Buying Your First House

There are few bigger milestones in life than the purchase of your first home. While it is certainly an exciting process there are a number of considerations you’ll need to take into account before you can begin your journey. Most first home buyers will be looking at using finance to buy a property, and with that comes some important factors that they’ll need to check off.

Work out your budget

When purchasing a home you need two things – a deposit and the ability to borrow money from a lender. For first home buyers, the biggest hurdle is often getting a deposit together. While most people assume you need to come up with a 20 per cent deposit, for first-time buyers, there are a range of options that can help you get started sooner. 

While lenders will want you to typically have some genuine savings together, there are programs in place that can help you get a loan with as little as a 5 per cent deposit. The Federal Government’s First Home Loan Deposit Scheme (FHLDS) allows first home buyers to put down just five per cent. With this loan product, the Government will effectively guarantee the loan, helping first home buyers avoid Lender’s Mortgage Insurance.

It’s also possible to get the help of your family with a guarantor loan. This works in a similar fashion to the FHLDS, in that your family member will use the equity in their home to guarantee that deposit amount and avoid LMI.

Get pre-approved

A good idea for a first home buyer is to start having a conversation with their mortgage broker very early on in the process and discuss getting a preapproval.

A pre-approval is a conditional loan approval that gives borrowers an indication they can potentially get finance, assuming their chosen property meets certain criteria. While it’s not a guarantee, it is very helpful as it gives the borrower clarity around exactly what they are able to borrow. It also makes sure they’ve got all their financials and documentation together.

This will help when the time comes to make an offer or bid at auction, as the buyer has a very clear understanding of what they’re able to pay and how that is going to impact their monthly spending habits.

Understand additional costs

When buying a property there are normally a lot more costs than just the purchase price of the home. First home buyers can sometimes make the mistake of not budgeting appropriately for all the additional expenses that can come up early on.

The main cost for most buyers is normally stamp duty, however, a first home buyer can be exempt based on their circumstances and the purchase price of the property. Similarly, a first home buyer can avoid LMI if they are able to qualify for one of the previously mentioned loan programs.

However, there are other costs that will be required to pay upfront, including building and pest inspections and conveyancing costs. When you settle on the property, you’ll also have to pay for things like your share of the rates, strata fees, water, as well as insurance.

Being aware of what costs are likely to be involved before making an offer will put you in the best position to budget and move into your new home without any financial stress. 

Adding appliances

Depending on where your investment property is located, the addition of a few different appliances can make a property incredibly appealing. Something as simple and relatively inexpensive as a dishwasher makes a property far more in demand than one without.

The same is also true for air conditioning. If you live somewhere in Australia with relatively hot summers, air conditioning is almost a must. You don’t need to go all the way with a large ducted system – a modest reverse cycle unit will suffice in most instances and is a good way to get a slightly higher weekly rent.

Another idea for smaller apartments is to have a built-in washer/dryer unit. Many older apartments don’t have space for a washing machine, let alone a laundry. People appreciate the added convenience of having a laundry ready to go.

Timing of your lease

Just like when you’re selling a property, when you put a property on the market to rent is equally as important. Typically, the summer months are when there is the most demand for rental properties. If your goal is to maximise your rental income, then you should look to find new tenants when there are the most people looking.

While you can’t control something like a tenant leaving, you don’t always have to go with a standard 6 or 12-month lease. You can stagger the lease so that it comes out of its tenancy during summer to give yourself the best opportunity to attract a solid tenant and obtain a good price.

Renovations

While most people understand that a renovation can add overall property value, it can also improve rental yield. The most obvious place to start with any renovation is the kitchen and bathroom, but depending on your budget, that might not be viable.

In terms of value for money, floor coverings, window coverings and a coat of paint can be a cost-effective way to really improve the presentation of your property and potentially make it more attractive to would-be tenants. With house prices drifting higher to start the new year, trying to afford your dream home is getting harder. Fortunately, there are a number of things you can do to maximise your borrowing capacity without needing to increase your income.

Start budgeting

When lenders assess your borrowing capacity, they look closely at your fixed expenses as well as monthly living expenses. While it might not be easy to reduce all your costs, it’s worth examining some of your ongoing expenses that you can potentially trim. Subscriptions and memberships can easily stack up, as well as other non-essential costs. If you’re looking at buying a property, it might be worth sacrificing a few luxury items in the short term to make that happen.

Consolidate debt

These days, people often buy things on credit. The main issue with this is that purchases with something like a credit card often attract high interest rates. Things like car loans, personal loans and credit cards can really dent your borrowing capacity. It’s worth looking at consolidating your debts and rolling them over to a lower interest rate loan product. This will free up some serviceability. It could also be worth getting rid of your credit cards if you don’t really need them, as lenders assess these as if they are maxed out – regardless of how you use them.

Watch your credit score

Your credit score is like a track record of how you have managed credit in the past. If you’ve got a history of not paying your bills on time, then a lender will likely want to apply a higher interest rate to any loan you take out. This in turn, means you will be able to borrow less money. The good news is that you can start to repair your credit and lift your credit score. Simply paying your bills as soon as you receive them and staying on top of your credit card will help accomplish this. By always paying bills on time, you’re showing that you can manage money, which will mean lenders are more likely to want to work with you.

Choose the right home loan product

Depending on the loan features you need and the type of home loan product you want, your interest rate will vary. If borrowing capacity is an issue, it’s worth talking to your broker so they can compare home loan products and you can work towards your goals. 

A mortgage broker should always be the first person you speak to, as they can assess all of your personal requirements and compare loan products that will suit your needs.