Buying a your first home is a huge decision. But when you are a first-time buyer it’s another world of complications and problems that you have never encountered before. The truth is that when you are inexperienced, you are more likely to make a big mistake – and no one wants to get things wrong when buying something as expensive and life-changing as a house or apartment.
With this in mind, here are a few key tips that you must follow if you want to buy your first home. These rules are essential if you want to avoid a very costly mistake, and will also help you navigate an area of life that you have no experience of as of yet. Let’s take a look at the hard rules of buying a first home that you simply cannot ignore.
If you can’t afford to buy a home, don’t
Buying a home is likely to be the most expensive purchase you will ever make. And that goes for whether you are buying the cheapest property on the market or the most expensive – ultimately, we are talking a six-figure sum in the vast majority of cases. The reality of buying a home is that it can be a huge gamble, and overstretching yourself as a first-time buyer can result in disaster. Plan carefully, consider all the options and avoid maxing out your money. The slightest rise in interest rates could cause your mortgage repayments to leap up by a significant amount.
Perfect planning is required
As we discussed above, it’s important that you don’t jump into a home purchase blindly. There are a few issues to remember before you even start looking for the perfect first home. To begin with, make sure you do your research. You’ll need to learn about the area you want to live in, and get advice from others – companies such as Aussie Living Homes offer specialist advice for first-time buyers. But, don’t rely on other people to do all the work for you. Study all the available data you can get your hands on. Check the current interest rates and compare it with fixed or tracker mortgages – which will be the best for you in the long-term? And also, don’t forget to consider your home as an investment. What will you be able to add to it to make more money when the time comes to sell? How long do you plan on living there until you move on to somewhere else? And is the home suitable for your needs – could you start a family there, for example?
There are plenty of creative financing products out there, but the further you move away from the traditional loan markets, the more problems you can expect – especially when you are buying a home. Always look for standard 30- or 15- year fixed loans wherever possible, as it guarantees your payments for the entire term. Yes, if interest rates reduce it could mean missing out on lower payments. But actually, the reality is that it is much better for your finances to know your monthly costs, as you can plan your life around those responsibilities.
Go big with deposits
Part of the problem faced by people buying their first home is that they need to raise a huge amount of money as a deposit. Unfortunately, there is no getting around this if you want to be sensible about getting on the ladder. Sure, you can get a home with a 100% or 95% mortgage, but the reality is that these mortgages end up costing you a lot more in the long-term. The bigger your initial deposit, the better deal you will find when it comes to interest repayments – it’s that simple. When banks lend money, they do so according to the risk. When you are prepared to back yourself with a high deposit, the lenders take you more seriously and give you a better deal accordingly.
Never max out
As we discussed earlier, maxing out your mortgage loan is tempting – but not something you should do. Let’s say the bank offers you a mortgage to the value of $350,000. They will arrive at this amount because this is the most that they are willing to lend you in terms of affordability. However, don’t forget this figure is an absolute maximum, and the slightest hit to your finances could mean you end up losing your home – and your dreams with it. Your best bet is to listen to the bank’s offer and reduce it by at least 20%. Not only will this give you an important safety net in terms of your future finances, but it will also give you a little extra
Location is everything
Many your first home buyers make the mistake of choosing a home based on its appearance rather than the neighbourhood it is in. Ultimately, this can lead to huge problems later on down the line. If your location is somewhere where crime is rising, for example, you could be faced with the prospect of negative equity later on down the line. Don’t forget that it is postcode that determines the value of your house, rather than your house itself. The best type of location for first-time buyers is an area of your city that is up-and-coming. Check your local state’s planning department and look for places that have been earmarked for regeneration. It’s areas like this that have cheap property available right now that rise in value far quicker tomorrow.
Clean up your credit for your first home
Ask any financial advisor and they will all tell you exactly the same thing – it’s hard to get a mortgage these days. The world still hasn’t recovered properly from the financial crisis of 2008, and banks will check your credit history with a fine toothcomb before agreeing to any loan. It’s essential that you have a clean, positive rating on your credit score, or the reality is that you won’t get a mortgage. Also, bear in mind that the better your score, the less risky you are to lenders. So, you will benefit with lower interest rates and better mortgages, which cost you less over time.
The market is unpredictable
Over the past few decades, average homeowners have enjoyed a huge rise in the value of their homes. But this doesn’t mean the same will apply to you. The positive trend in rising home values are not set in stone, and while a property is viewed by many as a safe investment, the truth is somewhat different. The markets won’t necessarily bail you out, so don’t place your hopes and dreams into them – don’t overpay for something you really can’t afford. Of course, the usual trend is that prices will go up over time, but there is always the hidden spectre of a housing market crash., It’s happened before, and these people that are extending themselves too much financially are often the ones that suffer most.
Consider the ongoing costs of your first home
There are plenty of people out there who would love to buy a big, old, beautiful mansion. But while highly desirable, these properties can be incredibly expensive to run. The reality is that a small, practical, easy-to-maintain home is a lot better value than somewhere grand. Less is more – so watch out for energy efficiency and try to get a good idea of the running costs of a home before you sign any papers.
Have an exit plan
Few people buy their first home and stay there forever. But don’t assume that you can leap from your first to your second in super quick time. The truth is that it will take you a least five years to get to a point where it is worth it unless you enjoy a particular set of lucky circumstances. Have an exit plan, but make sure it involves staying put for at least half a decade so that you can pay off enough of your mortgage to build up a significant deposit for the next place.
Plan for taxes
Don’t forget to budget for the various taxes that are involved in owning a home – or the costs to insure it. Be sure you have the resources to pay for property taxes, insurance, and even an emergency repair fund or you could easily spend more than you should. Sadly, many first-time buyers end up selling their home and going back to the rental market when they realise the considerable costs of running a home are a lot more than they originally thought.
Be secure when you buy your first home
Finally, if there are any questions about your job security – or your ability to get a new job quickly in the event of a layoff – don’t buy yet. The truth is that you need security in life before you can consider buying your first home. Those mortgage payments won’t pay for themselves, and the slightest hit to your income levels could mean you are in serious trouble.
Note all images are regarding a property listed at 23 Redan Street Mosman NSW 2088, listed by De Brennan Property