First home buyers Pt 1: deposits, costs and getting your finances in order
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Buying a home is a big deal. From making choices about where you’ll live, to seeing all those zeros at the end of the purchase price – it’s no wonder the process makes people sweat.
Of course, buying a home can also be incredibly rewarding and positive. You’ll give yourself the best chance of success by being organised, clear about your needs and planning ahead.
This series of articles will help you manage some of the important financial considerations that can be the difference between winning and losing.
Get your finances in order
The better shape your finances are in, the more likely you’ll get a loan. Plus, getting yourself financially prepared will make transitioning to a home loan far easier too.
Start by taking stock of your current financial position. Note down what you’re earning and where you’re spending (and look for ways to reduce the latter). Chances are your bank will have resources (like apps) to help you better manage your money and there are plenty of third-party apps out their too.
A big part of getting your finances in order is demonstrating to lenders that you can budget. It doesn’t sound particularly sexy we know, but budgeting can be really satisfying when done right. Your aim during this period should be to crush your debts (start with credit cards), reduce frivolous spending and get your finances working like a well-oiled machine.
How much of a deposit should you save?
The golden number is generally 20 percent of the price of the property you’re considering, excluding other fees (more on that below). Aiming for this percentage generally provides a good platform from which you can pay off your mortgage.
If you don’t have a 20 percent deposit and don’t want to wait, you’ve got options.
One is to pay for Lenders Mortgage Insurance (LMI) which applies to people with less than a 20 percent deposit. This can be included in your loan repayments so that it’s spread out over the course of your mortgage.
You may also consider finding someone to be your guarantor. A guarantor offers their own property as extra security for your loan, so that you can access a mortgage faster.
Understand all the costs
Buying your first home comes with additional costs that you need to factor into your budget. It pays to be aware of them early, so that you’re not caught off-guard down the track.
- Stamp duty and taxes: These are applied to all homes purchased in Australia and vary depending on the price paid for your property. For new homes purchased in Victoria, concessions are available for first home buyers. You’ll still need to pay a fee for the registration of your property’s title to the Land Titles Office and you might need to pay GST too. There are some good stamp duty calculators online that can help you work out what you’ll have to pay.
- Building and pest inspections: If you’re considering buying an established home, it’s usually recommended to have a professional inspect the property for defects and/ or pests – prices depend on the size of the property and typically range between $300-$600.
- Conveyancing and legal fees: The full process to settle a property typically ranges between $1,500-$3,000.
- Mortgage registration fee: This gives the bank the right to sell your property if you can’t pay your mortgage, and as of 1 July 2018, was $116.80.
- Bank fees and loan application fees: These fees depend on the type of mortgage you choose – speak to your bank or broker.
You should also factor in some of the expenses you’ll have as part of owning your new home such as council and utility rates, along with building and contents insurance.
Learn about government support and schemes
There are some great government incentives to support first home buyers to achieve their dreams. Check out the links below to the First Home Owner Grant, HomeBuilder Grant and the First Home Loan Deposit scheme to see if you’re eligible to participate:
FOOTER: IMPORTANT INFORMATION
The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Fairhaven Homes recommends that you consider whether it is appropriate for your circumstances and that you seek independent legal, financial, and taxation advice before acting on any information in this article.