Buying your dream home is a big commitment. But here are a few things to think about before you make your decision
One of the biggest milestones in a person’s life is buying a home. There are so many questions to be pondered over, decisions to be made, it’s possibly one of the biggest check-offs on a personal to-do list. So, yes, it can be stressful, it can be life-changing, it can sometimes be a mistake. But here are some things to think about before making that move, so you can ensure you are doing the right thing, and safeguarding your finances in the process.
First question, do you have a deposit?
The more deposit you have, the better your buying power. If you need to borrow more than 80% of the amount your property is valued by the lender, you’ll need to pay Lenders Mortgage Insurance (LMI). To avoid this, pay 20% of the total value of the property as deposit.
Now, it’s time to budget.
Understand how much you can afford to pay off each month/week, and along with your deposit, as this will help determine a suitable price range for your first home. Have a clear idea of how much you can comfortably afford to repay, even if interest rates rise. So make a list of expenses over a couple of months/weeks, so you can learn exactly where your money is going in rent, bills, insurance, groceries etc. Be honest, because it is better to overestimate than underestimate. Check your bank records and make sure you are on the right track.
Now, here are the costs, even the hidden ones. If you’re working out how much it will cost to buy your home, there are other charges to consider in addition to the purchase price. These include stamp duty and other costs. The Victorian Government has recently announced housing initiatives such as the abolishment of stamp duty for some first-home buyers; changing the FHOG in regional Victoria; changes to off-the-plan concession; and a tax for vacant residential property. You should only rely on the exact detail of the changes once the legislation is passed. This is likely to be in June 2017.
You ready to make for your next move?
It’s getting approval in principle, which is an obligation-free way to estimate what you can afford to borrow from any lender before you make an offer on a property.
This step helps you know how much you can afford to borrow, budgeting, and making an offer.
Have you found that dream property yet? Well, now’s the time to start looking, and you ought to use a property site to help you along. Once you’ve shortlisted the properties you’re interested in, book an appointment and talk to your lender.
Ah, the loan.
When choosing a home loan, it’s important to work out the features you need from your loan and how much it will cost you in fees. The best way to compare home loans is to ask for a key facts sheet from different lenders. The key facts sheet will give you the information you need, in a set format so you can directly compare features and fees.
It will also tell you the total amount to be paid back over the life of the loan, repayment amounts, fees and charges as well as give you a personalised comparison rate to help you check the total cost of a loan against other loans.
Credit providers must give you a key facts sheet for a home loan, if you ask for one (but not for interest only loans or line of credit home loans).
Most people take out a principal and interest home loan, where you make regular payments against the principal (the amount borrowed) as well as paying interest. This type of loan is designed to be repaid in full over the life of the loan.
A credit provider will usually offer a number of different principal and interest loans, with a range of features such as a redraw facility or an offset account. Generally the more features a loan has the higher the cost will be. The loan is usually repaid over an agreed period of time, such as 25 or 30 years.
You can also try interest-only loans where repayment will only cover the interest on this loan. The principal amount you borrowed will not reduce unless you choose to make extra repayments. Paying interest only may cost you more over the term of the loan because you’re paying interest on a principal that doesn’t reduce.
It’s crunch time. You’ve done your research, you’ve made your decision, now it’s time to take action.
The majority of the work that goes into property settlement is completed by your conveyancer or solicitor. They are the ones who are responsible for preparing all necessary documents and ensuring that you sign them when appropriate. The solicitor or conveyancer will also contact any banks that are involved with the property purchase, to make sure that they have their financial documents prepared. Another preparation that must be arranged in advance is the date, time, and venue for all parties to meet. The conveyancer or solicitor will make these arrangements; communicating with the other side as well as the banks. You won’t necessarily need to be in attendance at this meeting, but you should be aware of when it is, as well as any other information that pertains to the settlement.
The property settlement will usually either occur at the vendor’s conveyancer or solicitor’s office, or at the vendor’s bank. If a mortgage is involved, the settlement will take place at the bank, or if there is a clear title; the solicitor’s office. Because the majority of properties have mortgages attached, most settlements tend to take place at the vendor’s bank. Many banks have offices in the CBD that are specifically designated for settlement.
Now that you’ve got the keys to your new home, understand that managing your home loan repayments is crucial to successfully paying off your mortgage.
Repayments are typically made on a monthly basis; however, many loans allow you to make more regular repayments, including weekly and fortnightly, to pay off your loan sooner.
Properly managing your repayments can not only help you stay in control of your home loan, but it can also help you reduce the amount of interest you pay over the life of the loan and get you out of debt sooner than you thought.
Before you buy a home…
- Research the neighbourhood
- Engage professionals at every step
- Look at what the market has to offer
- Invest in a professional inspection
- Ask yourself—are you buying based on need or want?
- Don’t overbid at real estate auctions
- Don’t trust everything you read in a real estate ad
- Let the home’s décor not fool you into a buying decision
- Don’t get emotionally attached
- Don’t rush into decisions. Take your time
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