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5 Things to consider when buying your first home

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What to consider when buying first home

Buying your first home is the quintessential great Australian dream and an exciting time for any buyer. However, seeing as it is unchartered territory for most, it can become overwhelming very quickly. Here are our top five considerations we feel every first home buyer should be aware of.

1. Rentvesting

Rentvesting is becoming more and more popular in Australia. It allows first home buyers a chance to get their foot on the property ladder by purchasing an investment property and continuing to live in a rental property. The appeal of this is that home buyers can live where they want, rather than where they can afford. Buying in a more affordable area means home buyers can get into the property market sooner and is a good option for those who aren’t sure where they want to settle in the long term.

As great as Rentvesting sounds there are a few things you need to consider. Being both a landlord and a tenant can be draining and time consuming. You may want to consider a managing agent, but they will come at a price. Another financial consideration is the Capital Gains Tax you may have to pay when you sell your investment property. This is a tax levied on the difference between what you bought your investment property for and what you receive when you sell it.

Property investment cycle2. Timing the market

Many investors believe timing the market is not as important as time in the market. However, when it comes to property investment, it is worthwhile knowing where the market is in its cycle.

The property clock is a useful method of tracking the property market cycle. It is based on the recognised stages of the property cycle: a “boom” followed by a slowdown in prices will lead to a slump as the market hits the bottom of the cycle, and then a recovery period as the market builds towards the next boom.

The best time to buy is in a slump market.

3. Hidden costs

A property’s price tag is not the only cost to consider when looking to buy your first home. There are additional costs that need to be considered:

  • Loan application fee – some lenders may charge you a fee to process your application. It is used to cover things like credit checks, property appraisals and administrative costs.
  • Property valuation fee – lenders may require a valuation of the property to ensure the value of the property is greater than the loan amount.
  • Stamp duty – this is a tax paid when transferring the title and ownership details of a property. As a tax imposed by state governments, the percentage you pay will depend on the state you buy property in.
  • Mortgage registration fee – the Land Titles Office imposes this administrative fee for registering the lenders mortgage on the title record for the property.
  • Solicitor/conveyancer fees – this is the cost of having a solicitor or conveyancer carry out any legal work involved with purchasing your property.
  • Building and pest inspections – it’s recommended that you carry out these standard inspections before you buy to ensure the building is sound structurally and there are no insect problems such as termites.
  • Strata search – this cost is only applicable if you’re buying an apartment. The strata search will give you the history of the building in terms of past repairs, special levies, disputes, reoccurring maintenance problems, insurance details and more.
  • Home and contents insurance – this will protect you financially in case your home and its content are damaged by fire, storms, flooding or theft. It’s a good idea to have this in place right before settlement occurs.
  • Mortgage protection insurance or income protection insurance – if your ability to work becomes impaired it will be difficult to make your home loan repayments. These types of insurance are designed to take care of part or all of your repayments.
  • Utility connection costs – when you move into your new home there will be costs to get your utilities such as gas, electricity and telephone connected.
  • Moving in costs – this includes council and water rates, postal redirection and strata fees if you’ve bought an apartment.

Download our First Home Buyers Guide for more great information on buying your first home.

4. Knowing your budget

When applying for a home loan, most lenders will tell you the maximum amount you qualify to borrow. However, this does not necessarily mean it is what you are comfortable spending. Rather than focusing on the total dollar amount, look at the monthly loan repayment and compare that to your monthly income and outgoing expenses. This will help you determine how much you are comfortable borrowing, as well as whether there are unnecessary costs you can cut.

Use our handy Loan Repayment Calculator to work out what you would be comfortable to borrow.

5. Pre-approval

Pre-approval, approval-in-principle and conditional approval are all terms to describe the same thing. Pre-approval gives you a good understanding of the amount a lender may be able to lend you, based on your current financial status. Pre-approval is not a guarantee, but it's a good starting point.

Why get pre-approval with Gateway?

  • It is free and valid for 90 Days
  • You can find your dream home with the confidence of knowing exactly what you can afford
  • Understand all the costs involved with purchasing a home
  • It shows your estate agent that you are serious about buying

Learn more about the home loan process or arrange a call back to speak to one of our lending consultants today.

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