How to Buy a House in 2020: A Guide For First Time Home Buyers
We have re-evaluated the home buyer guide from 2019 and adapted it for 2020. Some things have changed, some things have remained as they are, inform yourself on the best ways to purchase a home in 2020!
Buying your first home can seem like a daunting task. Entering the property market is expensive and confusing, plus there is so much information you need to be across. However, it is absolutely worth getting your foot in the door and investing in your future with a property.
That’s why we, the friendly folk at Urban, have put together the ultimate guide to buying a home. You can refer to this as a checklist of sorts to ensure you get it right the first time, making it easier for the second.
Why buy a home when you can rent?
It seems simple, but many people ignore the fact that putting money into your mortgage over someone else’s is always going to be more beneficial in the long run. Sure, it come with a little more work and expense (you have to fix your toilet as opposed to calling the landlord), but one day that asset could provide you with a steady income through rent, a large sum when sold, or make it easier for you to expand your property portfolio.
Plus if your first home ends up being your forever home you will have a lot of extra money to play with once it is paid off.
Where to find homes? Hunting for a first home
When looking for your first home, there are a few factors to consider:
What will fit your budget?
Where do you want to live, how easy will it be to get to shops and amenities?
Where do you want to live, how easy will it be to get to shops and amenities?
Will it be big enough if your family grows
Unfortunately, not all of these factors align, and you may have to trade your dream of living in a flash South Yarra apartment for a slightly larger townhouse in further from the city. Once you understand what your budget and necessities are, there are tools like the Urban search bar, which has the largest project database, that can help you hone in on appropriate locations.
How to buy a home
When it comes time to buy your first home, you will likely be faced with either a private sale or auction.
While these two methods are actually pretty similar, a private sale is a little less intense and removes the risk of an accidental sneeze which makes you raise your paddle accidentally costing you a million dollars (kidding, they don’t use paddles). If you are happy with the advertised price, you can simply buy the property, but there is also room for negotiation with the vendor via a real estate agent. You may still find yourself in a bidding war, but it will be far less stressful.
Buying off the plan
There are many reasons why buying off the plan is an excellent idea for new homeowners, and the one at the top of the list is the price. You will likely get a better deal in a developing area as the trade-off for not actually being able to see your house before buying it. Don’t be scared by this, just ensure you study the plans and keep an open line of communication with the developer during construction.
This method involves bidding against other buyers in an open forum which usually sees properties sell for higher than the advertised range. If the property does not sell, you can enter negotiations after the auction which reverts to more of the private sale style method. You can also make an offer to the vendor before the auction if you want to try and avoid the bidding process.
Location – Where to buy (inner vs. outer suburbs)?
They say location is everything and while that may be somewhat debatable there is no argument that it is extremely important. It is however fairly subjective. For example, you may be a city dweller, or prefer the peace of the outer suburbs. The popularity of particular areas can also change depending on a range of factors like new developments and public transport.
Buying a home in the cbd – is it a good idea?
Chances are you will be looking at a smaller dwelling in the densely populated city areas, like an apartment or townhouse. If so, it is important to consider the noise factor, how many apartment blocks are in your building, is there a strata cost per year and will you have secure parking?
Buying a home in the suburbs – inner vs. outer?
If you want to be away from the hustle and bustle with a little bit more space, the suburbs are your spot. However, you want to ensure that you have easy access to any necessary amenities, schools, public transport, medical facilities, and some great dining and entertainment options because life in the suburbs can still be a lot of fun!
Planning your budget
Your financial situation will determine a lot of the factors for where and what you can buy along with your standard of living. The main things to consider are:
Your financial commitments and current savings/income
Future plans and the associated costs
Interest rate rises
The costs of buying a property
There is, unfortunately, a lot more than just the price tag when it comes to buying a home. You have to take into account:
- Fees for legal requirements and conveyancing
- Loan application or ongoing fees
- Stamp Duty
- Building inspection fees
- Moving costs
Add to this the ongoing cost of property ownership which can include:
- Loan repayments
- Utility bills
- Council rates
- Emergency Services Levy
- Body Corporate Fees
If you are a first home owner, however, you may be eligible for the first home owner grant, a one-off payment for those buying or building their first home.
How to arrange financing for your new home
More important than the amount you need is the amount you feel comfortable borrowing. There are plenty of home loan calculators that will give you a rough idea on what payments will be over certain periods of times and amounts. You will also need to speak to your lender about any associated fees and charges.
Inspecting property before buying
With the exception of buying property off the plan, you should always inspect your potential new home before making an offer or placing a bid. It is also a good idea to have the house checked by a property and pest inspection company which may save you a lot more money down the track if you are to realise there was a hidden issue prior to purchase.
As part of the loan process, your lender will require their valuer to inspect the property, it can also be good to have an independent value report done for yourself as well.
It is important to note that any illegal alterations that have been made to the property could become your responsibility when the home becomes yours.
Borrowing money to buy a home
The stumbling block for people who want to buy a home is usually the deposit which is 20% of the purchase price. When borrowing, however, the bigger your deposit, the lower your loan to value ratio (LVR). This is calculated with the amount of the loan divided by the purchase price of the property.
If it turns out that your loan to value ratio is higher than 80%, you will be required to pay lender’s mortgage insurance, a cost that you will want to avoid if possible. This is why in many cases it is better to wait until your deposit is a little bigger to avoid higher ongoing costs.
The upfront costs of buying a home
The following costs will need to be accounted for during your budgeting and loan application:
A one-off tax that varies by state based on the property price and location
A conveyancer will be required to ensure you meet all legal requirements necessary when purchasing a new home
Moving in will cost money, best to get a bunch of different quotes
Having a qualified building inspector asses structural integrity, wiring, etc
You’ve spent all of this money on your new home; you will definitely want some insurance cover to protect it. Your financial institution will also likely require it as a condition of your home loan. Home insurance will cover the cost of rebuilding or repairing your home if an unfortunate event befalls it.
Along with this, you may want to consider contents insurance to protect everything inside of the home as well. Most policies will also cover particular possessions if they are lost, damaged or stolen outside of the house as well. Combine the two into a single policy for ease and better value.
Legal matters (they do matter before purchasing your house)
It is important we note that here at Urban we do not provide legal advice and strongly recommend you contact a lawyer for any legal matters concerning the purchase of your new home.
Real estate laws differ per state, and while real estate agents can help with legalities, like preparing a purchase contract, it is also a good idea to involve your own lawyer. Some states will require a lawyer to perform a title search.
The benefits of having a lawyer
Most purchase contracts are similar. However, legal issues may arise that are outside of the expertise of your real estate agent. An example could be the note we mentioned before about homes with illegal modifications which become your problem after purchase.
Your lawyer can also make sure that there are no illegal or unfair inclusions in the purchase contract which differ from the standard or at least make you aware of any clauses that do.
After all of the above is considered you may now be ready to buy your first home. If so, keep in mind these points:
Don’t be scared of the commitment; you can always rent or sell if it becomes too much
Sometimes getting into the property market is better than finding your dream home straight away
Sacrifice the nice-to-haves (like a giant TV) to make your dream of owning a home come true. Older generations ate dinner on milk crates for the first few months after buying a home before they could afford the nice dining table. We don’t need it all straight away
Do your research and be informed about the areas you want to buy in, including future developments
Get a pre-approval letter from your lender
The idea of buying your first home may seem scary and exciting, and it should probably be a healthy mix of both those things! Just crunch the numbers and make sure the move to purchase a significant asset is right for you, stick to your budget, and you’ll be fine.
You will no doubt enjoy the satisfaction of putting your hard-earned money into your own home, and future you will be thrilled you made the investment. Plus you can hang as many pictures and have as many pets as you like, bonus!
Source: URBAN.COM.AU | How to Buy a House in 2020: A Guide For First Time Home Buyers