Purchasing your very first home can be super exciting but also quite an overwhelming process. Where you start, what items you need to get in order and how much you need are just a few things to consider, so let’s take a look at the process to get you up to speed.
Pull together a deposit
Saving up can be difficult at the best of times but if you’re going to acquire your first home then you need to stick at it.
It looks good to banks if you’ve been saving up a decent proportion of your income over an extended period of time.
Usually lenders will require evidence of your savings from the past three to six months and this will become invaluable tool when you begin approaching them.
Make sure you appear prepared and organised by bringing these documents along to your interviews with lenders.
What are the extra costs?
It is essential that you have a buffer, which will come in handy for those unexpected fees (including stamp duty).
Click here for our handy calculator to work out the cost of buying a property.
The First Home Owner Grant
You must satisfy all eligibility criteria in order to receive the one-off grant with all the details on how to qualify and how much you get here.
It’s important to find out how much you can (and should) borrow before looking at houses.
You’ll find the pre-approval process much easier if you get your documents in order.
A good first impression also makes the world of difference to your lender and gaining the approval for your funding.
Documents that you will need for this process include:
Verification of your income – this means pay-slips, groups certificates, history of commissions and anything that displays your stable earnings over an extended period of time.
Statements of your debts – this means any existing loans and credit cards.
100 points of ID – driver’s licence, passport, etc.
Your first home owner grant
Evidence of your deposit – you need to show the bank you’ve got that 20% deposit safely stored away. If you don’t have the full 20% but tick the rest of the criteria, a loan isn’t completely off the table. You may be eligible for funding with only a 5% deposit with Lenders Mortgage Insurance.
Lenders Mortgage Insurance, also referred to as LMI, is a useful tool in getting your first property if you’re struggling with the hefty 20% deposit.
The one-off cost gives borrowers access to up to 95% of funding for their home and ensures lenders have are covered if you can’t make your repayments in the future.
But don’t be fooled by the low deposit of 5% because money you put toward an LMI is money you’ll never see again.
Plus the more you borrow, the more you have to pay back, the longer you’ll be in debt and the more interest you’ll pay.
Doesn’t sound quite so advantageous now, does it?
It all comes down to weighing up the cost of LMI with the inflating property market.
If it takes you three or four more years to save the 20% deposit and properties you’ve been looking at have increased in value by $50,000 then perhaps LMI was a smarter choice to begin with.
Scope out the area
There is no point in having your heart set on a four-bedroom house in the perfect location if it going to be too far out of your price range.
Hone in on a suburb that is appealing to you and make a profile.
This profile should include information such as:
Minimum and maximum property prices
What kinds of properties are on offer in this area
Properties you’ve especially liked in the area and how much they’ve sold for
Choosing which home is right for you
Going to open inspections is the best way to gain information on the property and the area in general.
If you’ve found one you really like, ask for a private inspection so you don’t have the pressure of other people walking around the house and you can get a better feel for it.
Don’t be disgruntled if you haven’t come across anything appealing and within your price range.
If you can’t seem to find properties within your budget, which is not uncommon for those with less leeway in budget, you may need to re-approach your search:
Create a checklist. A checklist is a great way to prioritise what you value in a home. As a first time home buyer, you’re going to have to make compromises but make sure these aren’t compromises you’ll regret further down the track. Make a list of your absolute must-haves in a property as well as added bonuses. If a property ticks some boxes and not others it’s time to weigh up just how important they are to you.
Move out of your comfort zone. This means widening your property search because most of the time as a first time home buyer, you’re going to have to compromise on location and look at option that you might not have thought of before. You’ll find the further out you’re willing to move from the city or the beach, the more space you’ll get for your money. Who doesn’t like a little more space to move?
Consider something a bit smaller. If you are set on a certain area but nothing is anywhere close to your budget, consider looking at townhouses or apartments. You can always upgrade later when you’ve got more money and equity up your sleeve.
Some homes might need a bit of TLC. If meticulous finishes are something that’s on your checklist you’d better have the cash to back it up. Otherwise, buying a property that is in good structural condition but lacking a little bit of aesthetic flare, can easily be brought back to life with a bit of fresh paint and handy work.
Make an offer
You’ve found the perfect house and you’ve fallen in love.
The best thing you can do now is take a look at your budget and know what your limits are.
It is important to remember not to get too emotionally attached to a property.
Put in a realistic offer but never exceed your maximum.
If you don’t get the sale, move on.
There will always be another opportunity further down the track
The best advice we have for first time home buyers is to do as much research as possible and not to make hasty decisions.
For more first homebuyer tips visit the blog section of the Naked Real Estate website.