Buying One’s First Home – Traps to Avoid and Things to Remember
Hi everyone, today I was lucky enough to get to write on something I have recently gone through and found to be an interesting experience to say the least – and get paid for writing about it! This post has been sponsored by Newcastle Permanent.
I bought my first home in February 2013. Buying a home for me was difficult as I had just spent 8 months on half pay enjoying my new baby, and had no other income. So I used up a lot of my savings (not exactly millions to begin with) just living and spending as long as I could at home before going back to work.
This meant that when I decided to buy a house, I had pretty much nothing in the kitty. $10,000, to be precise.
I first thought of buying a home when I saw all the ads everywhere about building a home with a package. There were packages with little or no deposit in nearby suburbs, close to where I was living, and I thought this would be awesome!
The more I looked into it, of course, the less simple it became. The packages were very limited and I knew I wouldn’t be able to afford to make any little changes at all. And I began to think that I would feel isolated in these new townships that were still under construction and I wouldn’t know anyone. Looking back I’m so glad I didn’t go with this option – I would have ended up spending far more than I could afford and I would have been lonely.
So I started looking in my own area, after doing and redoing my budget to work out what I could afford. Luckily for me I was in no rush. I was renting my brother’s house and could leave whenever I liked or stay as long as I liked. This gave me the huge advantage of being able to take my time and wait to see what came up.
I looked at four or five houses and units, most of them very close to edge of my budget. But none of them were quite right, so I held out. There was one house on Realestate.com that kept saying “available soon” with no price, address or photos. I was intrigued and kept an eye on it until it suddenly appeared in full splendor. It was well within my price range and seemed to be in a great location – I had to see it!
I loved it – well, it was definitely the best I’d seen. I offered on the same day as someone else and I was lucky enough to get it – hurray!
Then I had to organize the loan. Keystart is a government institution that gives you a home loan with very little deposit, but you have no choice as to the interest rate or conditions. This meant that I was saddled with an interest rate quite a bit higher than the best offers out there. If you have anything like a deposit (you’re usually looking at 20% of the house price) then you can shop around and choose the home loan that suits you best. There are often options like a line of credit, a withdraw facility, and of course you can pick a fixed or a variable interest rate.
Go here to get started with your research into home loans and what options are available: Newcastle Permanent’s Home Loan Page
Newcastle Permanent’s first home buyers page has some nifty stuff like calculators for working out how much your repayments will be, how to work out how much you could borrow and other useful info. And it’s a nice easy website to navigate.
A word on repayments: I worked out my budget really carefully (or so I thought) and I identified how much money I thought I could pay each month, and that’s what helped me to figure out my house price budget. Still, the bank advised that actually I could have borrowed $100,000 more than I actually did. Remember this: banks do not know everything about your life or way of living. They may allow you to borrow that much, but you need to take responsibility for working out whether you can actually make the repayments based on the amount of take away food you like to buy, and the number of overseas trips you take, and all the little incidental expenses that you take for granted.
Readers of my blog will know that budgeting is close to my heart, thanks to nearly coming a cropper recently. Even with the conservative house price I went with, I realize now that I borrowed too much and have had to cut out a lot of spending that I did not realize I would lose out on.
Buying a house can have more costs than you might think. You have lawyers’ fees, stamp duty, lenders mortgage insurance (if you borrow more than 80%, I think – I’m no expert!), settlement fees, don’t forget home insurance. A lot of your savings can disappear into these costs. There is government help sometimes, like the First Home Buyer’s Grant in Australia. But this money disappears very quickly. I thought I’d have plenty of money to do some renovations to the kitchen, to do some landscaping and even possibly some bigger things. But in the end once the last bill had been paid, there was nothing left at all. So all my plans for the house are postponed until I can scare up some savings.
This means that – especially if you are borrowing on the high end of what you can afford – you may have to realize that you’ll be buying the house as is – and it will stay as is for quite a bit longer than you might have expected.
So: my top traps to avoid and things to remember:
- Just because your best friend has a line of credit on their huge loan and is happy doesn’t mean you will be too – do your research and identify what your spending habits are so you can pick the best home loan deal, interest rate and extras for you. Newcastle Permanent will help you get started.
- You can never have too big a deposit: remember that several thousand dollars of your saved money will not even go to the house itself, but to fees and charges. So set aside $5000-$10,000 for that in addition to your deposit.
- Price isn’t everything: if it’s cheap, ask yourself if you can live with that house for several months or years while you save up the money to renovate. You might be able to safely borrow a bit more now and buy a house that doesn’t need anything done to it.
- Always ALWAYS borrow less than you think you can manage.
- Always pay a bit more each month than you need to: that way when interest rates rise (and they do rise), you won’t have to suddenly find more money each month to keep up with the new repayment rate.
- Ask questions: make sure you understand every document you sign and every condition you have to meet. Negotiate if you need to.
- Remember: it’s your first home and it doesn’t have to be the house of your dreams. But it is a place where your kids can scribble on the walls without getting kicked out in next month’s inspection! You can hang your pictures where you like! You can renovate and paint and make your mark here – revel in it! It is the best present you can give yourself (in my humble opinion) BUT – only if it doesn’t keep you up at night worrying about the mortgage.
- Don’t forget to have a great housewarming – invitations are always gratefully received.