While the very thought of securing a home loan leaves many feeling intimidated and more than a little overwhelmed, the process isn’t as difficult as we’re led to believe. Buying your first home is one of life’s most important financial decisions. With a little guidance, that initial step of applying for a home loan doesn’t need to be an impossible task. We have broken down the process and compiled a list of things you need to know when preparing to secure a home loan.
Basic Bookkeeping
Ensuring your finances are in order is essential before seeking to secure funding from the bank. Clearing any existing debts such as car loans, personal loans and outstanding credit card debt is the easiest way to separate your savings from your expenditures and demonstrate your ability to budget efficiently and effectively to the lender.
Credit History
What’s most important to any financial institution is that you’re able to pay your bills consistently and on time. When securing a home loan, remembering to account for key costs including land rates, home and contents insurance and electricity is critical. For insurance quotes in Victoria, visit RACV. The most attractive and successful candidate for a lender has minimised their debt and is able to organise their expenses.
How Much Do You Need To Borrow?
Part of the process of buying your first home is gaining an understanding of your borrowing capacity and keeping your goals realistic. A mortgage calculator is a useful tool for assessing your best deposit amount based on what you can afford in monthly repayments and interests. With proper consideration of your income and expenses, it is possible to handle a mortgage stress-free.
Saving Matters The Most
When it comes to securing a first home loan, not only does a larger deposit mean less money borrowed from the bank, it also allows you to save more in interest. By striving for a deposit of at least 20%, you avoid being charged Lender’s Mortgage Insurance and, by extension, the higher interest rate which often attaches here to your loan.
A big appeal to first home buyers when it comes to buying off the plan is that only a small deposit is required initially. While this may seem easily achievable, you must remember that you are entering a building agreement which is why having stability in your finances is important.
Shopping around with different lenders will mean that you are getting the best loan which is ideally fully approved. Having a fully or pre-approved loan will allow you to enter the agreement confidentiality and may even allow you to extend your settlement time.
Hire A Building Inspector
Just like we test drive a car to check how it drives, a first time home buyer should be encouraged to hire an inspector to seek out any issues or hidden expenses with their potential home. Not only is an inspector able to identify potential termite damage or mould, but they also examine the roof, foundation, electrical, plumbing and other features of the home.
While an inspection goes a long way towards preparing you for any possible repairs or works, at the end of the day, it’s only an estimate. Often it’s not until we move into a home that we discover previously unseen problems. For a first-time homebuyer, it’s especially important to be prepared for replacements or repairs, whether it be faulty heating, scratched or chipped paint or difficulties with locks. Having a safety fund tucked away for such emergencies or maintenance is one way to minimise any future stress.
Prepare For More Costs
It’s critical to understand that the amount of stamp duty you pay varies depending upon the value of the property and the state in which you purchase. The more expensive your home, the more stamp duty you’ll attract. Fortunately, most states offer stamp-duty exemptions and concessions to first time home buyers. Check-in with your lender to assess your eligibility and see if any reductions apply to you.
With the excitement of moving in it can be all too easy to overlook the simple, everyday costs that come hand-in-hand with owning a home. After the purchase of your property, you’ll have to pay the vendor for council or water rates. While the vendor will have paid – normally to the end of the quarter – any rates owing to the council, don’t forget that your portion of that amount will be added to the purchase price!
Closing costs are a broad term to describe the array of expenses associated with closing on a home. Closing costs include fees related to securing the title of the home, loan establishment fees, mortgage insurance, and more. It’s important to be aware that such costs can amount to 2 to 5 percent of the sales price and vary, depending upon the state you purchase in.
Consider Buying Off The Plan
If one chooses to purchase a home “off the plan” this means the property hasn’t physically been built yet and is not a tangible structure. However, buyers are able to see drawings and plans.
This process of buying off the plan can pose many advantages to first home buyers such as time to save for settlement, time to plan for settlement, potentially time for capital growth prior to settlement and time to make all the relevant applications for the first homeowners grant. Not only this but buying off the plan will mean you also receive stamp duty discounts as well as tax benefits if you choose to rent.
The main advantage often appealing to buyers is the set price is being paid for a home that is yet to be completed. This means that you may end up paying a lot less for a property than it’s worth at the time you move in, factoring in the property could increase significantly during the time it takes for your developer to build the home.
Although with the fluctuation of real estate prices, there is no guarantee the price you have agreed upon will perfectly reflect the home’s overall worth and value, given its position on the market at the time of completion.
You can also check out this article for questions you should ask before buying off the plan.
Taking Advantage Of Grants And Incentives
First home buyers who are willing to buy new properties are in luck, as there are many grants and incentives on offer by the government. You can read all about it here.
Research And Seek Advice
Look into the area in which you are planning to build in order to get an in-depth understanding of the current rental prices, demographics, vacancy rates and employment statistics. Buyers also need to do their due diligence on the developer before they sign a contract. Looking into their past projects, reviews and even articles will give you some clarity about the overall quality of their workmanship.
Make sure you are fully informed before securing a home loan. Professionals can tailor the best deals and advice relevant to your needs to maximise your eligibility to secure a home loan. They can also help you gain a thorough understanding of the current property market and its estimated future.
Passionate about providing an outstanding client experience, MoneyQuest covers all aspects of property-related lending, including first home buyers, investment loans, refinancing and much more. Click here to learn more and get a free consultation.
Are you a first-time homebuyer? Speak to one of our consultants on 1800 184 284 or book a call online. Our team of new home advisors can answer any questions or queries you may have about buying your first home and being matched with the perfect builder.
Image Credit: Smart Asset
If you’d like to discuss the current property market or better understand how we can assist you with finding the right builder for your new home, Knockdown Rebuild or house and land package, speak to one of our experienced New Home Advisors on 1800 184 284 or book a call at a time suitable for you!
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