How to Navigate the Real Estate Market if You Want to Make Your First Home Purchase
Buying your first home is an exciting milestone, but it can also be a daunting task, especially because the real estate market is continuously evolving.
A lot of things can go wrong if you’re not well prepared. One way to prevent taking the wrong steps during a home purchase is to equip yourself with adequate knowledge.
If you’re a first-time home buyer looking to make the right purchase, this article will guide you with essential tips and insights to navigate the real estate market successfully.
Evaluate Your Finances
You can borrow money from the bank but one major factor for getting a loan is your financial health.
A mortgage is a huge financial responsibility, so you need to have a proper idea of what your financial health is like before you get into it. This is one of the reasons you need to discuss with your accountant to figure out what you can afford. Evaluating your finances will also help you when deciding on your budget.
If you’re struggling with credit payments, reach out to your provider to help you renegotiate the terms of your payment schedule.
If you have very bad credit, you may have to hold-on on purchasing a home.
Get a Loan Pre-approval
Loan pre-approval is when a lender agrees to lend you money towards purchasing your home.
Not getting a loan pre-approval puts you at risk of losing your deposit and your home if you are unable to get a loan approved before settlement.
A pre-approval is also the best way to bargain for a good price with a home seller because it tells them that you’re a serious buyer.
To get a loan pre-approval, you’ll need identity documents, payslips, a bank account statement, and an expenses and liabilities account.
Lenders may also require documents containing asset details, and a contract of sale.
Understand the Cost of Home Purchase
When it comes to purchasing a home, the list of costs you will likely incur includes:
Deposit
To secure a home loan, you need a deposit of 10% – 20%. You’ll most likely pay a Lender’s Mortgage Insurance (LMI) if you’re depositing less than 20%.
You may find low-deposit home loans lower than 10% also, but you’ll have higher mortgage insurance and more steps to go through.
Stamp Duty
The amount you pay for stamp duty tax is applied to the purchase value of a property and depends on the state you reside in.
A financial advisor, accountant, or lender can help you get the full scope of stamp duty tax. You can also use a stamp duty calculator for a specific quote.
Legal Fees
Purchasing a home will require legal work for conveyancing and other legal checks. You’ll need to pay legal fees depending on the amount of legal work that your home-buying process requires.
You should put aside at least $1,000 for legal fees.
Insurance Costs
If the amount of money you’re borrowing is higher than 80% of the purchase price, you’ll need to pay Lender’s Mortgage Insurance (LMI). This insurance protects the lender if you fail to make any repayments.
You may also pay for applications, valuations, and settlements. Depending on the lender, a mortgage application can cost between $200 and $600.
A valuation can also cost between $400 and $500 if the bank doesn’t waive the fee.
Building Inspection
You’ll need to complete a building and pest inspection to ensure that the home you’re buying is solid. Do not overlook these as it can cost you more money in the long run especially if the building is not in good condition.
The average amount for building inspections costs between $500 and $700. This will help you ensure that the property is pest free and structurally sound.
Other Costs
Other costs that you should consider include utilities, mortgage repayments, strata fees, moving costs, mortgage protection insurance, and council rates.
It’s also advisable to keep some money aside if you plan to do any restructuring or repair.
Understand Mortgage and Interest Rates
You need to understand mortgage rates and interest rates that lenders may offer. You may need a financial advisor to help you navigate this.
Be careful and ensure that you are aware of all the terms of the agreement. Find out about;
- Interest rate
- Ability to redraw funds
- How the interest is calculated
- The loan term
- Any additional payment and conditions attached.
If you lack a deposit saved, your other options include using your renting history as proof of savings, fully financing the purchase price, or letting a parent act as your guarantor.
However, without equity, these options are associated with higher risks and having full insurance will be one of the requirements.
Interest rates majorly fall under two categories; fixed interest and variable interest. A mortgage with fixed interest rates is more suitable for you if you’re mindful of your budget.
A mortgage with variable interest rates is riskier, but you can make more gains when interest rates fall allowing you to pay off your mortgage loan faster.
Choosing Your First Property
When navigating your first home purchase, you need to have a clear sense of what you need and want.
Priorities vary for different individuals so it’s up to you to decide the most relevant qualities you want in a home.
To achieve this, make a clean list of the important requirements and the negotiables. Here is a list you can work with:
Location: What is the proximity of the house to school, work, or other places you visit often?
Commute: Is the area accessible to public transport services?
Neighbourhood: Does the area have established infrastructure? If not, are there plans in motion to develop the area? Also, how friendly and warm is the neighbourhood?
Property Type: Which fits you the most? A house, townhouse, studio, or acreage? What style would you prefer, modern or vintage?
Also check for other practicalities such as bathrooms, kitchen, bedrooms, and parking spots.
Conclusion
Navigating the real estate market for your first home purchase may seem difficult, but with careful consideration and thorough planning, it’s easier to achieve.
A solid grasp of your financial standing, adequate research, and a proper understanding of associated costs, among other factors will help you achieve your goals.
By following all the steps and methods discussed in this blog post, you’ll be well-equipped towards confidently making your first home purchase.
