How to buy your first home or investment property
The great Australian dream of owning your own home is arguably as much a part of our identity as Vegemite on toast. But with soaring property prices, it’s becoming harder and harder for Gen Y to get a foot in the door. The buying process is also becoming very complicated, filled with steps you never knew existed and jargon you’ve never heard before.
This guide will ensure you’re more confident when buying your first property and help you avoid costly mistakes in the process.
For the smart investor, property investing is fun, safe and rewarding. However, for the uneducated investor, there are dangers, common pitfalls and sharks waiting to take your money. By attending a investment course (run by an experienced Real Estate Investor), you’ll get a better understanding of the buying process and gain the right knowledge to negotiate, handle and manage the purchase of your first home.
Save up a deposit
Ideally, you should try to save up 20% of the cost as a deposit. The reason for this is that you will avoid having to pay lenders mortgage insurance (LMI).
If a 20% deposit is unachievable, one of the most popular no deposit solutions is a Guarantor Loan. Also known as family pledges, these loans allow you to borrow as much as 100% or even 110% of the property purchase price.
Guarantors, who are generally limited to immediate family members which include parents, siblings or grandparents, will use their own home’s equity to provide additional security for a portion of your purchase amount.
This is a great way to get into the property market so make sure you’re extra nice to Mum and Dad!
Get your loan pre-approved
It’s always a good idea to get a pre-approval before you start looking for a property. This will tell you how much money you’ll be approved to borrow, so when you start looking for a property you’ll have a budget in mind.
You can ask your bank for a pre-approval, but it is recommended you approach a qualified Mortgage Broker to compare against multiple lenders and find a mortgage that’s better for your individual situation.
A mortgage broker can determine whether you need a low interest rate, an offset account, or redraw facilities. They can also determine whether you should consider a fixed or variable loan.
Keep in mind at this point that you will also need to consider stamp duty and fees, which could add an extra 5% on top of your purchase price.
Decide on a location
Many factors will influence your property buying decision, and location is one of them. Proximity to a CBD or other major employment hub often drives demand and capital growth, and the same goes for easy access to public transport, hospitals, schools and major roadways.
What you require in your location will be specific for you, but keep these points in mind.
What type of house do you want?
The type of house will depend on why you are investing and your budget. It may be a unit, or a house on a large block of land, and it may be old or new.
Old houses are cheaper and require more maintenance. Newer houses are easier to rent out, can attract higher rents, and have more tax benefits (by doing a depreciation schedule).
Keep in mind that if the property is for an investment and you are intending to rent it out, it doesn’t have to be perfect and you don’t have to absolutely love the house. Most renters are happy with a neat and tidy house, with a workable kitchen and bathroom. Perhaps you could consider buying and improving the house yourself with some new paint and floor coverings.
Do a building and pest inspection
Even if you are buying your first investment property, you should carry out the same checks as if it was a home for yourself. Building and pest inspections will cost you money, but they can also potentially save you a lot of money in unexpected repairs later on. Do these inspections before you settle the property. You can also put in an offer on a house subject to building inspections, and walk away during the cooling off period if it turns out to be a disaster.
Put in an offer
Once you have found the house (or unit), to determine what kind of offer you should be putting in, you should use a Buyer’s Agent. They have access to a range of off-market properties and can help negotiate a better price. Don’t be afraid to pay for these services and information. Remember, you are potentially spending hundreds of thousands of dollars, so you want to know what you end up paying will be a good price.
Settlement and legal
Once you’ve negotiated and settled on a final sale price for your property, get in contact with your Mortgage Broker and Solicitor ASAP.
Your solicitor will organise a contract of sale and you will also be required to pay a deposit for the property. The deposit is usually 10% of the accepted purchase price, however, both parties can agree on a different amount.
A five-day cooling off period after exchange is standard when buying a house. This period allows either party to withdraw from the contract with written notice. If you do withdraw from the contract during cooling off, you will be required to pay the vendor 0.25% of the agreed purchase price.
After contracts have been exchanged, you will then have approximately 6 weeks until settlement.
Your solicitor will meet with the vendor’s legal representative and both parties bank representatives on settlement day to exchange cheques and officially transfer the property over to you. And once this is done, the property legally belongs to you!
Congratulations, you are a homeowner!
If you want to learn more, attend a First Home Buyers Course
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