Guest blog –Adam Smith | Money Expert at finder.com.au
The spring home buying and selling season is upon us. It’s the time of year when the housing market heats up and both buyers and vendors scramble to fulfill their property ambitions. Before you start on your journey, though, there are a few steps you need to take to give yourself the best chance of success.
Check your readiness
Before you begin your home buying journey, you’ll want to make an honest assessment of your circumstances to decide if you’re financially and emotionally ready to commit to a home loan. When you’re assessing your financial readiness, you’ll want to look beyond just whether you can afford to make your home loan repayments. There are a variety of factors you should consider.
First, you’ll want to take into account your job security. To qualify for a home loan, you’ll need a stable source of income. You’ll also need to demonstrate job security by having been with your current employer for at least 12 months. Some lenders will make exceptions if you’ve worked in your current industry for more than two years.
You’ll also want to think about potential future expenses. If you don’t have children, you need to consider whether you plan on having them in the near future. Any parent will tell you that kids are expensive, but it’s hard to understand just how expensive they are until you have them yourself.
And, of course, you will have to ensure that you can afford your home loan repayments. You can use the calculator here to get an idea of your borrowing capacity. Keep in mind that different lenders may assess you differently, so this calculator is just an indication of what you might expect to be offered by a lender.
Measuring your emotional readiness is a bit more abstract, but just as necessary. Keep in mind that a home loan is the biggest financial commitment you’re ever likely to make. You need to decide if it’s a commitment you’re ready to make.
Are you ready to settle down in one spot, or are you likely to want to travel? Are you ready to make some big sacrifices with your discretionary spending, or is going out on the weekend or getting takeaway important to you? There’s no shame in deciding that you’re not ready to commit to home ownership just yet. The important thing is honestly assessing your lifestyle and your priorities.
Count the full cost
If you’ve had a look at your finances and lifestyle and decided you’re ready to buy, there are a few more financial hurdles you’ll need to clear.
One of the biggest hurdles most homebuyers face is saving for a deposit. The good news is that many lenders will accept borrowers with a deposit as little as 5%. That makes saving for a deposit much more achievable. The bad news, unfortunately, is that your 5% deposit is unlikely to be the only cost you incur. There are a number of costs associated with purchasing a home, and they can put a significant dent in your deposit savings.
Depending on the price of the home you’re buying and where you live, you may have to pay stamp duty. Stamp duty can run into the tens of thousands of dollars and can severely curtail your borrowing power when a bank is assessing your deposit and loan-to-value ratio. Fortunately, most states and territories have concessions available for first home buyers. This could minimise or even eliminate your stamp duty bill. You can check your eligibility here.
If you’ve saved less than a 20% deposit, you’ll also have to factor in the cost of lenders mortgage insurance (LMI). This is a policy that protects your lender in case you default. While the cost of LMI can run into the tens of thousands, this amount can usually be capitalised onto your loan. Be aware, though, that this will increase your repayments.
In addition to these big costs, there are many smaller costs associated with buying a home. You’ll want to access a building and pest inspection report for the property you’re buying to ensure that there are no major issues, and this can cost several hundred dollars. You’ll also want a conveyancer and/or solicitor to help you sort through your contracts and conduct all the relevant title searches. These services can easily cost a couple of thousand dollars.
Between all these expenses, the deposit you’ve saved may be smaller than you expected. Make sure you budget for these additional costs so that you’re not caught off guard.
Expect to miss out
Once you’ve got your finances sorted, it will be time to find the property of your dreams. Hopefully you’ll already have an idea of where you want to buy and the price range you’ll be looking at.
It can be a daunting realisation, but the fact is that you’re probably going to miss out on a lot of properties you love. It’s easy to get emotionally attached to the properties you’re inspecting. You walk through a house and imagine what life there would be like. It can be heartbreaking when you end up missing out on these properties.
The reality is that you’ll probably have to attend many auctions and inspect dozens of properties before you find success. It’s easier said than done, but try to take emotion out of the equation. When you fall in love with a property, just keep in mind that you’ve felt the same way about other properties during your search, and you’ll likely feel the same way about others in the future. And one of those will end up becoming your home.
Buying a home can be a stressful and time-consuming process. Managing your expectations is vital if you’re going to have the stamina to see your property search through to its conclusion.
Be prepared when it comes time to buy
When you are ready to buy, make sure you come prepared. If you’re heading to an auction and you plan on bidding for a property, go prepared for the possibility that you’ll end up buying it.
From an emotional standpoint, this means you need to feel relatively certain that the property is going to work for you before you begin bidding. You also need to keep your budget in mind. Have a figure in mind that you won’t bid above and stand firm to it.
From a logistical standpoint, this means that you need to have your deposit ready on auction day. Most sellers will expect a deposit of 10% of the sale price on auction day. Your bank should be able to issue you a blank counter cheque so that you can fill in the seller’s name and amount.
When you do decide to buy a home, you’re starting on a long journey. For some buyers, it’s a journey that can take months and it can lead to a lot of stress and anxiety. But if you do your due diligence to prepare yourself beforehand, your home buying journey can be exciting and fulfilling.
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