Buying a house is one of the biggest achievements and scariest things you’ll ever do. It can also be a very exciting time, however there are a few things you need to consider before you take the homeowner plunge.
1. Buy a House You Can Afford
Don’t fall into the trap of borrowing more than you can afford to buy your dream home. While we’re in a low-rate market at the moment, you should always factor in a buffer of 2% to 3% on top of your current interest rate to allow for future rate hikes. Having some financial wriggle room is crucial when taking out a mortgage.
It’s also important to factor in any possibilities that may affect how much you earn in the future. How can you do this? As a guide, your mortgage payments shouldn’t be more than 28% of your total income. This means you’ll have some breathing space if your interest rate goes up unexpectedly or your employment situation changes.
2. Do Your Research
Once you know your budget, research the homes you can afford and in the suburbs you can afford to live in. This may mean prioritising certain items on your list and compromising on (or removing) others.
The real estate section in newspapers, property websites, and real estate agents are all useful sources of pricing information. Most importantly, start touring homes and neighbourhoods in your price range and evaluate the neighbourhood and if it is conveniently located near places of interest. Make sure to check out the little details of each house, such as rust or rotting gutters, test the out the plumbing and make sure that the electrical switches work.
For comprehensive comparative sales information, take a look at the Home Price Guide, that lists sales details of individual residential properties. This is available from Australian Property Monitors (APM) on the Domain app and also on the Domain website: https://www.domain.com.au/property-profile, or you can even use our Bondi Broker Property Insights Report .
3. Don’t Buy for the Life You Have Today
When purchasing a property, always look ahead to the life you will have down the track – whether this means starting a family, working from home or having a dog.
You will pay off less equity on your property in the first few years because most repayments will cover the interest to begin with, though once over this hurdle this your repayments will start to pay down debt and increase equity more quickly.
So if you think you’ll need to move before that, it’s a much better use of time and money to keep looking for something that can accommodate the future and what this will look like for you.
4. The Cost of a Home Is More Than the Sale Price
Many first home buyers can get caught up in the overall sale price and forget to take into account all the other costs involved with buying a house.
On top of your loan, you may have to pay stamp duty and a loan establishment fee. You might also have to pay Lenders Mortgage Insurance (LMI) if you’re borrowing more than 80% of your property’s value. Smaller fees can include a valuation fee, solicitor or conveyancer fees, and the move itself, that can cost over $1600.
5. Have an Exit Strategy
Life doesn’t always go according to plan, so it’s a smart idea to have a back-up plan, in the case of a separation or divorce. If you’re married, there are laws that will help to work out who gets what in the event of a divorce. But de-facto couples might find that the division of assets gets a bit more difficult where the law is concerned.
To save yourself unnecessary hassle and heartache, it’s a good idea to seek legal advice and draw up an agreement in writing with your partner, that outlines what will happen to the property if things don’t work out.
Be Prepared Before Taking the Plunge
Knowing how much and what you can afford, what your future plans are and what you’ll do if things don’t work out, means that when you do find your dream home, you’ll be prepared. If you need more advice on becoming a first homeowner, or want to discuss your individual circumstances further, contact me today.