Buying your very first home can be both an exciting and daunting process. Navigating the maze of finance, home loans and the property market can be challenging for even seasoned investors. So how are the newcomers meant to get their foot into the property market bubble?
The good news is there are lots of options and support out there for first time home buyers. The downside is there are also a lot of traps and finding the funds can be tricky. So we’ve broken down the process and compiled all the things you first home owner wannabes need to know.
Save up a deposit
Save up with a Budget
Saving up can be difficult at the best of times but if you’re going to acquire your first home then you need to stick at it. It looks good to banks if you’ve been saving up a decent proportion of your income over an extended period of time. Usually lenders will require evidence of your savings from the past three to six months and this will become invaluable tool when you begin approaching them. Make sure you appear prepared and organised by bringing these documents along to your interviews with lenders.
The best way to save is to set yourself a budget. It’s all well and good to tell yourself you’re saving but unless you set solid boundaries for your spending, you’ll struggle to bring your goals to fruition. A great way to cement your budget and a good way to remind yourself of your goals is to write it down!
There are heaps of useful resources online where you can punch in the numbers to get an overview where your money is going and how much you can realistically save. Try out Money Smart’s Budget Planner.
Extra Costs
It is essential that you have a buffer. A little extra money always comes in handy for those unexpected fees. These fees include stamp duty,
Or use out Home Loan Fees Calculator for
The First Home Owner Grant
The government is offering a helping hand for those looking to purchase their first home. The First Home Owner Grant was introduced in 2000 to offset the effect of GST on home ownership. You must satisfy all eligibility criteria in order to receive the one-off grant and this will differ from state to state. In Victoria,
But don’t get lazy in your saving efforts. Use the First Home Owner Grant as a little extra to go towards your deposit and less to pay in the long run. It’s important to remember that whatever you can save up before you take out a home loan will save you close to twice as much because you won’t be paying interest as you pay it off.
Get lending pre-approval
A lot of first time home buyers often find the process of finding a lender and a mortgage to suit them On top of that, it’s difficult to know how much you can actually afford to borrow. Our best advice is to talk to the experts.
You’ll find the pre-approval process much easier if you get your documents in order. A good first impression also makes the world of difference to your lender and gaining the approval for your funding.
Documents that you will need for this process include:
- Verification of your income – this means pay-slips, groups certificates, history of commissions and anything that displays your stable earnings over an extended period of time.
- Statements of your debts – this means any existing loans and credit cards.
- 100 points of ID – driver’s licence, passport, etc.
- Your first home owner grant
- Evidence of your deposit – you need to show the bank you’ve got that 20% deposit safely stored away. If you don’t have the full 20% but tick the rest of the criteria, a loan isn’t completely off the table. You may be eligible for funding with only a 5% deposit with Lenders Mortgage Insurance.
Lenders Mortgage Insurance, also referred to as LMI, is a useful tool in getting your first property if you’re struggling with the hefty 20% deposit. The one-off cost gives borrowers access to up to 95% of funding for their home and ensures lenders have are covered if you can’t make your repayments in the future. But don’t be fooled by the low deposit of 5% because money you put toward an LMI is money you’ll never see again. Plus the more you borrow, the more you have to pay back, the longer you’ll be in debt and the more interest you’ll pay. Doesn’t sound quite so advantageous now, does it?
It all comes down to weighing up the cost of LMI with the inflating property market. If it takes you three or four more years to save the 20% deposit and properties you’ve been looking at have increased in value by $50,000 then perhaps LMI was a smarter choice to begin with.
Scope the area
Before you go head-strong into the bidding wars of the property market, it’s best that you do your research. This means reading the property sections of newspapers, property magazines and online property websites to see what’s out there and above all, what property is selling for. There is no point in having your heart set on a four-bedroom house in the perfect location if it going to be too far out of your price range.
Hone in on a suburb that is appealing to you and make a profile. This profile should include information such as:
- Minimum and maximum property prices
- What kinds of properties are on offer in this area
- Properties you’ve especially liked in the area and how much they’ve sold for
Deciding Which Home is Right for You
Going to open inspections is the best way to gain information on the property and the area in general. If you’ve found one you really like, ask for a private inspection so you don’t have the pressure of other people walking around the house and you can get a better feel for it.
Don’t be disgruntled if you haven’t come across anything appealing and within your price range. If you can’t seem to find properties within your budget, which is not uncommon for those with less leeway in budget, you may need to re-approach your search:
- Create a checklist. A checklist is a great way to prioritise what you value in a home. As a first time home buyer, you’re going to have to make compromises but make sure these aren’t compromises you’ll regret further down the track. Make a list of your absolute must-haves in a property as well as added bonuses. If a property ticks some boxes and not others it’s time to weigh up just how important they are to you. Consider looking at some pre-made checklists to take with you to an inspection.
- Move out of your comfort zone. This means widening your property search because most of the time as a first time home buyer, you’re going to have to compromise on location and look at option that you might not have thought of before. You’ll find the further out you’re willing to move from the city or the beach, the more space you’ll get for your money. Who doesn’t like a little more space to move?
- Consider something a bit smaller. If you are set on a certain area but nothing is anywhere close to your budget, consider looking at townhouses or apartments. This way you’ll get your foot in the door and into the marketing bubble without having to sacrifice moving somewhere inconvenient. You can always upgrade later when you’ve got more money and equity up your sleeve.
- Some homes might need a bit of elbow grease. If meticulous finishes are something that’s on your checklist you’d better have the cash to back it up. Otherwise, buying a property that is in good structural condition but lacking a little bit of aesthetic flare, can easily be brought back to life with a bit of fresh paint and handy work. Perhaps further down the track you might even consider redoing the bathrooms or the kitchen. The point is, don’t completely dismiss a home that is in your price range just because you don’t like the tiles in the laundry.
Make an Offer
You’ve found the perfect house and you’ve fallen in love. The best thing you can do now is take a look at your budget and know what your limits are. It is important to remember not to get too emotionally attached to a property. The first time home buyers who let emotions get the better of them, are often the ones who land themselves in hot water when they find themselves committing to a property they cannot afford. Put in a realistic offer but never exceed your maximum. If you don’t get the sale, move one. There will always be another opportunity further down the track
The best advice we have for first time home buyers is to do as much research as possible and not to make hasty decisions. So be patient and above all, be realistic.
Intuitive Finance – the smart choice
The world of banking and finance can be a pretty daunting one for both novice and sophisticated investors and since our establishment in 2002 we’ve focused on providing outstanding service and business standards. This approach was vindicated when we were recently named Victoria’s favourite mortgage broker at the 2015 Investors Choice Awards. For expert advice on lenders mortgage insurance, contact Intuitive Finance.
The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.
with clients all over Australia and around the world. Andrew has over 30 year’s experience in the finance industry and has assisted clients to secure over $2 Billion in mortgage lending over his time. Intuitive Finance deals with all aspects of lending from helping first homebuyers, someone wanting to upgrade their home or starting out and experienced investors looking to secure that next investment property, we can assist with all those requirements. We also specialise in working with self-employed clients and getting them the best outcomes, along with Commercial and Asset finance solutions. Intuitive Finance is highly regarded in the industry and has been recognised as a national winner of the MFAA customer service award and also one of the finance industry’s top mortgage employers. Our brokers also feature regularly in the Top 100 mortgage brokers list in Australia.
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