In February I decided that I wanted to buy a house and move out within 18 months. The initial plan was to wait at least a year and save then start looking however when do plans ever really follow the path you set for them?
We started looking by accident when we went with my boyfriend’s parents to look at a place for one of his brothers. And we fell in love with the place! Turns out that it didn’t really work out for us but since then I’ve been hooked! We found some places that we liked, were jerked around by agents and then found some that were advertised much lower than they ever should have been and selling for about $50K more than the advertised price. Frustrating.
Here are some things I have learnt:
- If you have a new job, find out what your probation period is. If you are still on probation there is very little chance of getting a loan without a guarantor. Even with one your interest rates and repayments will rise beyond belief. This is even in effect if you have changed positions within your own company so find out if you have a whole new probation period.
- You need a deposit of at least 5%. If you have between 5% – 20% you will need to pay mortgage insurance (it’s usually between $7 – $12K but can be more or less depending on the property price and how much deposit you actually have). This insurance is for the bank, in case you default and they have to cover the costs of advertising for your place.
- You need to show a solid savings history for pre-approval. This doesn’t mean dumping $10K into your account once in 6 months. They want to see that you are consistently putting money into your account.
- See a mortgage broker. You can probably afford more than you think you can but don’t get trapped in thinking more is necessarily a good idea. Be realistic. Remember it’s not just repayments you have to make; there’s also council rates, body corporate (if applicable), insurance, water bills, gas bills, electricity bills, one off expenses like furniture and whitegoods and your everyday living expenses. Also, making extra repayments can change the length of your loan and your interest owing in a good way. Play around at ING Calculators.
- Check to see if you are eligible for the first home owners grant. Most people don’t know that even if you purchase an investment property first, you may still be able to claim it in the future. Example – if you purchase an investment property, and you move in after 6 months but before 7 years, you may still be able to claim it. Another example – if you purchase an investment property then down the track decide to purchase a property for your own residence, you should be able to claim the first home owners grant.
- There isn’t alot of time usually between seeing a property and having to purchase so be organised. Get pre-approved as soon as you can as it is valid for 3 months. But be warned, being pre-approved doesn’t mean you’ll necessarily be approved for the loan but it does mean that you’ve already completed an extra step in a short timeframe.
- Before looking, if buying with someone else, discuss the things you will not budge on. For my boyfriend, it’s the make sure that the kitchen has multiple benches and a gas stove. For me it’s that the laundry and bathroom are separate. For both of us, it has to have an outdoor area on the ground floor big enough for some chairs and a table.
- When looking, think of the place as a blank slate. Yes the wallpaper and decor may be horrendous but all the cosmetic stuff can be changed. Take that cost into account when determining how much you can spend, especially if you want to change things immediately.
- Look at storage. If you have a lot of stuff make sure there is enough room in the places that you are looking in. Unfortunately it’s hard to add storage space. Or thrown all that extra shit out when you move in!
- See a property at least twice. The first time you usually take in all the cosmetic stuff, the second, look harder at powerpoints, tv cable, internet connection, water damage etc. Also it helps to bring someone who has experience in buying. That’s why my boyfriend’s parents have seen every place we’ve been interested in as they have moved about 6 times in the last 7 years.
- Read your contract! This is so important. If you have plans to renovate or knock down and rebuild you need to know whether you can do it on that block before buying.
- Get a building inspector. If there are things that are structurally wrong, you need to know about it before buying. If there are a few things that need to be fixed you may be able to negotiate a lower purchase price as you will now need to fix them.
- The process of buying in private sale and buying at auction are different. Your mortgage broker can tell you how it works, otherwise there are plenty of sites on google that will help you. Here is one from Ray White Real Estate. Just make sure what you are reading is relevant to your state/territory.
- Sellers are able to knock back any offer even if it’s higher than what it is being advertised for, however agents do get in trouble if the selling price turns out to be more than 10% more than the advertised price. Example – a property advertised for $450 – $500K can actually sell for $599K but can’t be sold for $601K without the agent getting into trouble.
- Reserves in auction can actually be more than the advertised price re: see point above.
- If you are at an auction and you are the winner, the 10% deposit needs to be transferred immediately. If you choose not to go ahead with the purchase, you lose your 10%.
So there are alot of things to consider but my biggest piece of advice which was already mentioned is to see a mortgage broker. I can’t tell you how valuable mine has been. Yes, they do work on commission. They get paid by the company that you eventually sign up to but once you have an understanding of how it works, it’s quite easy to compare the rates yourself and realise that chances are, your broker has already recommended the best company for your circumstances anyway.
So I’m going through this whole process again, getting pre-approved again because our 3 months are up, trying to negotiate the boyfriends probation period to finish November 30th instead of December 31st (not going to happen) and talking options. It’s exciting and I still have this sick feeling in my stomach but I’m excited and although I’m being realistic in my expectations (some say pessimistic) I don’t think we’ll be successful with this particular property.
But we’ll never know until we try!