Buying your first home is an exciting and significant milestone in life.
However, it can also be a complex and daunting process, especially if you’re not familiar with the intricacies of the real estate market.
To help make your journey into homeownership smoother, we’ve compiled the top 8 tips for first-time home buyers.
Tip 1: Talk to a good mortgage broker
I know this might sound self-serving but when I sat down and wrote my top tips for First Home Buyers, I realised that most of the other tips are covered if you talk to a good mortgage broker.
They will help you to set a realistic budget, check your credit report, educate you on government assistance available, get a pre-approval etc.
Tip 2: Set a Realistic Budget
Before you start house hunting, determine how much you can afford to borrow.
Factor in your income, expenses, and potential mortgage rates. Consider affordability for the future – not just now.
What if rates go up 2-3%? Will your income vary (e.g will you lose an income for a period of time like if you start a family and how would you manage with loan repayments at this time).
Once you have determined the max loan amount you will borrow, you can then add your own savings/contribution on top and work out your max purchase price.
Remember to allow for government fees and charges, conveyancing costs, moving costs and Lenders Mortgage Insurance (if applicable).
Your mortgage broker can help you with all of this but there are a bunch of calculators that will show you the gov’t fees and charges like this one: https://hatchfs.com/knowledge/tools-terms-and-jargon/
Tip 3: Check Your Credit Report
Almost all lenders use credit reports to assess your creditworthiness. These reports show your conduct on credit held (existing loans, credit cards etc) and “score” you.
A low credit score can preclude you from borrowing, limit your lender options or require you to have a larger deposit.
Missed/Late payments can be problematic too and mean delaying a purchase to show that you can make timely payments for a period before a lender will give you a loan.
Steps you can take to improve your credit score include; making payments on all debts in a timely manner, not applying for new loans/credit cards for a period, paying off debts or closing credit cards, getting errors on your credit file corrected (we have seen instances where defaults have been removed from credit files).
Tip 4: Get a Deposit together
While there are options for people with small deposits, it’s generally a good idea to save as much as possible.
A larger down payment can lower your monthly mortgage payments and help you reduce/avoid lenders mortgage insurance (LMI).
So saving as much as you can is important. We regularly see First Home Buyers moving back home with family for 6-12 mths so that the rent money can go towards their deposit.
You might also talk to family about what assistance they can give you. Either by way of a gift, loan or family guarantee (which does not allow you to borrow more but will allow you to avoid LMI.
Tip 5: Understand what government assistance is available for First Home Buyers
The assistance for first home buyers varies from State to State and from year to year.
It makes it hard to keep on top of, but the assistance available might make all the difference between you being able to buy or not.
The assistance available takes many forms and may include some or all of the following; a waiver/reduction in the stamp duty payable, not needing to pay LMI, a cash grant (for newly built homes), or the First Home Buyer Fund where the government is effectively a co-owner of the property in return for it providing up to 25% of the property price.
If you are in Victoria here is some useful information about the assistance available from the State Government: sro.vic.gov.au
Tip 6: Get Pre-Approved for a home loan
Before house hunting, get pre-approved for a mortgage. This not only helps you understand how much you can borrow but also makes you a more attractive buyer to sellers.
It shows them you’re serious and financially ready to make an offer. One alert at this point…not all pre-approvals are the same.
Many pre-approvals available are not worth the paper they are printed on.
You need to know that a human being has looked, assessed and approved your finance and that the approval is not system based (which relies on the information submitted being correct).
You don’t want to discover that your lender is not standing by its pre-approval after you have bought a home at auction.
Tip 7: Research, Research, Research
Be clear about what type of property you can buy and in what area that fits within your price range.
Go and inspect lots of properties and track the price range quoted by the agent and price the property actually sells for.
When looking at property, don’t just focus on the house itself. Consider the neighborhood too.
Research factors like schools, proximity to amenities (shops, parks etc) and public transport, and commute times.
Visit neighborhoods at different times of the day to get a feel for the area.
Tip 8: Consider engaging the services of a Buyers Agent
A seasoned buyers agent can help you with some or all of the following; narrowing down suburbs and property types within your budget, finding suitable properties (including finding properties not listed for sale), vetting properties of real interest (arranging contract reviews and building inspections) and negotiating/bidding to buy the property.
Clients who use a buyers advocate typically find and buy a home months quicker than those doing it alone.
It is no exaggeration to say that some first home buyers take year to make their purchase even once they have everything in order as they fumble their way through the property market.
The skill and acumen of a buyers agent can help you get into your home far quicker and with less stress as they guide you through the process.
Tip 9: Do your Due Diligence
Even if a house looks perfect on the surface, it may have hidden issues.
Investing in a professional home inspection can uncover potential problems, allowing you to negotiate repairs or reconsider your purchase if necessary.
Equally, get the contract of sale reviewed by a property lawyer or conveyancer before you make an unconditional offer to you a property.
Tip 10: Consider Future Needs
You need to think about a property purchase as at least a 5 year investment (and the longer the better).
This is because the costs of selling (between 1.5-3%) and buying (5-6%) really eat into the funds you have to put towards the next purchase so you want to sell/buy as infrequently as possible.
So when looking for a home, think about your long-term plans.
Will the home meet your needs in the future? Consider factors like the size of your family, potential job changes, and whether the home is in a neighborhood with good resale value.
Buying your first home is daunting, even if you enlist the help of property/home loan professionals.
The task is made harder as there is lots of jargon to get familiar with.
We have used bits of jargon here too (Stamp Duty, Lenders Mortgage Insurance etc). It is important to understand what you are doing. If not, stop and ask questions.
No question is too stupid and its your money/purchase so you have the right to understand what is happening.
Google will be useful and we have a good Glossary of Terms with explanations that you can refer to for help.
To wrap thing up, buying your first home is a significant life event, and careful planning is essential.
Setting a budget, improving your credit score, and working with professionals are crucial steps in the process.
Remember that your first home doesn’t have to be your forever home, but it should be a place where you feel comfortable and secure.
By following these top tips, you can embark on your homeownership journey with confidence and make informed decisions along the way.
Happy house hunting!