What an exciting time for you and your family. Of course, it also comes with a lot of stress and uncertainty. Rather than going into this process feeling unprepared, spend a bit of time ready up on the things you need to know.
First, think about where and why you want to buy.
Some people are happy renting their family home and are looking to make their first purchase as an investment property. Others are looking for a one and done dream home. Others will see this first purchase as just a stepping stone to the next home. Thinking about why you want to buy is very important because it affects the where – location. It also affects whether you will qualify for the First Home Owners Grant, which requires you to live in your first house for at least 6 months.|
Next, you need to know how much you can afford to borrow.
Your borrowing capacity will, more than anything else, determine if you can get the house you’re hoping for. How much have you saved for a deposit? Do you need to keep saving and accumulate a larger deposit? Usually you will need at least a 20% deposit to avoid paying lender’s mortgage insurance. However, in the right circumstances, you could get away with a deposit as low as 5%-10%. Your credit score and savings history, as well as your household expenses, will play a part in your borrowing capacity.
You’ll also need to factor in the fees and charges associated with buying a home, and interest rate buffers. As interest rates have risen significantly over the last year, this has reduced borrowing capacity across the country by around 20%. A 1 point rise in interest rates has a corresponding 10% impact on your borrowing capacity. To address this, APRA requires a serviceability buffer of 3% to your borrowing capacity – meaning that you will have to be able to afford a potential future interest rate rise of 3% on the loan that you receive.
Now you need to find a home loan that is right for you.
It’s advisable to speak to a mortgage broker from 6 months to 2 months out from when you hope to buy – this way they can help you set up your financial records and give you a clear idea of your loan options prior to you finding the right house. You want to be ready with a pre-approval, or at least a shortlist of recommended mortgage products and expected budget, before you choose the house you want to make an offer on.
Now, it doesn’t always have to happen in this order, but getting your finances sorted prior will enable you to only look for houses within your budget, make a confident offer, and potentially beat other buyers who are not as prepared. You’ll also need a pre-approval to bid in many auctions.This is just the start.
If you want to know more, read our guide on buying your first home, or contact us today to have one of our brokers guide you through the entire process.