Here are our recommendations of the steps to take as you prepare to buy your first home.
KNOW YOUR BUDGET
It’s alarming how few people know exactly where their money goes each month. With the increase in usage of direct debits, subscriptions and “buy now pay later” services, unconscious spending is becoming more common.
Keep track of your monthly income, plus your monthly outgoings. Don’t forget to include those annual costs (break them down into 12 equal payments so you have an understanding of your average monthly spend.)
Create a budget that guides your financial behaviour and makes sure your money goes to the right areas to move you closer to your financial goals.
START SAVING YOUR DEPOSIT
Banks usually require between 5% and 20% of the purchase price for a deposit and the amount of your deposit will dictate the types of home loan that are available to you. With a deposit of 20% or more, you don’t usually need to pay Lenders’ Mortgage Insurance, saving you money.
The sooner you can start saving your deposit, the better. To speed up your saving, put any extra income (tax returns, gifts, unexpected windfalls) into your deposit savings. Look for discretionary spending that you can cut back to increase your savings, and put these savings into a high interest account. Naming the account “Home Loan Deposit” can help make it become real and keep you on track.
TRACK YOUR EXPENDITURE
Track your expenditure for as long as possible leading up to buying a home, so you can demonstrate your capacity for paying repayments within your budget.
In assessing a loan application, banks take into account your recent expenditure, financial obligations, savings and lifestyle to assess whether you’ll be able to maintain mortgage repayments.
While a good old-fashioned spreadsheet can keep track of this for you, for accurate budget tracking (that doesn’t take up too much of your time with data entry and checking), check out our SWB Money Hub app. [link to the app page]
KEEP RECORDS OF YOUR RENTAL HISTORY
A history of paying rent is an indication of your ability to pay your mortgage repayments. Have records of your rental situation and proof of consistent, on-time payments. Banks won’t typically recognise a “handshake agreement”, but instead look for formal agreements with a landlord or real estate agency.
MONITOR YOUR CREDIT REPORT
Your credit history is a significant factor in your eligibility for a home loan but it’s easy to get an enquiry on your report with a simple missed direct debit payment. You can check your credit score via Equifax (link to https://www.equifax.com.au/personal/products/my-credit-file.)
UNDERSTAND THE FINANCIAL SUPPORT AVAILABLE
The First Home Owners’ Grant scheme (administered via the State Governments) offers from between $7K to $26K to first home owners to help you get into the market. Eligibility criteria apply, and you can find out more at firsthome.gov.au
UNDERSTAND HOW MUCH YOU CAN BORROW
While our mortgage brokers can give you a more accurate indication of how much you will be able to borrow, our home loan Borrowing Estimate Calculator will give you an estimate that lets you start planning.
CONSIDER GETTING CONDITIONAL APPROVAL
“Conditional approval” or “pre-approval” is when lenders indicate the amount they would be willing to lend you when you apply for a home loan. This is not the same as a confirmed approval, but is a good indication of your borrowing capacity with that lender, and gives you a budget indication of what you can afford to spend on a house.
Conditional approval is important if you are looking to buy at auction, as you need to be sure you can finance the amount committed during the auction. It is less important if you’re buying via a private treaty, as many house contracts include a clause to allow you time to get financial approval, typically 14 days or 21 days.
Our team can help you apply for pr-approval – just schedule a 15 minute chat.
UNDERSTAND ALL OF THE COSTS ASSOCIATED WITH BUYING A HOME
When buying a home, it’s natural to see the mortgage as the main expense. But it’s important to budget for the other expenses associated with buying a property.
Stamp Duty – the state tax on all property purchase. It is based on factors such as price, location and the loan purpose (residential, investment, commercial).
Lender’s Mortgage Insurance – an insurance that protects the Lender (bank) in the situation that you fail to meet your mortgage repayments. Lender’s Mortgage Insurance is usually needed when you have less than 20% of the purchase price as a deposit (ie you are borrowing more than 80% of the value of the home). (It’s important to remember Lenders Mortgage Insurance protects the lenders not you the borrower, it’s a one of payment.)
Application and Valuation Fees – fees charged by the lender to process your application and get a formal valuation of the property.
Account Keeping Fees – usually ongoing fees related to the administration of your loan.
Government Fees such as mortgage registration, title search and transfer fees. (Your conveyancing specialist can advise you on these fees).
Conveyancing and Legal Costs – the costs associated with legal advice and execution of the transfer of property ownership.
Building and Pest Inspections – strongly advised during the buying process to ensure the structural integrity of the property.
Home Insurance before settlement – in some states (Queensland, SA, ACT, Tas), the buyer is responsible for any damage to the property when contracts are exchanged (before settlement). In this case it is recommended to insure the home from this time, rather than waiting until after settlement.
USE TECHNOLOGY TO RESEARCH
When you’re ready to start looking, sign up for Property Alerts from the big real estate sites (eg realestate.com.au or domain.com.au) as well as the local real estate agents in your target suburbs. You can then get a feel for the pricing in these areas and the style of property you’ll be able to afford.