With the rocketing real estate prices in Australia, the majority of young people find themselves without the ability to own their own home. So if you are on your way to saving the required deposit and you are anticipating owning your first home in the near future – Congratulations!
Purchasing your first home is an amazing experience, but there are still some traps that can catch the unwary. So to help you make the right decisions during your buying experience, here are eight strategies that will help you to make the best choices for your situation.
1. Organise your finances
Organising your finances is important for two reasons. First, because it helps you to save as much money as possible for a deposit and second, because it makes you look good to financial lenders. Since lenders have cracked down on borrowers, it pays to know exactly where your money is going and to eliminate all credit card debts or personal loans, even car loans. If you apply for a mortgage with no outstanding debts and a good deposit, you can be pretty sure you will get the mortgage you need.
2. Decide how much money you can borrow
Once you have organised your finances, it’s a good idea to find out how much money you should be able to borrow for your first home. This information determines the size of the deposit you need (a deposit of at least 20% is best) and will also help you to decide on the location and type of property you can comfortably afford. After all, there’s no point in hoping for a 3 bedroom, 2 bath unit in Manly or Bondi, not unless you have the income to support such a large mortgage. So finding out what you can borrow helps you to identify the properties that are comfortably within your reach and suit your needs.
3. What’s your credit rating?
This is another important factor that helps you to obtain the best mortgage on the lowest rates. A low credit rating usually means higher interest rates, as the lenders need to cover their risks. The higher your credit rating the better the interest rates! So finding out your credit rating and fixing any problems that might be keeping it low is an important step in obtaining the home that you have always wanted.
4. Maximise your dollar value
The way to get value for money and afford the house of your dreams is to buy properties that need to be renovated or investigate locations with lots of properties on the market. You might not be interested in renovations, but it’s definitely a strategy that maximises your profits over the short and long term. As is the increased competition when multiple properties are on the market and not selling. With astute negotiations, you can often pick these properties up at a reduced price.
5. Identify your NEEDS vs WANTS
Knowing what you need in a first home versus what you want can help you to finetune your buying experience and not overcapitalise or borrow above your comfort level. For example, if you need 2 bedrooms, but want 3 bedrooms, can you comfortably afford the mortgage that this upgrade requires in your preferred location? If not, then can you compromise on the location? Determining the factors that are essential in your first home helps to simplify your buying experience and make it less stressful.
6. Investigate your preferred location
If you are renting and want to buy in the same area, then you might not need this step. On the other hand, things that you simply accept when renting in an area may become an irritant if you want to purchase in the same area. For example, to rent in your preferred area you might put up with busy commuter traffic, poor public transport and a noisy neighbourhood. You might not be so complacent when you consider buying in the same area. So always do your research of your preferred area, before making your final decision.
7. Hire a local agent
Local agents have their finger on the pulse and know just about everything that concerns their patch. At Switch Realty we have all the information you need to finetune your ideal location. For example, we know about any new developments that are in the works, any issues that might affect your preferred location, and the best schools in the area.
8. Don’t take on any more debt
Earlier in point one, we stated that it pays to eliminate all your outstanding debts to ensure that you can optimise your borrowing capacity. This also means not taking on any more debt, even if you really want to update your car, for example. When you are saving for your first home, it’s important to pay down all outstanding credit card bills and always pay off recent credit card purchases every month. Also, don’t take out any new car loans or personal loans. Wait until you have moved into your new home and then reassess your borrowing capacity in light of your mortgage repayments.
With these eight strategies, you should find that buying your first home is a welcome and refreshing experience!
