With real estate prices strengthening, I’m often asked by first time buyers for advice on the best way to enter the market.
Their anxiety to buy a first home is understandable. Aside from the obvious practical benefit of having somewhere to live, real estate is a great investment and can help set you up for life financially if you make a smart purchase.
As prices rise, though, young people are concerned that even a so-called entry-level house or apartment might be beyond their reach.
So here are some useful tips on how to enter the property market for the first time.
- Start saving – You’re going to need cash for a deposit. Some loans geared for first-time buyers might ask for only 3% of the loan for the deposit. Seek advice from a bank or mortgage broker on the mortgage you can afford, and the deposit required.
Alternatively, use an online calculator offered by the major banks. This will give you a savings target. - Create a budget – You’ll likely need to curtail some of your spending to hit that
savings target. A budget will reveal where your money goes and where you can make savings. Commit to a dollar-target each week or month. - Set up a special account – Open a separate account to deposit your savings. This will discourage you from dipping in and out of these funds. Term deposit accounts offer better-than-normal interest rates, but rates are so low right now that it’ll make only a marginal difference.
- Ask the parents – An increasing number of young people are getting help from parents who have benefited from the boom times in property. Perhaps they can cover your deposit, or even guarantee the entire loan. Whatever the arrangement, make sure you can cover your own mortgage repayments.
- Check your credit history – You need to make sure that prospective lenders will see you as a good risk. A bad credit history spells trouble. A mortgage broker may be able to help you in this situation. Obtain a report from bureaux such as Experian, Equifax and TransUnion. If there are inaccuracies, be sure to dispute them.
- Reduce your debt – Start to pay off credit cards and any loans for items such as a car or furniture. These repayments affect your cash flow and will reduce the amount of money a lender will allow you to borrow.
- Pay bills promptly – While you’re busy saving and paying off debts, it’s easy for bills to slip through the net. Don’t let that happen as missed payments will go on your credit record and undermine all your great work.
Buying a property is a big commitment and entering the real estate market does have its challenges. It requires focus and determination, but the payback in the years ahead will be worth the short-term pain.