Planning for success: tips for first home buyers
With today’s record low interest rates and the brakes on housing price growth, stepping on to the property ladder has become an achievable goal for more people. As always, preparation is key. If you’re well-informed and have a realistic plan, then you’re halfway there. Here are some tips on setting yourself up for first home buying success.
Be realistic
Working out how much you have to spend is critical. Among the most important things to consider are how much a lender is likely to offer, how much you can afford to repay every month and what size deposit you can raise within your timeframe.
Understand how banks make decisions
Banks calculate your borrowing limit based on your household income, your expenses, reason for buying the property, the size of your deposit, your credit history, and an analysis of the property itself. You can use a bank’s online calculator to give you a rough idea of your borrowing and repayment power. However, they are only a guide. Interest rates are negotiable and we can do accurate calculations for you, even starting the process of pre-approval. Applying for a credit history report can show up anything that might be queried by a lender. Legally, a credit reporting company must give you free access to your consumer credit report once every 12 months. The Office of the Australian Information Commissioner tells you how to get yours.
The size of your deposit matters
Even in today’s low interest environment, mortgage interest rates tend to go down as the size of your deposit goes up. A 20 per cent deposit will normally get you the best rate. However we may be able to negotiate a lower rate even if your deposit is lower. The bigger your deposit, the larger your equity in the property. Equity is the difference between the current value of your home and how much you owe on it. It is especially important when you decide to sell, re-mortgage or take out a loan against your property. A smaller deposit and therefore lower equity can leave you more vulnerable to falls in your property’s value. This is why smaller deposits attract Lenders Mortgage Insurance (LMI) which protects the bank against you failing to meet your repayments. It is usually added to your mortgage. Make sure you’ve allowed for extra upfront costs including bank, inspection and legal fees, stamp duty and home and contents insurance. There may also be ongoing costs once you move into your new home, including strata fees, utility fees (water, gas and electricity) and council rates.
Stay on top of current schemes
One way to turbo charge your deposit is with the First Home Super Saver (FHSS). You can apply to access a total of $30,000 worth of your voluntary super contributions and earnings to help pay for your first home. Each state and territory usually has at least one first home buyer scheme running, often called a First Home Owner Grant. To qualify for them, you must never have owned property or land in Australia. Many schemes offer a cash sum or discount on stamp duty on certain types of properties. It’s a good idea to keep in touch about what schemes are current, the rules around applying, when they expire and if any new ones are coming up.
Create a savings plan
Nothing keeps your eyes focused on the prize like setting a specific goal and a timeframe. Once you know how much you want to save and by when, you can start working out how to get there.
For many of us, the social distancing we’ve had to endure during COVID-19 has helped reset our spending patterns. So have a look at the changes you’ve already made and decide where you can continue cutting back. It’s also a great time to assess and improve your income, explore different career opportunities, look at adding a side gig or selling all that stuff you haven’t used in ages.
It’s an exciting time for first home buyers but there are more variables to navigate than ever before.