FIRST-home buyers made up 25 per cent of total owner-occupied new housing loans in WA in 2018 according to the latest Australian Bureau of Statistics housing finance data and Canstar Group executive, financial services Steve Mickenbecker said anyone with a goal of buying this year should be getting their finances in order.
“For those who are looking to buy their first home, recent Canstar research found one in five Australians under 35 were saving less than 10 per cent of their after-tax income and 17 per cent were saving nothing at all,” he said.
“To reach a 20 per cent deposit plus additional purchase costs will take committing to a savings plan.
“First time-buyers should also be aware of the mistakes easily made that could impact their ability to buy, loan application or cost them more in the long run.”
To help people thinking of buying their first home, Canstar has compiled six mistakes new buyers cannot afford to make.
1. Not knowing your budget
Shopping around for a new home before understanding what the banks are willing to lend can mean wasting time.
“First-home buyers need to ensure they have a clear idea on their budget before they go house hunting,” Mr Mickenbecker said.
“This will ensure the buyers are aware of what they can afford before getting hung up on a dream home beyond their means.”
Top tip: Use a home loan borrowing calculator or speak with a lender to understand what the banks may be willing to lend.
2. Not saving for a 20 per cent deposit
While not all lenders require a 20 per cent deposit, falling short of this can be costly with buyers required to pay Lenders Mortgage Insurance (LMI).
LMI is an insurance policy that protects the lender from financial loss in the event that the borrower can not afford their home loan repayments and the sale of the property does not cover the outstanding loan amount.
A financial institution will typically make LMI a condition of borrowing if the deposit for the loan is less than 20 per cent of the property’s value.
In some instances, buyers can be required to pay in the range of $15,000 for LMI.
Top tip: For buyers unable to save a 20 per cent deposit, options to avoid LMI include a First Home Owner Grant (where relevant), having someone go guarantor, or simply holding off on any property purchases until a greater deposit has been saved.
3. Not understanding interest rates
If you are looking to get into property, understanding interest rates is a must.
Interest rates fluctuate and as rates rise so too will the monthly repayments.
Mr Mickenbecker said prospective buyers should read up on what is influencing interest rates, so they are not blindsided when they increase.
“Using a site like Canstar to compare home loans is a good way to remain up to speed with lenders interest rate movements and to determine if there are better offers available,” he said.
“In addition to understanding interest rates, buyers also need to factor in any annual fees on a loan.
“Some loans, such as package loans, can have annual fees of around $395 that are added to the overall cost of the loan.”
4. Emptying your savings
Beyond the purchase price, first-home buyers also need to consider other costs including stamp duty, government fees, building inspections, transfer fees, settlement, new furniture and more.
Taking into account maintenance and other living and moving costs is often overlooked, delaying repairs and creating financial stress.
Top tip: It is important to research before buying, to understand the associated costs that will need to be covered and have money left over to cover any unexpected expenses or repairs. Buyers need to set a buying budget so they can tally up all the possible associated costs.
5. Not looking for relevant first-home buyer grants
The First Home Owners Grant is designed to encourage and assist home ownership and for eligible buyers it can contribute to a great start to life as a property owner.
In WA the grant is only for those buying or building a new house or unit, however there are other grants that can provide financial assistance to buyers of established homes.
Top tip: Buyers should ensure they conduct research to understand grants they may be entitled.
6. Not negotiating
Too often people rely on the home loans presented to them by lenders, though first-time buyers should take a proactive approach and research what is available in the market and be prepared to negotiate on the interest rate to avoid paying too much.
Top tip: Research home loans offered by a number of lenders, to ensure you’re in a position to make an informed choice.
“You never know if you don’t ask, so always asking your chosen lender for their best deal may yield savings that you thought weren’t possible or open your eyes to a loan you hadn’t considered previously,” Mr Mickenbecker said.
“This is your time to explore and to set yourself up right from the beginning with the a competitive deal that also you provides you with what you need such as the ability to make extra repayments and redraw if you need to.”
Buying a first home may seem daunting, though by avoiding simple mistakes new buyers will ensure they are on the right track for a brighter financial future.