BUYING A HOUSE: Im a Big Girl Now
So your friends do it. Your parents have done it. People in glossy magazines boast about it so why does buying your own home seem completely impossible? You’ll be relieved to know its not impossible and it starts with some hard core savings and a solid commitment to spending your saturday mornings house hunting in affordable areas. So stop driving around Beverly Hill’s inspired suburbs – get real and get ready to take the plunge into the property market.
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Sitting down with fellow finance femme and broker Amanda Barros from Loan Market we talked about what a girl really needs to think about before buying her first home.
Amanda has worked in the finance industry for the past decade and developed an expertise in credit and debt structuring. Huh? I hear you say? To break it down, Amanda helps women like you and me understand all those big complex words and will make sure we get the very best loan approval, no matter what deposit amount you have saved. Amanda is great at hand holding you through the process, doing all the work for you and is a reliable source of advice.
Here are LFM’s top tips to buying your first home:
CHAT TO A PROFESSIONAL
Buying a property can be one of the biggest investments you make. So it’s important that you seek the right advice from a professional during the complex buying process. Dealing with a qualified broker (that comes at no cost to you as the client) is a great opportunity to benefit from the general advice that a broker can offer. A quick meeting would allow (someone like finance broker Amanda Barros from Loan Market) to assess your current finances and guide you in the right direction when it comes to seeking the best dream team like accountants, planners, bank loans and agents. Brokers will also help you get pre-approved for loans which is also an important next step.
SHOW ME YOUR MONEY
This isn’t the hardest part – but the part where you will have to be most honest with yourself. What can you actually afford? To work out how big your deposit needs to be – you’ll need to start by doing a full forensic assessment of your finances. Yes – this means trawling through your most recent credit card statement…but think of it as a positive step in the right direction as understanding your financial status is extremely important. It can actually be a freeing experience to know exactly where you stand from cent to dollar. A broker or your accountant can help you do this. But you’re a big girl, so start with this on your own first: What did you really spend on shoes last year? How many times did you catch a cab home? Is it time to buy Chandon instead of Verve? You need to get real – and get a handle on what you actually spend, where its going and where you can honestly cut back. If you’re not honest with that to begin with, you are not ready to handle the responsibility of a big bad mortgage. Nor will you know what you can actually afford. Ok – tough love over. Now onto to easier steps.
SAVE SAVE SAVE
Once you have worked out exactly what you earn and spend, it will be time to get real about what you can save. Amanda suggests, not over committing your savings otherwise the demand will be unrealistic and you will fail at consistently putting it away. Rather, work out a budget that doesn’t cripple your lifestyle and current activities but simply adjusts them in a way you can save something – anything every month. Ideally though – you should aim for at least 15% of your income over a 12month period as you’ll really see the end of year results from this. Also, you’re better off consistently putting away $1000 per month and keeping to it – then trying to put away $2000 and faulting contributions. You can google hundreds of budget planners online that will help you break it all down. Check out ASIC’s MoneySmart Guide here for now. So, start blow drying your own hair, painting your own nails and go for picnics instead of fine dining a la carte. These are a few sacrifices but definitely more achievable. These adjustments will get you closer to loan pre-approval and eventually purchasing your first home!
How much should my deposit be? This is a debatable question. Amanda suggests, at the very minimum, a 5% deposit is required. However, ideally you want close to 20% so you don’t pay Lender’s Mortgage Insurance (LMI)* and you dont struggle with repayments. You can play with some online mortgage calculators HERE. Depending on the bank or broker, this percentage will change, but heres the thing…You dont want to save forever and miss out on getting into the property market, but at the same time you don’t want to over leverage yourself or your monthly repayments so that you cripple your disposable income and find yourself struggling to pay a big mortgage throughout a time your income may be affected through sickness, pregnancy or redundancy. I always think – what could I realistically manage if i lost my job? So again – go back to your forensic savings analysis and work out what is realistic and achievable. If saving for an additional 6 months would get you up to 20% deposit or over – it can make a meaningful difference to your monthly repayments (and not keep you up at night worrying ).
* Lenders’ Mortgage Insurance (LMI) is a premium payable by the borrower that protects the bank against the potential loss they may incur if you are unable to repay your home loan
PICKING YOUR FIRST HOUSE NOT YOUR DREAM HOUSE
Here comes the fun part. House hunting! Its so exciting walking through homes or apartments, envisaging yourself cooking and entertaining and imagining where all your pretend Vogue furniture that you don’t have will go. But, be aware. It can also make you anxious and sad when realising your first home won’t actually be a waterfront villa with wrap around balcony and internal lift. But don’t panic… My dad gave me invaluable advice when I was looking to purchase a home. “It’s your first house not your dream house” suddenly I realised it didn’t matter how humble my first abode was going to be! Get realistic about your finances and what is possible for you – now – at this stage of your life. Not everyone has a bucket load of savings, or a 50% deposit or parents that can help with the down payment (if mine are reading this – take pity on me please) or even a six figure income. So give yourself a break. It doesn’t have to be a palace or look like a Kim Kardashian crib. If your budget is $400,000 and will mean a bigger deposit with less demanding repayments then feel good about that and be proud of it. Who cares if its not in a fancy suburb or it means an extra 10mins on the train ride to work. Its a massive accomplishment and will pay off in the long run. There is nothing worse committing to a house you can’t afford, which will affect your lifestyle and keep you up at night when you can’t cope with the repayments. Besides, we have plenty of great luxe for less ideas across our Home & Design pages that can help you to spruce up your place on a budget! At the end of the day, what’s the expression? Home is where the heart is? Or where all your super cheap IKEA furniture will fit…
Once you really know your financial status, have a good hold on your savings, budget and planning (as this continues even after you’ve secured a loan) its time to pick the right house! You’ve probably had that little chat to yourself about “realistic options” and as Amanda Barros says you may want to consider an investment property? As this kind of property can be a smart and lucrative investment when chosen carefully. It also means with immediate paying tenants, the majority (if not all) of your repayments can be covered until your financial status improves.
But whether you go for an investment property or a home you’ll live in for years to come, you need to make a considered decision. Dont let your excitement or emotions get to you. Know what your maximum budget is and draw a line in the sand. If your budget is $500,000 don’t waste your time visiting houses $650,000 or more. Really get out there and canvas as many houses within that price bracket so you become an expert for what’s available in that price range. Also – narrow your search to your top x 3 suburbs and fully sweep those areas. If you don’t narrow your suburb search – you’ll find yourself doing endless site visits with unlimited options and just go round and round in circles.
ALL THE LITTLE THINGS...
Also consider things like:
1) Strata Bills, council, water rates and potential construction plans for the apartment building. Check how much the Strata has in its sink fund. This is the amount withheld by the body corporate for common costs such as grounds maintenance and garbage disposal. This amount needs to be relatively healthy.
2) Proximity to transportation – buses, trains, ferries and nearby parking etc Will you need to rent a yearly car spot?
3) How many apartments in the building? and is there a lift? How old is it? All these things contribute to the upkeep and maintenance of the complex which can sky rocket your strata bills. So ask yourself – can I afford this and is this the right building for me?
4) Calculate any refurbishment plans. If you are going to need to replace the kitchen, bathrooms or paint the walls add this to your initial budget including the weeks of rent you’ll either have to cover or forfeit during that construction period. It can stack up to the 10’s of thousands if you don’t pre-plan for it.
So finally if you do end up purchasing your very first home and on your own – you should feel nothing but chuffed with yourself. You’ve probably by now reevaluated any frivolous lifestyle spending habits and have a good savings plan in place – and this always feels good. So time now to enjoy this momentous occasion and celebrate with some bubbles (and no – not the expensive french kind!)