4 things to know before buying your first home
These are four things that every homebuyer needs to know before they sign the contract on their first home, according to Richard Whitten, property expert at Finder, Australia’s most visited comparison site.
1. Know what you can realistically afford to borrow
It's so important to get your costs right well before you buy. Take a long, hard look at your income, expenses, existing debts and how much you've saved for a deposit. It helps to use a mortgage borrowing power calculator to get an estimate of how much a lender will let you borrow.
You also need to work out how much you can comfortably afford to repay each month. Mortgage repayments can be hefty, often substantially higher than rent. Be realistic in your assessment or you'll risk being in mortgage stress if you can't make your repayments.
2. Know about all those extra upfront costs
Don't forget to factor in other costs beyond your initial deposit and repayments.
Stamp duty is a tax paid on big purchases. It can cost tens of thousands of dollars. And while it's true that many states waive or discount stamp duty if you're a first home buyer, it depends on the purchase price.
Don't forget mortgage application and conveyancing fees, plus pest and building inspection costs. Hiring a removalist can easily set you back a thousand dollars or more.
While most of these costs pale in comparison to your deposit, when added up they can really cost you.
3. Know how mortgages work
Mortgages aren't really that complicated, but if you've never had one before the terminology can be confusing. And if you don't know what you're looking at, you can end up paying more than you should.
First home buyers need to know the following:
- The interest rate.Your interest rate affects how much interest you repay each month. A lower rate means smaller monthly repayments.
- Fixed and variable rates.Interest rates can be fixed or variable. Variable rates tend to be lower and more flexible, but your lender could change the rate at any time. Fixed rates let you lock in an interest rate for one to five years. It's less flexible, but the certainty of knowing your rate won't change makes it easier to budget for your repayments.
- The comparison rate.This rate is found alongside the interest rate. The comparison rate takes the interest rate and combines it with the cost of the mortgage's fees to give you a clearer idea of your total costs, over a set loan amount and loan term, as defined by legislation.
- Offset accounts.If your loan has an offset account you can put your savings in there like a normal bank account. But you don't earn any interest. Instead, the money offsets the principal of your loan (the amount you have borrowed). As long as the money is in the account you pay less interest. But you can still spend the money if you need it.
- Redraw facilities.Redraw facilities are a bit like an offset account. If you have made extra repayments on your loan, a redraw facility lets you pull the extra money back out to spend if you need it, under the terms of the loan agreement. It's useful in emergencies but is less flexible than an offset account.
- Lenders mortgage insurance.If your deposit is below 20% or your property is considered to be in a risky location, lenders will charge you an insurance premium. This protects the lender, not you, but you have to pay it.
4. Know what you're really buying
Buying your first home is all about research. Dive deep into property listings and look at previous sale prices for properties similar to the ones you're interested in.
Look at similar suburbs to the ones you're interested in, and don't get too attached to specific neighbourhoods until you've really done the research. And keep in mind that online listings are never as reliable as a real inspection.
Speaking of inspections, when you're serious about buying a property be sure to get pest and building inspections done. Paying a premium price for a termite-infested house or a structurally unsound apartment will quickly turn your dream home into a nightmare.
Make an appointment with our loans specialist, or ph 02 6763 5111 to discuss your situation and get you into your dream home sooner.
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