So you want to buy your first home but aren’t sure what you need to do to make sure you are ready? It is part of the great Australian dream to own your home.
We have set out a list of 6 tips you can do now to start planning for your first property purchase:
1. Start saving!
Whether you are 12 months or 10 years away from wanting to purchase your first home the only place to begin is to start saving. When you purchase your home you will need a deposit; the larger the better!
Where you will be taking out a mortgage for the purchase, aim to build a deposit of at least 20% of the value of the property. Most banks will charge you a fee called Lenders Mortgage Insurance (LMI) if you are borrowing more than 80% of the value of the property. This can add to the expense of the process.
TIP: At first you may not know how much you need to save so try putting away a set amount of your income. A good place to start is 10% of your pay.
2. Do your research (i.e. determine your budget)
It’s important to get an idea of what exactly you want to spend as this will then give you an indication of the type of property you can afford.
There are a range of calculators online that can help you with this. A good place to start is ASIC’s Moneysmart website.
3. Look at First Home Owners Grant (FHOG) eligibility
Depending on the state you live in you may be eligible to access the FHOG, which can provide you with a sizeable boost to your deposit. Find out what you could be eligible for.
4. Calculate stamp duty
Each state charges stamp duty on a property purchase. The total stamp duty payable will depend on the purchase price of the property. Make sure you factor this into your calculations as it may mean you need to have a larger deposit. Some states provide concessional stamp duty where you are a first home owner. Calculate the stamp duty.
5. Speak to a mortgage broker
When you feel you are ready to start seriously looking for properties arrange to sit down with a mortgage broker to discuss arranging a pre-approval. A pre-approval involves lodging an application with a bank based on a pre-determined property value. Having a pre-approval gives you much more certainty when submitting an offer on a property. Here is some further information that explains why a mortgage broker may be right for you: Why Use a Broker Guide.
6. Don’t be afraid to rent
Many Australian’s don’t like the idea of paying rent. I often hear people calling it “dead money”. The reality is rent is very similar to paying interest on a home loan. When you take out a home loan, part of your repayment will be a “principle” component i.e. paying back the loan, but a large part of it will be an interest component. This too is “dead money”. So don’t be afraid to take some extra time to continue to rent while you build up a large deposit. As stated above, if you don’t have a 20% deposit you may be subject to extra fees by the bank, so try and build up that deposit!
Are you thinking about buying your first home? Download our First Home Buyers Guide; it outlines what to consider when it comes to getting the right loan.
Casey Shaw is an authorised representative and credit representative of AMP Financial Planning.
Blueprint Planning Pty Ltd (ABN 78 097 264 554), trading as Blueprint Wealth, is an authorised representative and credit representative of AMP Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.