one, make your bid quickly. There may not be much room to ne­go­ti­ate, as you’ll likely be fac­ing com­pet­ing of­fers.

GOLD­COAST­BUL­LETIN.COM.AU

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