When you’re making plans to buy your first home, there’s so much to think about – and many important costs you may not have anticipated.
A new home represents both a serious investment and a change in lifestyle, so it’s crucial to get the planning right and not skip any steps along the way. Here are some important tips to assist you in the planning stages of buying your very first home.
1. Saving for your deposit
The median house price in Australia is now over $550,0001, and with most lenders traditionally requiring at least 20% of the borrowed amount as a deposit, scraping this money together is your first big hurdle. Banks and other lending institutions like to see evidence of genuine savings on your part before they provide financing to fund your new home. So you’ll need a more-serious-than-ever approach to saving money, which may entail some temporary lifestyle sacrifices. Try to save 10-20% of your monthly pay by eliminating unnecessary purchases. Pay off debts, sell your unneeded junk on eBay and consider looking for extra, part-time weekend work to build up your finances. Saving takes discipline, but being able to put a deposit down on a home of your own is certainly worth the extra effort. And remember – the larger the deposit, the less interest you’ll pay over the life of the loan.
2. Choosy about your home? Be just as choosy about your mortgage
When house-hunting, look at things like proximity to schools, hospitals and public transport, local crime rates, how much DIY might be needed and the value of similar homes in the area. When you’re hunting for your first home loan, you need to be just as picky. This is a huge financial commitment, and home loans can vary considerably in their level of flexibility, rates of interest and fees. These factors all contribute to the loan’s cost over time (and how soon you’ll be able to pay it off). You’ll probably check out plenty of houses before you buy, so why not do the same with mortgage lenders? Getting your home loan right can save you many thousands of dollars in the long-term.
3. Understand all the costs of owning a home
When you’re looking to buy a new home, your mortgage is the biggest expense, but it’s really only the beginning. You must also factor in all the other costs – like lawyer fees, stamp duty and builder’s reports. Has the house had a recent termite inspection? You may need to hire a removalist or pay for an exit clean for your current residence. Then there are the phone, internet and electricity connections to organise. Have you found out what the current council rates are for water, sewerage, etc? And, of course, if your house is a ‘pre-loved fixer-upper’, you’ll need tools, paint and maybe even the services of qualified professionals like carpenters, tilers or plumbers to whip it into the shape you want. If you’re buying a unit or townhouse, you’ll have the likely expense of body corporate fees, which cover the maintenance of shared areas and insurance for the entire accommodation complex. You should enquire about the balance of the body corporate’s “sinking fund”, as if this is insufficient to cover repairs and building works, owners will be required to contribute additional funds. And these are just the known expenses – you should also have a little extra cash available to provide for the unexpected, like rising interest rates or changed personal circumstances.
4. Your new home is a valuable asset – protect it well
For every new home buyer, Home and Contents Insurance is a must. After going through all the stress, excitement and effort of acquiring your new abode, you’ll want to make sure it’s covered for those unexpected calamities that the world can throw at you: bushfires, falling trees, burst pipes, storm damage, earthquakes, break-ins and other nasty surprises. And it’s not just the building itself; the average value of household contents in Australia is over $60,000 per dwelling2 and rising. The cost to replace your clothing, jewellery, appliances, furniture, whitegoods and other possessions can add up to much more than you realise.
5. Look after yourself and your family, too
The primary purpose of life insurance is to provide financial security in the event of your death or serious injury. Not a pleasant thought, but the fact remains that if you have dependants who rely on you for financial security, you need life insurance. And don’t automatically assume the life cover that’s built into your superannuation is going to be adequate – it may not be for your situation. Underinsurance is a huge problem in Australia3, so make sure you’re looking after yourself and your loved ones too.