Buying your first home is a very exciting time, however it can also be overwhelming. Here are some things you need to know from the beginning of the process right up until settlement.
The first step you should take before you dive too deep into the process is to find out how much you can borrow. Put simply, this is based on how much you earn, what you spend, how much you owe (i.e. the debt you already have) and how much of a deposit you have saved. To get an estimate, there are great home loan eligibility calculators online or for a more accurate idea, you may engage a mortgage broker to help you with this.
A quick tip before you head down this path; clean up your debt as much as possible as this could hinder your ability to borrow. This even includes cancelling unused credit cards as the ‘limit’ is viewed by the banks as funds you are already approved to borrow.
Once you have an idea of where and what type of home you want to purchase, you will have an idea of how much you need to secure it. Your home deposit should ideally be 20% of the total purchase price (this includes stamp duty and other purchasing costs). You can have a deposit less than 20% however you may or may not pay Lender’s Mortgage Insurance. Click HERE to read my colleague Pierce Hanlen’s blog, written during the election campaign, for more information on what this is and how you might be able to avoid it.
Having a strict and consistent savings plan is imperative to achieving a secure deposit and can easily be automated via your online banking platform.
Work backwards from your deposit goal – for example, if my partner and I want to save towards a $120,000 deposit and need it within 5 years, each week we need to save $230 each. Breaking down your big goals to much smaller, manageable ones can really help.
While the entire property purchase process can be overwhelming, you don’t have to go through it alone. Finding your new home is one thing but navigating through the numbers and time frames can be tricky. There are professionals who can help you with every step of the home buying process.
Buyers advocates can help you with the whole buying process, from finding a property to securing it while a mortgage broker can help you navigate the lending market and provide a level of comfort with a ‘pre-approval’ before you go to auction or seal the deal. Finding the right home loan is imperative and can save you thousands over the life of your loan.
A licenced conveyancer is also very important, as they will look over your contract. Make sure you have them read the contract of sale (otherwise known as the ‘Section 32’) prior to you signing the contract, not after! Sometimes these contracts can have hidden features of the property so having a professional look over it beforehand can avoid any disappointments.
Finally, a building and pest inspector. Your home will most likely be your most expensive asset and as a buyer, it is your responsibility to ensure that it is a quality property for the price you are paying. Examine the quality of the property's fittings and construction as best you can, and if there are noticeable repairs needed (and you're okay with that) make sure you get an estimate for repairs and factor that into your budget.
Whether you are still looking for your home or ready to attend an auction, having all your ducks in a row is important and eases the pressure. This includes having your deposit ready (it’s a good idea to talk to the seller's agent beforehand to see how they will accept the deposit), have your settlement time frame in mind (generally 30, 60 or 90 days) and have your pre-approval ready from your mortgage broker.
Another handy tip is to get house insurance on the day you sign the contract. Should anything happen to the property during settlement, you will have peace of mind that you are covered.
Last, but not least, you’ve done the hard work saving for your home deposit, and now you’re working hard to pay off that mortgage. But what happens if you need to stop work due to illness or other reasons? What happens to the mortgage?
We have no hesitation to insure our brand-new car or new home, but we seem to struggle when it comes to insuring our biggest asset - our income potential. It is important that your insurance arrangements are up to date and getting the right life and income protection is extremely important to protect ourselves and those we love should anything happen to us.
If you need help navigating through buying your first (or second) home, Hewison Private Wealth works with many trusted professionals who we would be happy to connect you with.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.au
Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.