Buying your own home is one of the wisest financial moves you can make.
It saves paying rent, gives you a place to call your own and – best of all – offers debt-free accommodation in retirement when you may no longer be earning an income.
Owning a house is also a maintenance burden. There are insurance costs, council rates and other bills that sneak up on you.
In the first years of home ownership, mortgage payments can eat into any cash reserves you have built up and cramp your lifestyle. But here’s the guide to getting first home ownership right:
1.PROPERTY CAN BE A GAME OF SNAKES AND LADDERS If the latest economic news has taught us anything, it’s that house prices can go up – and come down. Accepting this brutal fact can help you shortcut your search for ideal first home locations. The first home should become your rung on the property ladder and a launch pad into buying your second home – so do your research to make sure you don’t buy in a spot that could be a snake.
If you are looking for suburbs that will outperform the general market, search in locations where supply is low, which means it is often a small suburb without a lot of similar-looking houses or apartments. It might be a small village suburb, a peninsula-style suburb or an off-the-beaten track suburb.
Searching for the right location also means finding a place where demand for property is high due to jobs growth, population growth or other desirable factors like quality schools, shops and transport. It’s no use finding a great low-supply suburb that no-one else wants to live in.
Most first home buyers have to compromise on their ideal location, simply because of affordability.
2. HOW MUCH TO BORROW It’s no use hunting for a home without knowing how much you are able to borrow. The old rule of thumb about borrowing around three times your annual income is a good place to start when setting your home loan budget.
It’s a good idea to get finance pre-approval from a mortgage provider or bank BEFORE you set your budget. Banks are tightening their lending criteria, with many unwilling to lend to first home buyers without deposits.
Most economists and property forecasters are suggesting first home buyers have least a 10 per cent deposit – but ideally you can save that little bit extra to hit a 15 or 20 per cent deposit and save thousands of dollars on the cost of lenders mortgage insurance.
Former real estate agent and author Neil Jenman suggests couples use only one partner’s income to pay the mortgage and ideally try to make extra mortgage repayments that are 4 per cent higher than those charged by lenders today.
“The bonus of paying the mortgage at 4 per cent higher is that you will pay your loan back in half the time if rates stay the same,” he says.
3.STRATA OR TORRENS? Increasingly, first home buyers are snapping up apartments because they are more affordable to buy. However hefty quarterly strata levies – especially if the buildings have a pool or lift – can make apartments an expensive choice.
Historically, houses have appreciated in price faster than apartments, because of their intrinsic land value, but many property forecasters are saying a well-located apartment will appreciate at a similar rate to a house further out.
A house offers greater flexibility for renovation and extension than an apartment – and gives you a little bit of outdoor space to grow your own vegies or keep a dog.
4.DO THE RESEARCH The real grunt work of research only begins when you’ve narrowed down your choices to certain locations.
Subscribing to the premium reports available at Onthehouse.com.au can expedite research, and make it easier to get a quick snapshot of the suburb’s recent sales.
It’s also important to inspect each property and compare the size, land size, condition, how many bedrooms and whether carparking is available to get a fairer idea of value.
5.FOLLOW IT UP WITH LEGWORK It’s important to attend as many open inspections as possible for properties in your price range. You are able to compare features accurately and make more detailed notes for research.
This might sound like a lot of work for nothing, but these notes will become your negotiating tool and could help you save five per cent or more when it comes to negotiating price.
6.WHICH MORTGAGE? Mortgage shopping requires almost as much research as house hunting. Most first home buyers will want a low interest rate and few ongoing fees. You might have to pay extra for features like redraw or repayment holidays, but these features can offer flexibility if things go wrong.
Canstar Cannex financial analyst Frank Lopez says Commonwealth Bank and Westpac are insisting new customers have at least 10 per cent deposit, while St George is still offering five per cent deposit loans for first home buyers.
7.HAVING A LAWYER IN PLACE Legal fees vary widely in cost, but a good property lawyer can save thousands by making sure you have the right titles and fully understand any conditions like easements or heritage listings that affect the property.
A good lawyer will also put pressure on lenders to ensure financing is in order and won’t delay settlement, as well as oversee first home buyer grants and stamp duty exemptions.
It helps to have a lawyer organised before you find the property you wish to buy, as you want to be able to exchange contracts swiftly and quickly to secure your home.
8.BINGO: FINDING THE RIGHT HOME After researching and attending at least five to 10 open inspections, it makes it easier to know you’ve found the right first home.
Well-prepared first home buyers “know” the property is right – it ticks most of the boxes and they can see the value equation stacks up.
Buyers who haven’t done the research risk buying on emotion or to suit an imposed deadline, and could pay over the odds for a property.
9.PRICE IS RIGHT Finding the right home means forking out money – particularly for a building and pest inspection and a strata report (for apartments). Along with your detailed property research, the inspection notes become your price negotiating tools.
Real estate agents are highly skilled negotiators and love nothing more than insisting first home buyers pay full price for a property.
If you can successfully argue reasons to discount the asking price of a home – because you have good research detailing other recent sales – the agent is much more likely to accept a discount on price.
A building report could uncover flaws that the agent hasn’t taken into account in the asking price, or the agent and seller might be asking a similar price as renovated properties when the bathroom in your property of choice was built back when Noah was a boy.
A five to 10 per cent discount on asking price is not unheard of for a property that has been on the market for a few months and has building flaws.
When the market is heated – as many real estate agents are reporting right now – it is harder to negotiate a discounted price.
If a property is fresh to the market, and meets your criteria and you are happy with the price, it is worth getting your deposit cheque and signed offer to the agent as quickly as possible to beat other buyers. Just beware that you aren’t paying too much.
10. GETTING THE KEYS Exchanging contracts is an exciting day for first home buyers. But the party doesn’t really begin until settlement, which is usually six weeks from exchange.
Most first home buyers are unaware of the toing and froing that happens during the legal phase of home purchase – queries from buyers or sellers and financing delays can happen, especially if the bank’s valuation doesn’t match the selling price.
Before settlement day, organise a final inspection of the property to make sure it is in order and then insist the agent gives you the keys to your new house as close as possible to settlement time. Move in. Break out the champagne.
