Top Tips for First Home Buyers
Buying your first home is a big step and with so much involved, can be an overwhelming process. From choosing the right home to finding a finance solution that suits you – our guide is here to help.
The right property in the right place
What features are important to you in your new neighbourhood? Take some time to consider local schools, transport, and public facilities and amenities. Does the area have a history of capital growth? Are there planned future developments in the area?
When it comes to the property itself, think long term. You’re going to be living in your new home, presumably, for a while. Do you want a large yard, or an open kitchen? Have a clear list of ‘wants’ and ‘needs’ for choosing your future home.
Or perhaps you want to build your dream home exactly how you’d like it, in which case a house and land package may be the best option for you.
Know your budget
The first step in deciding to purchase a property is being certain you can afford it. There are a variety of borrowing calculators available that can help you ascertain what your real borrowing power is. Calculating your borrowing capacity at a rate slightly higher than the market average will prepare you for future market changes. You may also want to take advantage of repayment or stamp duty calculators in your planning.
Finding the deal that works for you
Finding the right loan for you involves more than just looking for the lowest rate. Good planning and research will ensure that you’re making a well-informed financial decision.
- Visit comparison websites to get a good idea of what rates and deals are available.
- Connecting with an experienced broker who understands your needs can help you find a deal that suits you best, and make the process a whole lot smoother.
- Consider getting a preapproval to have an idea of exactly how much you’ll be able to spend.
- Familiarise yourself with the different types of loans available. We’ve got a quick guide below:
Principal and Interest – The most common type of loan, principal and interest loans use your repayments to pay off both the borrowed amount and the interest on the loan, gradually reducing the loan amount over time. Often you will be able to pay off the loan faster by increasing the frequency or value of your repayments.
Interest Only Loans – As the name implies, interest-only loans apply your repayment only to the interest on the loan, and not the borrowed amount. While this means your loan isn’t actually being paid off, it does mean your repayments will be lower than if you took out a principal and interest loan.
Construction Loans – These loans are often the best option if you’re looking to buy land and build your own home. Instead of getting access to the whole loan amount at once, the lender will release funds as payments need to be made during the course of the construction. Usually you will only pay interest on the funds you have received up until that point, meaning you can save a good amount of money in interest payments.
Low doc loans – A low doc, or ‘low documentation’ loan differs from a standard loan in the amount and type of income verification that is required by the lender. This is useful if you are self-employed or otherwise would find it difficult to provide the typical proof of income required. Low doc loans may come with a higher interest rate, or require a larger deposit.
To fix or not to fix
When it comes to choosing a loan you’ll have the option of going with either a fixed rate or a variable rate. A fixed rate will lock in your current interest rate for the life of the loan. This can protect you from future rate hikes, but can also come at a disadvantage if interest rates drop. A variable rate, on the other hand, will fluctuate with the market.
Many borrowers tend to opt for a partially fixed loan. This ‘best of both worlds’ option will fix your rate for a certain period, after which the loan will switch to a variable rate.
Dealing with the deposit
Perhaps the biggest hurdle for all first-time buyers, the 20% deposit required by most lenders is a hefty sum to pull together before you can make your homeownership dreams a reality.
If you’re struggling to come up with a large enough deposit there are other options available. Some lenders allow you to borrow up to 95% of the property value, meaning you would only need a 5% deposit. Though it is important to keep in mind that the higher the LVR of your loan, the more likely it is that you will need to pay LMI (Lender’s Mortgage Insurance).
Deciding which loan is best for you should come down to a good rate, maximum LVR, and good customer service. Make sure to consider additional features provided by the lender, such as redraw facilities, offset accounts, or the ability to make extra repayments. Make sure to discuss your wants and needs with your broker to ensure you’re getting a deal that fits you and your circumstances perfectly.
