12 Essential Tips for First-Time Home Buyers

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As a first-time homebuyer, the idea of buying a home can be quite exciting. After all, owning a home is the single largest investment you’ll make in your lifetime.

But being a new experience, there are several specifics that are hard for most people to puzzle out. For example, applying for mortgages and identifying the right property. The good thing is that you can be more confident when you have more information about the process.

Well, here are some useful tips that should get you started.

1. Set a Realistic Budget

One mistake many first-time buyers maks is basing their budget on properties available for sale in their targeted location. This can be pretty confusing, particularly when you don’t know the amount of loan you can qualify for.

Instead, you need to first know your borrowing capacity and the deposit requirement. When buying a new home, lenders usually expect you to have a 20-percent deposit. Others are willing to accept a 5-percent deposit as long as you pay for Lenders Mortgage Insurance (LMI). You can then set your budget once you have this information.

2. Find the Right Property

When looking for the ideal home, you need to consider the suburb and type of property. Make a checklist of the features a potential home should have, such as parking spots, garage, backyard, bathrooms, and bedrooms.

Also, factor in the attributes of your ideal suburb, and this depends on your homeownership goals. If you want a home closer to the CBD, you should be willing to spend more on the purchase. You should also decide if you need a house or an apartment. Apartments are cheaper than houses.

3. Save for the Deposit

It’s typical to have at least 20-percent of the property price as the deposit. Having a bigger deposit means lenders will trust in your ability to pay the mortgage in full. Try as much as possible to hit the 20-percent to avoid purchasing LMI.

Having the 20-deposit can be quite challenging for many Aussies, given that the amount can be at least $100,000. Start saving at least 4 to 6 years before buying the house if you want to hit your target.

4. Make Sure You’re Eligible for Loans

Before going too far in the process, be sure you’re eligible for home loans. Reach out to several lenders to get an idea of the amount you can get. Ensure you have a good to excellent credit score to make things a little bit easier. Also, ensure you’ve taken the time to repay your debts, such as credit card debt.

5. Determine Your Mortgage Option

You can either go for a fixed-rate or variable-rate loan.  Or, you have the 50:50 option, which is known as a split rate. Be sure to determine a loan term that will work for you; the average loan term is about 25 to 30 years.

There are also interest-only loans, and it’s advisable to avoid them as they are meant for investors.

6. Research and Compare Loan Options

Invest adequate time in comparing different mortgage options; that will make it easier to find the ideal rate for you. Be sure to compare the features and fees, and also look at the conditions set by different lenders. Some great features to look for are offset account and redraw facility.

7. Take Advantage of Gov’t Incentives

The popular option in Australia is First Home Owner Grant (FHOG). This grant gives qualified buyers about $10,000 to $15,000 depending on your state. You can use this as part of your deposit.

Also, there is another program starting in January 2020 known as First Home Loan Deposit Scheme. This scheme will allow first-time buyers with a 5-percent deposit to buy homes without LMI.

8. Take Into Account Other Costs

You also need to tally up the cost of buying a home. Upfront costs can be about 7 percent of the property price. Gov’t fees, such as stamp duty and transfer registration, should be calculated. One-off home financing fees you will pay include loan establishment, mortgage registration, and settlement attendance.

Be sure to expect a total cost of over $40,000.

9. Understand the Home-Buying Process

Being a first-time purchase, you need to be familiar with the essential steps, from determining your budget to getting the ownership title. You’ll have to know how to find the best deals, get loan approval, and make offers to sellers. Don’t forget building inspections and legal tasks.

10. Make Sure You Can Pay Your Mortgage

When buying a home, the property itself will be used as collateral in case you default. That’s the last thing you want to happen. Identify your income sources and set aside about 20 percent of your income for repayments. The more, the better.

In case of any life event that reduces or stops your income, be sure to reach out to the lender to inform them of your financial hardship.

11. Learn How to Close the Deal

Sellers will try to use as many tactics as possible to try to eke out more from you. If you’re negotiating with an agent, it’s vital to acknowledge that they work for the seller; not for you. Take the time to understand the contract before you sign it.

Negotiate the offer until you get to the middle ground. Before closing the deal, make sure everything is in order, for example, loan documents, home inspection, home appraisal, and homeowners insurance.

12. Get Expert Help

Since the process is pretty new to you, getting help can ease things. You’ll want to work with an experienced real estate agent who understands your local market. They can really help you navigate the market and avoid unpleasant encounters.

You’ll also need the help of other professionals, including escrow officer, mortgage professional, lawyer, home inspector, and title insurance agent.

Final Thoughts

Buying a home for the very first time can be an overwhelming experience. Bear in mind you’re probably going to live in that house for over 10 years, so being careful and wise can be quite rewarding.

Don’t rush through things; take your time to understand your options and explore the market to make sound decisions. Banks frequently change their offers – so we’ll help you scan the horizon for the most up to date option!

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