Things To Know Before Buying Your First Home

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When you're saving for your first home the generally accepted advice is to have a 20 per cent deposit for your loan. With current house prices that can seem like an unattainable amount of money, so here are other options to consider.

Buying a house is expensive. That's the cold reality of the situation. Even after paying for the house itself there are other costs to consider including stamp duty, fees associated with the loan and the cost of moving into and furnishing your new home.

That means the total cost of buying a house is going to end up being a very big number especially if you're looking in a major metropolitan area.

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The good news is that you don't need 20 per cent of that very big number to secure a loan. It's still possible to secure a loan with a smaller deposit of 5 - 10 per cent but you will have to pay for Lenders Mortgage Insurance and the larger loan will mean larger repayments. Repaying existing debt will make it easier to secure a loan on better terms.

Lenders Mortgage Insurance exists to protect your bank if you default on the loan. It's an additional cost you'll have to consider when calculating your repayments.

Repayments are the key to determining if you can or cannot buy a home. Calculators exist to help you work out how much it will cost to repay your loan.

Spend the time to properly evaluate your living expenses and income to see how much money you have available for repayments. It may be possible that you have the ability to pay for a home loan with clever budgeting despite a lack of savings in your account right now.

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Even if your loan is rejected it's possible to have a guarantor secure the loan for you. A guarantor assumes legal responsibility for repaying the mortgage if you are unable to do so and not everyone is in a fortunate enough position to have someone who can do that for them.

There is always risk involved with major purchases. Many people are facing difficulty refinancing their loans and changes to interest rates or your life situation can drastically alter your ability to repay your home loan.

Seek professional financial advice and be sure to evaluate all of your options before becoming entranced with the idea of owning your own home.


Comments

    Just adding to this, when it comes to deposit, you may find that Stamp Duty exemption gets counted towards your deposit, and that your existing rental payments can as well.

    Lenders want to give you money, that's their job after all, but they're doing everything they can to mitigate the risk so they aren't getting stuck with problems. Totally understandable.

    If you're the right person though, and are in the right position, its not as hard as it seems. Don't be afraid of LMI though, its not as much as people think. As a percentage of the real loan, its not significant.

    If you're thinking of buying in even the next 5 years, my simple suggestion would be to go into a mortgage broker and ask where you stand. What can you borrow, what do you need to get there, and what do you need to fix in your current situation to make it easier.

    Start cleaning things up now and you a) have a simpler financial setup, b) have a cleaner record, and c) establish a good pattern that makes it easier when you are ready.

    I found the hardest part was to actually walk in and ask the first question myself. After that, having worked the same job for years made things so much easier, as did knowing what my own comfort point was with repayments.

    40 minutes later, I was preapproved for $250k, and bought a few weeks later. With effectively no deposit at the time, though late 2006 was a different era by todays standards.

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