So you’ve recently moved out of home. The apartment you were simply isn’t cutting it, or perhaps it’s time to leave the parental nest.
You want your own pad, but you’re feeling uncertain about taking the plunge into property ownership – let alone knowing where – or how – to start.
Without having the ability to see 10 years into the future to determine whether buying will serve your needs, we’ll outline general pros and cons around property ownership.
What are the benefits of buying?
You’ll own your own bricks and mortar.
For some, owning bricks and mortar and creating a beautiful home is high on the wish list. For others, renting, and investing money elsewhere (such as in stocks and shares) is a better way to go.
When you own your own property, nobody can pull the rug from under you and evict you, unless of course you default on your loan.
You’re building an asset that you can eventually sell.
Whether you’re buying a home to live in or to rent to someone else, every loan repayment is contributing towards something you might one day own – and sell.
You could own a property that’s profitable.
There are good investments and bad one – whether it’s a property you’re living in or renting out, placing a bet, or trading shares. Property investments are long term propositions of 7-10+ years.
Property ownership is not risk-free, however, and has been proven to be susceptible to market highs and lows. However, there are smart buying decisions and less sensible ones: when you buy property, where you buy it and of course what you buy matters. Researching rental returns and likely capital growth, and anticipated ongoing costs, can shape your experience of property ownership.
What are the downsides of buying?
Meeting loan repayments.
Renters and owners have financial obligations. Failure to meet these obligations has consequences such as a bad credit record. Potential home-buyers need to consider whether their home loans repayment will be manageable over the long term. Repayments depend on several factors: the loan interest rate; whether the rate is fixed or variable, and whether when you’ve been clever enough to factor in an ongoing 2-3% interest rate buffer (protecting you from nasty surprises).
The additional expenses.
Council fees, utility bills and property maintenance costs are additional costs you must pay. However, over time your property may appreciate in value and your investment returned, two, three or even tenfold.
Renting can be cheaper in the short term – but essentially you’re paying off someone else’s mortgage. If you’re devoted to your lifestyle or a keen traveler, think twice before taking on hefty mortgage repayments. Renting can be a great way to experience a suburb before you buy into it.
Tips for Getting into Property Sooner
Expecting a dream home as your first purchase? Aim high, by all means, but be realistic. Here are some tips to get started:
Think big, but start small.
Manage your expectations about what you can afford. A mortgage broker or your lender will give you a clearer picture of what’s achievable, based on your income, assets, liabilities (credit cards, existing loans) and ongoing expenses.
Generally, first homebuyers need to have at 20% of the purchase price saved. Lenders generally base the amount they will lend you on your monthly repayments not exceeding a quarter of your gross income. Factor in buying costs such as legal fees, loan application fees, stamp duty, insurance, adjustments to council rates and utilities costs (water, electricity).
Start a savings plan and a comprehensive budget.
It takes time and effort to be financially disciplined. Your mortgage broker can provide plenty of budgeting guidelines and saving tips.
Write down everything you spend for 3 months. Where can you cut back? Put aside $20 a week to begin with; put it in a high interest paying account and grow your own deposit.
Get your paperwork in order
Make sure you can provide pay slips, earnings statements, tax returns, credit card history and other evidence of your earnings, income, assets (things you own, such as a car) and expenses.
Where to find a home loan
Once you have worked out how much you need, you’re ready to visit a lender or a mortgage broker.
A quality mortgage broker can help you with everything from comparing lenders (many mortgage brokers have extensive lender panels) to unearthing competitive interest rates, assist with home loan paperwork and provide professional support throughout the home loans process and beyond.
A mortgage broker will assist you with choosing a suitable lender, finding a loan that matches your requirements – whether that’s a loan with features (such as loan redraw, offset account, no penalties for paying out the loan early) or finding one with low application fees, a competitive interest rate or even interest rate discounts.
Choose a broker that’s industry-certified, too – and be sure to ask whether they are giving you independent home loan advice. Are they independently owned and operated? A broker knows the home loan process inside and has a strong knowledge of each of the lending products available that satisfy your criteria.