If you had a best friend who was also a mortgage broker, and you were to ask him “Hey Matt, I’m buying my first house, any advice?”, here is what he would say:
1. Know Your Credit Score Before You Buy a Home
If you know you’ve had credit issues in the past, such as defaulted payments on a mobile phone or credit card, your credit report may be blemished. This can make it very difficult for you to qualify for a mortgage without a substantial deposit amount (i.e. more than 20% of the purchase price!)
If your credit history has some blemishes on it, take some time to work on ways to improve your credit rating. While you’re doing this, use that time wisely to keep adding to your deposit savings.
2. Get a Pre-Approval Before Signing a Purchase Contract
Before you go out shopping for your first home, take the time to speak to a bank, lender or mortgage broker about your borrowing capacity and repayments. It’s important to know whether you’re likely to qualify for a good mortgage before you sign a purchase contract, otherwise you risk some legal implications.
This is especially true if you didn’t sign your contract “Subject to Finance”, such as the Unconditional contracts expected with most auction sales.
You should also be realistic about how much you can comfortably afford to pay on your monthly repayments. While your bank or broker might tell you that you’re able to borrow very large amounts of money, it’s not always wise to borrow at your maximum borrowing capacity.
Instead of going with the amount you’re told you can borrow, work on only borrowing an amount where the repayments are comfortable on your current income.
3. A Larger Deposit Can Mean Lower Borrowing Fees
It can be difficult to save a large deposit on a first home. However, the more money you can put aside to help cover the deposit and stamp duty costs associated with buying your first home, the lower you could find your borrowing fees become.
You could also find that a larger deposit can help you qualify for some of the better mortgage interest rates with different lenders.
You see, if you only have a deposit that is 3% of the purchase price of your home, you will have to pay lender’s mortgage insurance. This is the cost of the insurance premium that covers the lender against you defaulting on your loan – it doesn’t protect you!
There are only a few banks left that will lend as high as 97% of your purchase price, so a larger deposit will mean you have access to a wider choice of banks.
Working towards a 5% deposit, or a 10% deposit can actually save you thousands of dollars in lender’s mortgage insurance fees.
4. Don’t Forget About Other Home Expenses
When many first home buyers begin working through a budget to see if they can afford to buy a home, they think in terms of affording the repayments on the mortgage.
Yet they often forget about the associated costs of owning a home. These can include various insurances, utility bills, council rates and water rates.
Before you decide on your spending limit to purchase your home, don’t forget to add these kinds of costs into your budget.
5. Don’t Buy More Home Than You Need
Many first home buyers have a vision of their perfect dream home, especially if they’re planning to have a family in the next few years. While you might want to buy a big family home with lots of bedrooms and extra bathrooms, plus a yard for the future-kids to play in, this might not be practical for your first home.
Remember, it’s called your ‘first home’ because you’re likely to have a second, and sometimes even a third home at some point in your life.
If you don’t need 4 bedrooms right now, perhaps consider buying a smaller house for now just to get you into the market. This can be a great way to keep your mortgage down and begin building up equity.
Then, in a couple of years time, when your family begins to grow and you need more space, you can always sell and trade up to the family home then.
This article was written by William Eve. William writes about saving money, investment loans and real estate for Home Loan Finder. If your looking for the best home loan on the current market, visit the Home Loan Finder website and compare home loans today.
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