If you’re about to buy your first home, you may feel like you’re on the brink of taking a great leap into the unknown. The idea of lenders, real estate agents, solicitors and vendors all with mountains of forms, requirements and jargon may have you wondering whether it’s worth all the effort. And on top of all that, you still have to find the right house
If you take the great leap in a series of steps, you’ll be safe and sound inside your own home in no time. Here are some of the steps you should follow to make your move into the world of homeownership as smooth and hasslefree as possible:
Laying the groundwork
1 Set your goals
Begin week one by setting your goals for the future. In order of priority, create a ‘to do’ list and tick the items off as you achieve them.
“It’s extremely important to set your goals before beginning your first homebuyer journey, because it’s very easy to let something that could be achieved successfully in five months take two years,” explains Haley North, mortgage and finance consultant with Smartmove Professional Mortgage Advisors.
2 Realise your deadline Working under pressure will help you achieve the goal of owning your first home. Your deadline here is exchanging contracts for sale before 30 June 2009, in order to be eligible for the $14,000 or $21,000 First Home Owner Grant!
3 Determine how much you are really worth The very first thing to do is to work out just where you stand financially. You need to know exactly what you can afford to pay back each month, as well as what the upfront costs are going to set you back.
4 Figure out much can you repay It shouldn’t be too difficult to work out how much you can afford to repay each month. If you’ve been scrimping and saving to get your deposit together, you should have a budget that’s worked well so far, and – who knows? – you might even be the type of person who can stick to it!
Subtract the monthly expenses from your monthly income. It’s essential that you’re realistic here, so factor every last thing into the equation. Don’t forget the little things. Do you stop for coffee or a drink on your way home from work? Write it down. Do you splash out on lunch one day a week? Make sure this is all taken into account. Do you invariably spend $10 trying to win the lottery each week? You must include that too. These are the extras you should consider if you’re going to obtain a realistic figure.
By the way, don’t forget to allow for unforeseen circumstances such as illness or car damage. Also don’t pretend that you can live happily for the next 20 years without ever going on holidays or buying a new pair of shoes.
Once you’ve deducted your expenses from what you earn, you should have a pretty good idea how much you can afford to repay each month. Use the repayment tables on page 104 to work out how much this equates to in terms of the amount you can borrow.
5 Draw up a sensible budget Be realistic and honest with yourself throughout this process. Begin putting your new budget into practice as early as possible – especially if you’ve cut substantial amounts and expenditure from your monthly outlay.
“People often sit down and make up a budget and think they can easily afford ‘X’ amount each month, but until they actually try and stick to it, they don’t know what they’re comfortable with,” explains North.
If you’re finding it difficult to save, consider moving in with your parents for a reduced rent.
“If you don’t have enough savings yet, but don’t want to miss out on getting into the market and getting the government grant, discuss family guarantees and gifts with your parents, as well as no-deposit loans with your broker. There are other options for you, which can help reduce your borrowing costs,” explains Miriam Agnos, personal mortgage advisor with Smartline.
6 Pay off your existing debts Use some of your savings to pay off any lingering consumer or personal debts. This can help increase your borrowing capacity and prove that you’re ready to take on the added responsibility of a mortgage. If your existing debt has tax complications, a visit to your accountant might be worthwhile.
Doing the rounds
Once you’ve arrived at a ballpark figure of how much you can afford to borrow and how much you need to have before you can consider borrowing, it’s time to go loan shopping.
Before you even think about making a decision regarding which lender to borrow from, there are a number of things that you can do to make the decision-making process easier:
1. Ring around a sample of lenders, starting with your current bank. Ring some of the non-banks as well. Many non-bank lenders have rates that are lower than those the banks can offer.
2. Speak to friends who’ve borrowed about their experiences. This is one of the best ways of gauging the type of service you’re likely to receive. All lenders will tell you what you want to hear, so personal experience is one of the best indications of what’s really going on.
3. Check out ads in newspapers and magazines. Rates are changing constantly, new products are launched and superseded all the time. After a few weeks of research, you’ll get a feel for the various types of mortgage products available and use advertising to your advantage.
Getting expert help
The third week of February is the time to begin making contact with the experts who’ll help you achieve your first homebuyer goals.
If you haven’t yet chosen a financial institution, it may be worth enlisting the help of a mortgage broker. They can suggest a wide array of loans that suit your needs. In most cases, these people work solely on a commission from the institution that secures your business, so this could be one of the few steps in the house-buying process that shouldn’t cost you a cent. But be wary – most mortgage brokers don’t represent all lenders, so there’s no guarantee that the loan you’re recommended will be the best one for you.
Sorting through the mortgage market for the best home loan could take you several months.
“A good broker should find the best deal for your scenario and then reassess this when you buy. Your situation may have changed – and so, too, your deposit size and the mortgage market,” explains North. “They should also be able to hold your hand throughout the buying process, from loan application to unconditional approval, then buying the home and your settlement. Your broker really should be there as part of a holistic approach.”
Go to page 62 for more tips on how to choose a mortgage broker.
Accountant or financial advisor
Your accountant or financial advisor can help you prepare a full cash-flow analysis, detailing your current and forecast expenses versus your income. Ensure your accountant or financial advisor has experience dealing with first homebuyers and is prepared to answer each and every question you have regarding your finances.
Both solicitors or conveyancers are qualified to prepare documents for the registration and transfer of your property and give legal advice on contracts. Solicitors are also qualified to give advice on other aspects of law apart from property. It’s imperative that you get a few different quotes for your conveyancer or solicitor and settle on a legal representative that you feel 100% comfortable with. The best way to do this is to get recommendations from family and friends.