There are few bigger milestones in life than the purchase of your first home. While it is certainly an exciting process there are a number of considerations you’ll need to take into account before you can begin your journey.
Most first home buyers will be looking at using finance to buy a property, and with that comes some important factors that they’ll need to check off.
Work out your budget
When purchasing a home you need two things – a deposit and the ability to borrow money from a lender.
For first home buyers, the biggest hurdle is often getting a deposit together. While most people assume you need to come up with a 20 per cent deposit, for first-time buyers, there are a range of options that can help you get started sooner.
While lenders will want you to typically have some genuine savings together, there are programs in place that can help you get a loan with as little as a 5 per cent deposit.
The Federal Government’s First Home Loan Deposit Scheme (FHLDS) allows first home buyers to put down just five per cent. With this loan product, the Government will effectively guarantee the loan, helping first home buyers avoid Lender’s Mortgage Insurance.
It’s also possible to get the help of your family with a guarantor loan. This works in a similar fashion to the FHLDS, in that your family member will use the equity in their home to guarantee that deposit amount and avoid LMI.
A good idea for a first home buyer is to start having a conversation with their mortgage broker very early on in the process and discuss getting a preapproval.
A preapproval is a conditional loan approval that gives borrowers an indication they can potentially get finance, assuming their chosen property meets certain criteria. While it’s not a guarantee, it is very helpful as it gives the borrower clarity around exactly what they are able to borrow. It also makes sure they’ve got all their financials and documentation together.
This will help when the time comes to make an offer or bid at auction, as the buyer has a very clear understanding of what they’re able to pay and how that is going to impact their monthly spending habits.
Understand additional costs
When buying a property there are normally a lot more costs than just the purchase price of the home.
First home buyers can sometimes make the mistake of not budgeting appropriately for all the additional expenses that can come up early on.
The main cost for most buyers is normally stamp duty, however, a first home buyer can be exempt based on their circumstances and the purchase price of the property. Similarly, a first home buyer can avoid LMI if they are able to qualify for one of the previously mentioned loan programs.
However, there are other costs that will be required to pay upfront, including building and pest inspections and conveyancing costs. When you settle on the property, you’ll also have to pay for things like your share of the rates, strata fees, water, as well as insurance.
Being aware of what costs are likely to be involved before making an offer will put you in the best position to budget and move into your new home without any financial stress.