Buying your first home is a memorable and exciting experience, but it’s also a daunting one. Your home will probably be the most expensive purchase you ever make, so it’s essential you get it right. Unfortunately, there’s so much you need to know and do to ensure that the whole process runs smoothly.
These 10 tips will help take the stress out of buying your first home and might even help you save some money along the way.
1. Choose your (realistic) dream home
OK, if your dream home is a beachfront mansion with six bedrooms, three bathrooms, a pool and a butler, you might have to lower your sights a little. Now is the time to be realistic and work out where you want to live, how much you can afford to spend and the key features you want in a home.
Ask yourself a few key questions:
- Which suburbs can I see myself living in?
- How close do I need to be to work, public transport, schools, shops, restaurants and other amenities?
- Do I want a house or an apartment?
- How many bedrooms and bathrooms?
- Do I want a backyard, a pool, a double garage, an outdoor entertaining area?
- What’s my budget?
This may seem like a fairly simple step, but completing it will bring you a whole lot closer to your dream of owning a home. You may need to compromise to be able to find an affordable home in your desired area — you may even need to expand your property search radius — but a common sense approach will set you up for success.
2. Check your credit report
Your credit report holds the details of your borrowing and repayment history. Credit cards, personal loans, utility payments, debt agreements and more — they’re all listed in your credit file.
When you apply for a home loan, lenders will obtain a copy of your credit report to help them determine your ability to pay back the money you want to borrow. If there are any black marks on your credit file, such as missed payments or defaulting on a loan, this will obviously hamper your chances of getting home loan approval.
Before you apply for a home loan, order a copy of your credit report (it’s free) to make sure it’s in good shape.
3. Get on top of your debt
If you’re already in debt, you won’t be able to borrow as much and you may even struggle to find a lender willing to approve your home loan application. Now is the time to take stock of your personal financial situation and start paying off your debts.
Make sure to prioritise high-interest debts like your credit card balance, and you may also want to consider consolidating several debts into one loan if possible.
Precision Funding broker Marco Balsolti notes that HELP/HECS debt can also be another debt to target. Due to the way repayments are calculated on this debt, it can significantly reduce your borrowing capacity when treated as a going liability by lenders.
4. Work out how much you need for a deposit
As a general rule of thumb, it’s a good idea to save a 20% deposit for your home loan — in other words, a $500,000 loan would need a $100,000 deposit.
But what many people don’t realise is that a 20% deposit isn’t actually a mandatory requirement. Some lenders will approve loans for borrowers with a 10% or even 5% deposit, but this comes at a cost. Not only will you pay extra interest because you’ll need to borrow a larger amount of money, but you’ll also need to factor in the cost of lenders mortgage insurance.
5. Start saving
Now that you know how much you need for a deposit, it’s time to sit down and put together a savings plan. Create a budget to better understand how much money you spend each week, where you can cut back and how much you can realistically afford to save. You can then use an online savings calculator to get a rough idea of how long it’ll take you to reach your goal.
It’s also important to remember that there are hidden costs you’ll need to budget for when buying a home. These include stamp duty, lenders mortgage insurance, conveyancing fees, and building and pest inspections, so be thorough with your calculations. Kelowna mortgage experts noted that a consistent savings pattern is the most important factor that lenders will look at to prove the ability to afford a loan (which is used to help understand a purchasers borrowing capacity).
6. Work out how much you can afford to borrow
The key word here is afford. Rather than finding out how much a bank is willing to let you borrow, you need to calculate how much you can realistically afford to repay. Many lenders have online home loan calculators to help you assess your borrowing power, but just because you qualify for a specific loan amount doesn’t necessarily mean you should borrow that much.
Check what your weekly repayments will be for your desired loan amount — can you realistically afford to make those repayments week in, week out or would you be stretching your finances dangerously thin?
7. Boost your buying power
Saving enough money to buy a home can be a daunting challenge, but you may not have to do it all on your own. You might be able to qualify for financial assistance from the government in the form of the First Home Owners Grant (FHOG).
Eligibility rules and grant amounts vary depending on where you live, and some first home buyers can also qualify for stamp duty concessions, so check the fine print for your state or territory.
8. Compare your home loan options
Taking out a home loan means borrowing hundreds of thousands of dollars, so don’t just settle for the first loan you come across. Instead, shop around to find the best deal. Interest rates, fees, repayment options and flexibility can vary greatly from one loan to the next, so it’s essential that you take the time to find a mortgage that suits your needs.
It’s quick and easy to compare home loans online, but if you want expert advice tailored to your financial situation, make an appointment with a mortgage broker. Mortgage brokers have an in-depth knowledge of the home loan market and can help you compare loans from a wide range of lenders to find one that’s right for you.
9. Do your homework before you buy
Only fools rush in, so even if you’ve fallen in love with a property, don’t commit to anything until you’re sure it’s the right home for you. Take the time to make sure it meets all your requirements now and into the future, and that the price you’re paying is fair.
You’ll also need to get the all-important building and pest inspections carried out to make sure the home is free of termites and is structurally sound. We've gathered a list of the best pest control and inspection services here for Sydney-siders. If the inspection does indicate that some repairs will need to be made, find out how much they’ll cost before deciding whether or not to proceed with the purchase.
10. Don’t be afraid to ask for help
Buying your first home can be a confusing and complicated process, so it’s quite common to feel a little out of your depth. The good news is that there are plenty of experts who can help you along the way.
Financial counsellors can help you get on top of debt, mortgage brokers can guide you towards a suitable home loan, and buyer’s agents can help you find the right property and negotiate a fair price.
Expert assistance is out there if you need it, so don’t hesitate to ask for help. With the right advice and knowledge at your disposal, you’ll have all the tools you need to buy the home of your dreams.