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You’ve done the hard work. You’ve saved a deposit. But before you jump into inspecting properties, you should make sure you understand your budget and all costs associated with purchasing your first home.
Find out what you can borrow beforehand.
If you want to know what property you can buy most lending institutions can provide pre-approval of a mortgage before you start looking. This helps you rule out inspecting properties that are out of your price range. It’s important to remember that this isn’t a final approval. You will still have to apply for the loan once you’ve found a home.
Be sure it’s what you can afford, not what someone says you can afford.
Nobody knows your budget better than you do. Banks will have calculators that will tell you how much you can afford to borrow, but you’re the best judge of your finances. Take a repayment amount and compare to your current spending. Is it more than what you spend on rent and have been putting into savings for a deposit? Then you need to look at your budget. There may be areas you can cut back, but maybe you’re better off considering a lower amount.
Build in some buffer.
While your budget might be spot on and you can hit mortgage repayments every month, this may change. Repayment amounts can fluctuate with interest rates. Depending on the value of your mortgage a 1% interest rate increase could add hundreds to your monthly repayments. For this reason, it’s important to make sure your budget allows for some interest rate variation. If they stay low and your budget allows for you to make higher repayments and pay off your mortgage sooner.
It’s not just the sale price you have to pay.
On top of the sale price of a property, you will find other expenses when buying a property. The NSW State Government requires the payment of transfer duty when a property is sold. The transfer duty is paid by the home buyer and varies depending on the sale price. For example, in NSW, properties priced between $300,001 to $1 million incur a transfer duty of $8,990 plus $4.50 for every $100 over $300,000. This is payable within three months of purchase.
Your mortgage will have some cost built into as well. Most mortgages will have an application fee that is payable on application or added to the mortgage total. The amount will vary depending on the lending institution, with some offering no application fee to attract your business. Some institutions will also have ongoing annual or monthly fees to manage your loan. In addition to fees, if your deposit is less than 20% of the mortgage you will have to pay lender’s mortgage insurance (LMI). This is an upfront payment that lending institutions charge and is added to the mortgage amount. It’s important to weigh up whether you want to pay LMI or hold off and save a larger deposit.
A Licenced Conveyancer will help you to understand the value and costs of your new home.
There are other costs that can be incurred when purchasing a home. If you want to be certain the property is in good order and opt to get building and pest inspection this will have a cost associated with it. Contracts and other aspects of the purchase process are often best undertaken with legal advice. Again, there will be costs associated with this.
Keep those emotions in check.
Now you have your budget and are prepared for the extra costs and potential interest rate increases, it’s time to start looking. This is where some first home buyers can get into trouble. When inspecting a house, it’s easy to get caught up in the thrill of finding your dream property. It’s at this point that some eager buyers can forget their budget and get in over their head. If you’re attending inspections or auctions, have your absolute maximum price set in your head and don’t go past it. While it might be disappointing to miss out on a home it would be far worse to lose it further down the track because you didn’t stick to your budget. It can be difficult, but you set that number for a good reason.
If you’re looking at your first home and need help with the legal aspects, contact us at CM Lawyers and one of our property solicitors can help.