Buying your first home is a big deal. It is both exciting and scary at the same time – rather like bungee jumping!
There are two main components to buying your first home, but they don’t have to feel like a leap of faith. They can be informed, educated processes.
The first component is sorting out your finances, and the second is finding the right home and making the purchase.
Where can I learn the financial aspects of buying a home?
How much deposit do you need? Should you have a fixed or variable interest rate? What are the fees? There are so many questions first home buyers need answered, so it is nice to have all that information presented simply.
The experts at Mortgage House have prepared a user-friendly guide for first home buyers, called The Mortgage House Guide To Buying Your First Home.
This comprehensive guide, available to download from their website, covers all aspects of buying your first home, from the initial excitement of venturing into the world of home ownership, through to the end when you have finalised the purchase and can proudly call yourself a homeowner.
What’s the best way to start saving?
It sounds simple, but the best way to save isn’t always obvious. For example, should you pay off loans and credit cards first or not? When you want to secure a home loan as a first home buyer it is best to pay debts off first because they will reduce your borrowing power.
Analyse your spending and look for ways to reduce it. Look at small items of expenditure too, as they can add up. You may not think a couple of four-dollar coffees each day is worth worrying about, but $8 per day is $40 per week which is $160 per month you could be saving!
Set up a budget and transfer the amount you can save each payday into a savings account by automatic transfer.
What if prices are going up faster than I can save?
It can be hard for a first home buyer to save a 20 per cent deposit when house prices are increasing at a faster rate than you can save.
Get into the property market quicker and capitalise on market growth by obtaining Lender’s Mortgage Insurance (LMI) if you have less than a 20 per cent deposit, or by offering the loan provider a security guarantee in place of the 20 per cent deposit.
This typically involves the equity in the parents’ property being used as collateral against the new mortgage.
How much can I borrow?
Financial institutions will run through pre-approval processes with you. This will determine:
- How much you can borrow
- Your monthly repayments
- Which is the best loan product for you
They can also advise how to obtain the First Home Owner’s Grant (FHOG) and what additional costs like stamp duty might amount to.
Online borrowing calculators are another way to estimate the repayments against specific loan amounts, so you can work out yourself what size mortgage you can afford. Bear in mind these online tools only provide an estimation; you need to discuss your specific financial situation with your chosen loan provider.
I’ve sorted my finances, now what?
Now you’re ready for the fun part – finding your first home! When you find the right property, speak with your loan provider as they may require a property report and a building inspection.
If it all looks good and you wish to make an offer, your offer will be made subject to finance, which means it is contingent upon the final approval of your mortgage.
If the lender says yes and the buyer accepts your offer, crack open the champagne, for you are on your way to owning your first home!