Buying your first house will probably be the biggest purchase of your lifetime. It is a very exciting milestone to achieve and it's an investment for your future.
Making the move to becoming an owner-occupier in Australia is now more affordable than ever. There are almost 700 suburbs where it is cheaper to buy than rent, according to CoreLogic.
However, there are many pitfalls that can plague property hunters, especially as an inexperienced first-home buyer. Sort out a budget and keep in mind the following tips. Then you'll be on your way to purchasing a new house with as few speed bumps as possible.
1. Do a budget and save
In the early stages of buying your first home, set up a budget. By understanding your finances, you are on the way to saving up efficiently to afford your first property.
Budgeting helps you lay out your income, expenses and debt to get the bigger picture. By calculating these, you can find out your current monetary balance and work out what you can afford. It'll also help you to determine how much more you need to accumulate if you are still in the process of saving up, and can prevent you from overspending on a property that might set your finances back significantly.
Identify where your income goes. Start with the necessities, such as rent, bills and food. Don't forget to include annual costs such as doctor's check-ups, car servicing or student loan repayments. The more pedantic you are about calculating your expenses, the more accurate your budget will be.
Budgeting will stop you spending on unnecessary expenses.
A recent report from BDO in partnership with the Co-op found that 93 per cent of young Australians aged 18 to 29 have money saved up. Despite that, however, there are still 87 per cent that believe they will never own their own home. The report also revealed that unaffordable housing is one of the top two concerns of young adults.
But don't let the big figures put you off from obtaining your first home. The Australian Bureau of Statistics (ABS) reports that in 2013-14, housing costs remained steady whilst the average gross weekly income increased, allowing for more affordable mortgages.
2. Don't forget about your hidden costs
Buying a house isn't as simple as asking a bank or mortgage broker for a loan. There are plenty of hidden costs that are easy to forget when budgeting for your first property.
Firstly, if you're leaving a rental property, remember to give the required notice of leave in advance to the landlord. This is an easily avoidable cost that'll prevent you from having to pay rent on a dwelling you no longer occupy.
In the likely case you're obtaining a mortgage for your house, you'll need to get a valuation report to determine the current market price. Your lender will require an independent certified expert to write up a formal valuation report.
The Real Estate Institute of South Australia explains that the valuation is based on factors such as the location, features and structural condition of your house. The fee for this will either be added to your mortgage or require you to pay beforehand.
You may have to pay a one-off fee for lender's mortgage insurance if you have less than the recommended deposit saved, typically 20 per cent. The price of the fee will vary depending on the lender and the mortgage policy. Make sure you know about the fees that incur alongside your mortgage and understand all the lending terms. This is one agreement you don't want to sign up to without reading the terms and conditions!
Moving is also another expense to cover. Hiring out movers and a truck is necessary unless you're fortunate enough to know family or friends that can help you. It also takes a lot of time, and if you're taking unpaid days off work, consider them in your budget.
3. Don't overspend
The ABS calculated average housing costs to be $453 a week in 2013-14
Be realistic and keep in mind that your first property doesn't have to be your dream home. It can be a mere step onto the property ladder for something bigger and better. As a first-home buyer, you'll want to be careful of overspending, especially as this can significantly impact your future finances. The ABS media report states that the average owner with a mortgage spent 16 per cent of their income on housing costs in 2013-14.
You may have to make compromises, so approach house searching with an open mind. By being realistic and flexible, you can see the potential that a property may have. Don't fuss over the small details such as colour, garden or other material features. Focus instead on the aspects of a house that you'll need in the future. For instance, if you're planning on starting a family in this house, consider how many rooms you'll need.
By sorting out which features are necessary and unnecessary, you'll make the buying process simpler and will be less likely to spend too much.
It is also very wise to keep a reserve fund. This is to cover any unexpected maintenance and repair costs of your home.
When looking at new houses, consider who you're intending to share your home with.
4. Do your research
To avoid unexpected maintenance fees on your new property, consider hiring a property inspector to check out your intended home prior to purchase. Have the property examined thoroughly to detect any structural, mechanical or electrical problems. A pest inspection is also a must. It might seem like an unnecessary expense, but it's worth it for peace of mind. Make sure termites or vermin haven't made themselves at home in your future home.
Of course, you should make the time to thoroughly inspect the house yourself, to familiarise yourself with any quirks the property may have. Visit the property multiple times before you decide whether to make a purchase and, if it's possible, sleep on it for a few nights before making an offer.
Hunt around and consider different banks, non-bank lenders, and mortgage brokers to find a home loan solution that is right for you. Each lender will have different loan options with varying interest rates. To speed up the process, take advantage of an online comparison tool to find the best loan to suit your budget.
But before you place an offer on a property, get a pre-approval for a home loan mortgage first. This is so you know how much a lender is willing to let you borrow so you don't propose a larger amount than you can afford.
Again, be flexible. When house-hunting, consider surrounding neighbourhoods. Housing prices are constantly changing. An extra five minutes' drive away from your work might reveal a more affordable house. Bankwest has revealed that first-home buyers are on the rise since 2013, especially in Western Australia.
Try old-fashioned information gathering - talk to the neighbours. Find some people a few houses down and have a friendly chat about the street, noise levels and perhaps possible roadworks. Avoid talking to the immediate neighbours of the house you're considering as they may be fed up of the constant traffic of enthusiastic buyers so close to their home.
You can also try the local newspaper for crime reports in that street. There is no limit to doing your research beforehand, and it'll pay off into the foreseeable future.
By following these tips, you'll be on your way to moving into your first home with as little hiccups as possible. Keeping an open mind and positive attitude is key when house-hunting, especially with a budget in mind. And patience goes a long way when looking for a future in your new home.