Buying a home is one of the most important and expensive purchases that you will ever make. While it should be exciting, for many it can be an overwhelming, confusing and often complex experience that requires planning, research and careful budgeting.
The right knowledge and assistance is vital to successfully buying a house.
Check out our simple 8-step guide to help ease into the world of home ownership.
Go “old school”: Save a good deposit
20% plus the purchase costs is an ideal goal that means no mortgage insurance payment (money that protects the bank, not you).
Understand your borrowing capacity
Meet with a good mortgage broker early on. While it may feel easier to go with your current bank, a good mortgage broker should be able to secure you a far better deal. Over a lifetime, the difference could mean savings of tens of thousands of dollars.
Test your budget
While saving for your deposit, devise and stick to the estimated budget you will be living off once you’ve purchased your home. Stress test your potential mortgage repayments by pretending that interest rates have risen by 3%. Speak to your financial planner and broker about the appropriate levels of your debt to potentially fix the interest rate on.
Don’t believe everything you’re told
Be a cynical buyer. Carry out independent and thorough building and pest inspections. Make sure you conduct your own research and pay particular attention to prices of similar houses in the same area.
Consider Government Grants available to you
While you may pay a slight premium for a new property, receiving the First Home Buyers Grant or a cash handout for stamp duty can be a great opportunity.
Where possible, make your decision for at least the medium term and not on a whim. The transaction costs associated with home purchases are enormous and moving every few years is expensive business.
Don’t buy what you can’t afford
Don’t go in over your head debt wise. The sooner you have equity in your home, the sooner other opportunities can become available. For example: the purchase of investment assets such as shares or an investment property to grow your wealth.
While you may think your most valuable asset is now your new home, it is in fact you. A 35-year-old earning $70,000pa, who is planning to work until 65, will earn approximately $2,100,000 in these years (even without inflation).
For most of us, our mortgage repayments are funded almost solely by our working income. If you are unable to work, you risk failing to repay your mortgage, ruining your credit history and losing your home. Key insurances such as income protection and life cover are available to be funded directly out of your super fund, which won’t burden your cashflow. Speak to your financial planner for more information.