What every first home buyer needs to know



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Buying a home is a big commitment, both financially and emotionally, which makes the task particularly daunting when you are doing it for the first time. There is quite a lot to plan, organise and consider during the process, besides simply securing a home loan, so here is our list of what every first home buyer should know.

Be prepared for the ongoing costs of home ownership

Before you dive into the process of finding your first home, ensure you are ready for the commitment of owning a property. From the minor inconvenience of a leaking tap to the more serious problem of a leaking roof, you will no longer have a landlord to deal with maintenance issues. And maintenance costs money.

“What we find with most first home buyers is that because there is so much focus on getting into the market, they focus on the deposit and ignore the ongoing costs,” said Steve Crawford, owner of Experience Wealth and Victorian director of the Association of Financial Advisers.

“We advise allocating 1 percent to 2 percent of your annual income to allow for the inevitable – things break down all the time.”

In addition to things breaking down, you will have to budget for regular annual costs such as home insurance, council rates, water rates, and strata levies if you are buying an apartment.

The size of the deposit

How big does your deposit have to be? Most lenders require you to save a minimum deposit of 5 percent of your home’s purchase price, but if your deposit is less than 20 percent you will have to pay Lenders Mortgage Insurance (LMI). This is a one-off payment to your lender, designed to insure them in the event you are forced to default on the loan and the lender has to sell your home at a loss. If you want to avoid this extra cost, you should aim for a 20 percent deposit.

Aside from avoiding LMI, the bigger your deposit, the less you have to borrow and the more you save on interest repayments over time – and the more affordable your repayments will be.

Select the right home loan

There are thousands of home loans to choose from and they all come with different features. Take your time to research your options so you can choose the right loan for your needs, now and in the future.

“It’s important to have a good understanding of the home loan products available to you and that you shop around, not just in terms of interest rates but also access to a redraw facility, the ability to make extra repayments, credit cards with points and other features,” Crawford said.

Know your budget

There is no point looking at properties you can’t afford. It’s therefore important to have your finance pre-approved before you start inspecting properties. You can also miss out on a property if your finance isn’t approved, as real estate agents will favour someone with pre-approved finance over you when making an offer.

“First and foremost, you have to have your finance in order,” Mark Dawes, director of Richardson & Wrench Alexandria Waterloo, said. “We’ve seen people inspect a property they love and come Monday they make an offer but we can’t take them seriously.”

Pre-approval can take days and it is essential if you are bidding at auction, as you must hand over the deposit on the day.

Have a buffer

While interest rates are low at the moment, you should be prepared for their eventual increase. Allow yourself a buffer so you can afford the mortgage repayments at a higher interest rate.

While there is a lot to take in down the road to home ownership – the end result is a property to call your own. And if you are organized from the beginning the task will be less daunting and more rewarding.

 

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