Tips for Buying or Building Your First Home

The extension of the Federal Government’s first home buyer’s grant to September 30 has been a boon for those looking to enter the property market for the first time. The $21,000 grant only applies to people aged over 18 years of age and those who are buying a new home, while first home buyers who acquire an existing home get $14,000. First home buyers need to enter into a contract to purchase an existing home or buy “off the plan” by the end of September to be eligible for the grant.

The grant has been a blessing for young Australians keen to fulfil a dream of building their own home, while providing a much-needed boost to the construction industry. However there are traps for young people jumping into the market without the discipline of saving and having a financial buffer to cover their mortgages if they lose their jobs after settlement.

Buyers need to be conscious of the traps in buying a new home, especially as the economy appears to be under pressure. As a direct result of the Global Financial Crisis, the Reserve Bank of Australia has slashed interest rates to historic lows to stimulate our economy. And as the world recovers, it’s guaranteed that rates will rise again and buyers need to budget for this. And more now than ever, buyers need to do their homework before committing to a property.

There are still good deals to be had, but extra caution is needed in selecting the right property as the first home buyer’s grant has created a price bubble in some areas. There’s no point paying $20,000 or $30,000 over market value just to get $14,000!

The first step in the process of building your home should be to arrange provisional finance and get expert advice from Aussie before entering into a contract for a first home construction. Buyers need to be aware of their financial limits and commitments during the construction period and following completion. It is worth bearing in mind that many lenders in Australia are reluctant to provide finance to owner-builders, and loans are usually restricted to the construction period.

Buying a property is usually the biggest investment decision you will ever make, and the stakes are high if mistakes are made. But with careful planning and research, buying a property can be very rewarding for both your bank balance and lifestyle.

Here are some important tips I have learnt to help avoid the most common traps:

1. Work out how much you can afford to spend before you even look, and only look at apartments or homes clearly advertised within that price range. Do not waste your energy looking in the wrong suburb – because you may end up biting off more than you can chew.
2. Look at as many properties as possible in your price range to get an idea of what you can afford. Check with Aussie’s skilled mortgage advisers to work out what loan product suits your needs – especially your borrowing limit!
3. When working out the best home loan for you, check the ongoing payments, especially in the fine print for monthly service fees and other charges.
4. If you are worried about interest rate rises, you can split your loan between variable and fixed rates and take an “each-way” bet.
5. Make fortnightly payments, not monthly, so the interest on your mortgage does not add up.
6. Remember a low start-up interest rate, or honeymoon rate loan does not mean you will be paying less for your property in the long term.
7. Make absolutely sure your home loan repayments do not overly impact on your lifestyle. You do not want to only eat baked beans for dinner for the next 25 years.
8. Be prepared for the monthly repayments to rise and fall during the life of your loan. Make sure there is some financial room to move if rates rise. If rates fall keep paying the same amount each month or fortnight, so you pay off your loan quicker by eating into the principal owing.
9. The best step you can take in the search for your first place is get pre-approval for a loan, which Aussie and some other lenders can provide, so you know exactly what you can afford.

Buying a property is one of the most exciting and financial things you can do in your life, so try and enjoy it. The better your research and preparation, the greater your enjoyment … and financial rewards.

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0403 144 822
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michael.cormack@aussie.com.au
Mike Cormack
Aussie Joondalup