Buying a home is exciting yet nerve-racking as it will probably be the most important and expensive purchase that you will ever make. Understanding the process will help you avoid problems and rely less on luck to make the right decisions. It takes time to find and buy a home so don't try to rush it or you may be caught out!
Warning: buy in haste and repent at leisure
Owning your own home is the great Australian dream but it's not always the most economical route. Renting may work out cheaper than buying if:
If you owe $80,000 on your home loan at 7% and are paying it back over 30 years at $532 a month, paying an extra $88 each calendar month ($20 a week) will slash the term to 20 years and save $43,000 interest. Once the term of the loan has dropped to five years there may be better ways to invest surplus cash such as superannuation, trusts, Fixed Term Deposits or shares. ^
These days there are almost as many loans to choose from as there are homes to buy, so finding the right one for your needs can be confusing. Many borrowers mistakenly believe that the best mortgage is the one with the most added features, such as credit cards and offset accounts.
Traditionally, this type of mortgage will have a slightly higher interest rate or set-up charge, so if you don't really need those features, why pay for them? A "no frills" mortgage with a simpler structure and lower fees may be a better option for you.
The key to finding the "best" mortgage is defining your own needs to determine the type of loan you should be looking for - finding it is the easy part.
Answer the following questions and make a simple checklist of the lifestyle needs your mortgage must satisfy. You could save thousands of dollars over the life of your loan:
|Type of loan||Description|
|Standard variable interest rate||a loan where your repayments may rise or fall at the discretion of the lender, often in line with official interest rate changes. May include special features such as a redraw facility|
|Fixed rate interest rate||a loan where the interest rate and repayments are set for a pre-arranged term|
|Mortgage Linked Link of Credit||a loan which works like an overdraft where you allocate your income to reduce the outstanding balance|
|Property Secured Personal Loan||a loan which enables you to lend for any worthwhile purpose against your mortgage to receive a reduced interest rate.|
Note: more complex mortgages sometimes have an establishment or application fee levied to cover the cost of setting up the loan. Some lenders may waive application fees for some customers - be sure to ask if you are eligible for a fee waiver ^
Before you can calculate how much you can afford to pay for your home, you first need to work out the total cost of the purchase. As a general rule, the total cost of purchase is around five per cent of the price of the home, and includes legal and government charges, loan establishment and administration fees and mortgage insurance if you are borrowing more than 80 per cent of the property's value. Stamp duty is calculated as a percentage of the purchase price, so the more expensive the home, the higher the total purchase cost will be.
On top of your deposit, you will need to have an additional five or six per cent of the price of the home to cover purchase costs such as:
|Type of cost||
The 'usual' deposit is 10 per cent of the purchase price, but the more deposit you can save:
Lenders insurance protects the lender NOT the borrower against losses incurred if you default on your loan. Lenders insurance is usually charged when the loan to value ration (LVR) is greater than 80 per cent, i.e. when you are borrowing more than 80 per cent of the value of the home.
Income protection insurance offers optional cover for the borrower. Policies are tailored to meet your specific needs and are designed to meet your mortgage repayments if you are unable to, for example if you lose your job or are ill for an extended period.
Most lenders won't allow your loan repayments to be more than 25 per cent of your total income, although this rule may be relaxed for higher income earners. So if your total monthly income is $2,400 your loan repayments must be no more than $600.
|Avoid over-extending yourself financially. It is far better to be in a position where you can still borrow a few extra thousand dollars if something unexpected happens - which it often does.|
Your new home doesn't have to be a house, in fact in many cities around Australia living in smaller properties - apartments, townhouses or studios - is becoming popular because they can be more affordable, newer and better located than some more traditional homes. Before choosing the type of home you want to buy, consider your lifestyle and budget then ask yourself these questions:
If the answer to these questions is yes then consider proceeding with legal and structural checks of the property. If not, tell the agent what it is you dislike about the property so they can steer you towards more suitable homes next time.
Like most other markets, the property market has its ups and downs. If you know when and why property prices are on the move you will have a better idea of when is the best time to buy your home.
The ideal time to buy is:
|Look for properties that have been 'passed in' at auction. This means that bidding did not reach the vendor's minimum (reserve) price for the property. You may be able to negotiate down on price and avoid an auction bidding war.|
Ask any real estate agent what most buyers are looking for in a home and the answer you will hear is: 'location, location, location'. The best way to find a home in your ideal location is to draw up a list of facilities and features that meet your needs.
There are no warranties for home buyers so to protect yourself have the property checked out before you finalise the purchase. Get specialist advice from a legal consultant or conveyancing service and a building consultant before you sign any contracts. Store this information in a fireproof container or safety deposit box - it will make it easier to resell your home later on.
Hint: To keep legal costs to a minimum, get property inspections done before proceeding past the first basic legal steps.
Property inspections should assess all accessible parts of the property, reporting on problems in these areas:
New properties and properties that have been renovated recently are just as likely to have serious problems as old homes so don't skip the property inspection. A building consultant can detect incomplete or defective work on new homes and locate relevant documents verifying council approval and quality of workmanship.
Also obtain the following information about your builder:
If you have any questions, please contact us enquire now