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Deciding to buy your first home

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Buying a house is a huge financial commitment, and one of the most important steps in the process is to plan your budget carefully. Before you start looking for your dream home, it’s essential to know how much you can afford to borrow, taking into account your income, expenses, and lifestyle. This will help you avoid getting into debt and ensure that you can comfortably afford your mortgage repayments.

Assessing Your Finances

The first step in planning your budget is to assess your finances. You need to have a clear picture of how much money you have coming in each month, as well as your regular expenses such as rent, bills, groceries, and any outstanding debts such as credit cards or personal loans. This will give you a good idea of how much money you have left over each month to put towards your mortgage repayments.

It’s important to be honest with yourself when assessing your finances. Take a close look at your expenses and identify any areas where you can cut back, such as eating out or subscription services. This will free up more money that you can put towards your mortgage repayments.

Estimating Your Repayments

Once you have a clear idea of your income and expenses, you can use a mortgage calculator to estimate your repayments. A mortgage calculator takes into account factors such as the loan amount, interest rate, loan term, and repayment frequency, and provides you with an estimate of your repayments.

It’s important to remember that this is just an estimate, and your actual repayments may be higher or lower depending on a range of factors such as changes in interest rates or your financial circumstances. However, using a mortgage calculator will give you a rough idea of what you can afford and help you plan your budget accordingly.

Considering Other Costs

When planning your budget, it’s important to consider other costs associated with buying a home. These can include:

  1. Stamp duty: a tax on property purchases that varies depending on the state or territory you are buying in

  2. Legal fees: for conveyancing and other legal work associated with buying a property

  3. Building and pest inspections: to check the condition of the property before you buy.

  4. Insurance: to protect your property and its contents

  5. Moving costs: such as hiring a removalist or hiring a truck to move your belongings.

It’s also a good idea to consider ongoing costs such as council rates, utilities, and maintenance costs when planning your budget. These costs can add up over time, so it’s important to be realistic about what you can afford.

If you’re struggling to plan your budget or don’t know where to start, consider seeking advice from a financial planner or mortgage broker. They can provide expert advice and help you make informed decisions about your finances.

Overall, planning your budget is a crucial step in the home buying process. By taking the time to carefully consider your income, expenses, and lifestyle, you’ll be better equipped to make informed decisions about what you can realistically afford.

Finding the perfect property is a rare occurrence, but don’t worry – making compromises is normal. To simplify the house-hunting process, it’s helpful to determine what you absolutely need in your new home and what you can do without.

Essential Considerations to Keep in Mind

Must haves

  1. Location: Location is one of the most critical factors to consider when buying a property. You want to ensure that the property is in a safe neighbourhood and has easy access to public transportation, schools, parks, and other essential amenities. It’s also important to consider the distance between the property and your workplace, as a long commute can add unnecessary stress to your daily routine.

  2. Size: The size of the property is another critical consideration. If you have a large family, you’ll want to make sure that there are enough bedrooms and living spaces to accommodate everyone comfortably. Conversely, if you’re a single person or a couple, you may not need as much space, and a smaller property may be more suitable.

  3. Distance to your workplace and recreational activities Knowing these must-haves beforehand can streamline the house-hunting process and save you time and energy.

Compromises

Compromises are inevitable when buying a home for the first time, unless you have an unlimited budget. 

  1. Age and condition: A brand new house may not be within your budget, so consider older homes that may require some renovations or updates. This can be a great opportunity to make the house your own and increase its value.

  2. Amenities: You may have to compromise on certain amenities, such as a swimming pool or large backyard. Think about what you can live without and what can be added later on.

  3. Style: Your dream home may not be available in the style you prefer, but keep an open mind and consider different architectural styles that fit your budget and needs.

Remember that compromises are a necessary part of the home-buying process, especially for first-time buyers. With a clear understanding of your must-haves and nice-to-haves, you can make informed decisions and find a home that meets your needs and budget.

Becoming a first-time homebuyer is an exciting and significant milestone in life. However, it can also be a daunting process, particularly when it comes to determining what you can afford. There are several crucial considerations to keep in mind before embarking on the homebuying journey.

  1. One of the most important factors to consider is the current interest rate levels. Interest rates can significantly affect your mortgage payments, so it’s crucial to keep track of them. Additionally, job security plays a significant role in determining what you can afford. You need to have a stable income source to ensure that you can afford your mortgage payments.

  2. Potential income growth is another aspect to keep in mind. It’s essential to consider your career prospects and whether you can expect an increase in your income in the coming years. This information can help you decide what you can afford, taking into account the likelihood of future salary increases.

  3. Family changes, such as having children, can also impact your home buying decision. You need to consider the additional expenses that come with raising a family, such as childcare costs and education expenses. It’s important to ensure that you can still afford your mortgage payments even with these additional expenses.

  4. Finally, you must decide what you’re willing to sacrifice if necessary to pay off your mortgage. For example, you may need to cut back on leisure activities or expensive purchases to ensure that you can make your mortgage payments on time.

While the process of determining what you can afford may appear overwhelming, home loan calculators can simplify the task. These calculators can give you a rough idea of what you can afford based on your income, expenses, and other factors. 

However, it’s always advisable to seek professional advice before making any significant financial decisions. A financial advisor can provide tailored advice based on your individual circumstances and help you make an informed decision.

Purchasing a house can be an exhilarating and transformative experience. However, the journey begins with saving up for the deposit. Here are some tips to assist you in saving up faster and determining how much you need to save.

Calculate your deposit amount

Before you start saving for the deposit, you need to calculate how much you can afford to borrow by taking into account other buying costs such as stamp duty and conveyancing fees. Here’s how to determine your deposit amount:

(property purchase amount + fees and charges) – (affordable borrowing amount) = deposit required

Saving up 20% of the purchase price of the property plus additional funds to cover buying costs is an excellent goal to aim for. 

While some lenders may only require a 5% deposit, a smaller deposit would result in a larger loan and the need to pay for lender’s mortgage insurance (LMI). Having a larger deposit implies to lenders that you are a responsible saver and capable of managing your finances, increasing your chances of getting approved for a home loan.

Grants for first time home buyer

If you are a first-time homebuyer, the government may be able to provide you with assistance. Here are a few examples:

1. First Home Owner Grant: 

If you are purchasing your first home or building a new one, you may be eligible for a grant of up to $20,000 in some states to help pay for your home or reduce stamp duty costs.

For more information on First Home Owner Grant in ACT, visit the First Home Owner Grant website

2. First Home Super Saver Scheme: 

This program allows first-time homebuyers to save up for a deposit via their superannuation. You can make up to $50,000 in voluntary contributions annually that can be withdrawn to purchase your first home from 1st July 2022.

Check the first home super saver scheme on the Australian Taxation Office website for more information.

3. First Home Loan Deposit Scheme: 

Available from 1 January 2020, this scheme enables eligible first-time homebuyers to purchase a house with a deposit as little as 5% of the purchase price, saving around $10,000 in LMI fees.

Visit the National Home Finance and Investment Corporation (NHFIC) website for more information.

Begin saving for your deposit

Now that you have a rough idea of how much you need to save, create a savings plan. If you are purchasing the home with someone else, create a savings plan together. Keep in mind that saving up for a deposit takes time, so be realistic about how long it will take based on housing prices in the area you wish to purchase.

1. Determine How Long it Will Take to Save for Your Deposit

Saving for a house deposit takes time, and it’s important to be realistic about how long it will take. The amount you need will depend on the housing prices in your desired location. By creating and sticking to a savings plan, you can reach your goal faster.

2. Establish a Budget

To start, organise your finances. If you plan to buy a house with a partner, do this together. Create a budget to determine:

  • How much money is coming in and going out each month
  • How much you can save for your deposit on a regular basis
  • Areas where you can cut back
  • Look for simple ways to save money and increase your savings.

3. Automate Your Saving 

One effective way to boost your savings is to transfer money directly to a savings account as soon as you receive your paycheck. You can ask your employer to send part of your pay to a savings account or set up an automatic transfer from the account where you receive your salary.

With automatic transfers, you can “set and forget” your savings plan and grow your savings without worrying about transferring money each pay period

4. Consider Investing

If you plan to buy your house in a few years, you might consider investing. Investing in shares or a managed fund can help grow your savings if you’re comfortable with the associated risks.

Many first-time home buyers are unsure of how much deposit they need to secure a home loan. The common misconception is that you must have a 20% deposit to obtain a home loan. However, while most lenders prefer this, it’s not always necessary.

Many lenders now offer the option to secure a loan with a smaller deposit, although there may be some additional costs associated with it.

One such option is to take out Lenders Mortgage Insurance (LMI), which provides coverage for the lender against the risk involved in providing a loan to someone with a deposit of less than 20%.

The cost of LMI is usually built into the ongoing costs of the loan, so it’s important to remember that taking this option will cost you more in the long run. However, it may be worth it if you’re eager to get into the property market and can afford the extra costs.

Another option for those with a small deposit is to consider a “family guarantee.” This involves a close relative using the equity they have in their property to provide security for your loan. The amount guaranteed is calculated based on the percentage of the preferred 20% deposit you have saved, meaning that the smaller your deposit, the more the relative will need to guarantee.

One advantage of this option is that once you have paid back enough of the loan to cover the deposit shortfall, the family member’s guarantee will usually be released. This can be a good option for those who have family members willing to assist them with their property purchase.

While low-deposit loans may not suit every situation, they can make sense in fast-rising markets where waiting to save the required 20% deposit would mean spending more in the long run. It’s important to do your research and consider all options before making a decision on how much deposit you need for your first home purchase.

The ACT offers several ways to purchase property. 

1. Private Treaty

Private treaty sales are the most common, where the vendor sets a sale price and the real estate agent negotiates with interested buyers to achieve the best possible sale price.

2. Tender

Another option is purchasing through tender. In this method, a single offer is made, usually with a deposit of up to 10% of the asking price, and the vendor either accepts or rejects the offer.

3. Auction

Buying a house at an auction is another option. Bidders must meet the reserve price, which is the minimum price the property must sell for. The highest bidder wins the auction and must sign the contract after the auction, which is overseen by a licensed auctioneer.

For more information on these methods of purchasing property in the ACT, visit the ACT government website.

As a first home buyer, it’s important to avoid common mistakes that could lead to overextension or being too picky. Here are some to watch out for

  1. Borrowing too much: It’s crucial to leave yourself a buffer in your budgeting and not borrow more than you can comfortably afford, even if your circumstances change.

  2. Taking out the wrong loan: There are various loans available, each with its own advantages and disadvantages. Research and choose the one best suited to your needs and financial situation.

  3. Waiting too long: While it’s tempting to wait for the market to change, sometimes it’s better to simply get into the property market as soon as possible.

  4. Looking for the perfect property: It’s rare to find a property that perfectly meets all your requirements, so be prepared to make some compromises.

  5. Only considering your current financial institution: There are many lenders available, so it’s worth shopping around to find a loan that offers better savings or greater flexibility. Don’t limit yourself to your current financial institution.

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