Getting Ready for a First Home

The property market is showing no signs of slowing down despite being near the end of a very long upward trend. While there is some advantage in buying at the bottom of a cycle, that advantage becomes less relevant over time. For first home buyers, it is more important to be in the property market than to try and time a purchase at a low point.

There is lots to do in preparation for buying a first home. Here are the most important things to focus on:

1. Make sure you have a good track record with your banking. That means paying all your bills on time and keeping within your overdraft limits. You should also be able to show that you have been able to save money regularly.

2. Get rid of any short-term debt. Short term debts usually have high interest rates and high repayment commitments which will reduce your ability to service a mortgage and therefore the amount you can borrow. Don’t worry about your student loan as it is interest free.

3. Do a budget. A lender will want to know that you can cover your living expenses as well as your mortgage payments. You will need to provide this information in your loan application so it’s best to get all the information together beforehand.

4. Work out how much you feel you can afford to borrow. You may feel more comfortable borrowing less than what the bank is willing to lend you so you have spare income left over to enjoy life and to cover unexpected expenses.

5. Decide what is important in a first home. Your first home doesn’t need to be your forever home, so be clear on your list of ‘must haves’ and ‘nice to haves’. You can make improvements over time.

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847. For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

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