In Part 1, we covered the risks of flying solo, reminded you that real estate agents are working for the vendor, considered the pitfalls of failing to research the market and warned against love at first sight. This time, we concentrate on decisions that can directly affect your home buying budget.
Never sign without getting appropriate legal advice, make sure you minimise your mortgage exposure and consider your new home purchase from all angles.
Decisions, decisions – choose that mortgage wisely
Make sure you have a preapproved mortgage in place before you start negotiations. Remember that internet loan calculators cover the basic, best case scenario, so get an exact figure from the bank and pick your finance package with care. Shop around for the best mortgage or consider using an independent finance broker, as they usually have access to more lenders and financial products.
Stick to a Budget
Real estate agents are trained to get as much money out of buyers as possible, so do not fall into the trap of wanting what you cannot afford. It can be hard to resist, but you must stick to the amount you have been approved to borrow. Don’t be tempted to think that an extra few thousand or more won’t have an adverse effect – circumstances can change, and future financial shocks like job loss or rising interest rates could mean you cannot meet mortgage repayments on an over-budget purchase.
The Painful reality of Underestimation
In the heat of buying excitement, many homebuyers overlook the costs associated with buying a property. Stamp duties, mortgage insurance; depending on your lender’s requirements, Lenders Mortgage Insurance allows you to borrow up to 95% of the purchase price of your home, with a lower deposit than is usually required. Traditionally, lenders require borrowers to have at least a 20% deposit. Loan application fees, valuation costs, rates and building and pest inspections all have to be paid on or before settlement. Remember; you will also have to pay to move, possibly redecorate to your taste and repair items that will choose inopportune moments to break down. Some extra money should be set aside for ongoing repairs and maintenance. If you do not have a fund for incidental costs, you may defer property settlement, which could cost you in penalty fees and or loss of your deposit.
Allowing ‘the market’ to dictate
The time to buy is when you are ready. It is easy to fall into a cycle of indecision waiting for the correct market conditions that may never arise in your chosen suburb. Unless the housing market in your area is severely inflated (in which case you should probably look elsewhere), you should not let short-term market conditions or media forecasts affect your decision to buy.
As with everything in life, a little preparation can save a great deal of heartache. Getting your budget right and sticking to it will mean you begin life in your new home without having to worry about financial shocks.
In Part 3 we discuss the risks attached to home buying exhaustion, protecting your interests in a contract of sale, basing your decision to buy on factors other than price and the importance of building inspections.