One of the most significant milestones in life is buying your first home.
Yet, navigating the real estate market can feel a little overwhelming for first-time buyers. With careful planning, this milestone can be achieved. Here’s what you need to know.
Financial Preparation is Key
Meticulous planning is essential. Create a realistic budget outlining your income, expenses and savings. This will help you determine how much you can allocate to a deposit, settlement cost and mortgage repayment.
The best threshold to aim for is 20% in order to avoid Lenders Mortgage Insurance (LMI). This is an expensive and compulsory policy that your lender will make you purchase. It’s of no benefit to you, however. The policy covers the lender in case you fail to meet your mortgage payments.
The cost of the policy also detrimentally affects the amount you’re able to borrow. This is why so many people talk about a 20% deposit as a Holy Grail.
However, we all know the general value of property makes this threshold prohibitive for most young buyers. You’ll find most lenders will welcome you if you have even a 5% deposit. But you’ll have to pay for the insurance policy.
Also, make sure that you have a good credit score as this can affect your eligibility and interest rates.
Loan Options and Government Assistance
One of the most important tasks is to find a home loan that suits your circumstances. Some may argue this is a harder challenge than finding the right property! The best solution is to use a broker, who provides their services at no charge to you. Essentially, they offer a suite of loans from an array of banks and lenders. The alternative is to approach an individual lender and ask them for a deal.
You should also study the number of incentive programs being offered by federal and state governments to encourage first-time buyers. There are several first-homeowner schemes, and states will waive their stamp duty fee in certain circumstances.
Due Diligence
List your wants and needs. You get clarity from understanding what you “must have” as opposed to what might be “nice to have”. It also helps if you go to a number of open homes and inspections to get a sense of what it is like to compare properties.
When it comes to due diligence, be thorough before making an offer. For example, any offer you might make should always be contingent on successful building and pest inspections. Also, review the seller’s disclosure statement carefully. And if you’re really serious about the property, ask your solicitor for help.
Navigating a Competitive Market
If you’re concerned about how to make a property purchase, you can use a buyer’s agent. They charge a commission, but they’ll help find your dream home and negotiate a deal with the seller. Of course, their fee adds to your overall purchasing costs.
In the current market, where the interest rate has just been cut 0.25%, you may find you have to act quickly to beat other buyers.
Striking the Deal
If you’re buying by private treaty, as opposed to auction, you’ll need to negotiate the price, settlement date, repairs and agreement terms. Be sure to conduct a final walkthrough before settlement to ensure that the property is as agreed.