Buying a home is an exciting process, but you do need to be prepared. Arranging your finance first helps you set your own limit and better positions you for a successful negotiation. And with so many home finance options on the market and a great deal of change over the past 12 months, there are several things you need to consider before beginning your search for the right property.
How much can I borrow?
How much you can borrow will depend on a range of factors including your current financial position, the size of your deposit and the lender you choose. A lot of people are unaware that each lender calculates how much you can borrow quite differently, which can make a huge difference. Sometimes, it is a matter of just thousands, but sometimes the difference can be tens of thousands of dollars.
Most lenders will require a deposit of at least 5% of the total purchase price of the property you intend to buy, so you will need to have this saved along with the amount needed to cover additional costs such as legal fees and stamp duty. You may need to implement a savings plan to accrue a deposit prior to beginning your property search.
First Home Owner Grant
If you are a first home buyer, it pays to find out whether you are eligible for the First Home Owner Grant. To be eligible, at least one of the applicants must be a permanent resident or citizen of Australia. There may also be other exemptions and benefits for which you are eligible depending on the Australian state in which you live. It's important to remember that even if you are eligible to receive the grant, you will still need to have a deposit saved.
My needs and the right home loan
Before applying for a home loan you should consider your goals for the next one to five years. This can be a critical factor in choosing the right home loan – fixed or variable, full of features or just basic, principal and interest repayments or interest only. Some things to think about include your job plans and prospects, the likelihood you will move in that period to a new house, whether you are planning to start or add to your family, and your investment plans.
Home loan pre-approval
If you are in a financial position to purchase already, getting a home loan pre-approval can be a worthwhile exercise. A written home loan pre-approval from the lender through which you intend to borrow will give you a good idea of just how much you have to spend on your property purchase and will put you in a good position to bid at an auction or negotiate strongly on price.
Sandra Crossland is a loan market mortgage broker who operates from St Ives, Sydney.