By Steve Jovcevski, Property Expert Mozo
So, you think you’re ready to buy your first home; you’re emotionally invested, you’ve got your deposit, know where you want to buy and have been scouring the real estate websites for months. The question is, are you really financially prepared to take the next step?
Taking on a mortgage is one of the biggest financial commitments you’ll ever make, and having walked many people through the process of buying their first home, I have found that many of those who believe they are financially ready, are taken by surprise when unexpected hurdles get in the way of what they had envisioned paying.
In light of this, I have put together 4 important questions you should ask yourself before getting your first mortgage. This ensures you’re not caught short when it comes to forking out the money needed to be a homeowner in today’s ever-changing property market.
- Can you budget?
Having a good track record of money-management comes in handy as you encounter many new expenses when purchasing your first home. Property tax, home insurance, and other bills you might not have paid before like hot water, yard maintenance and more, are sure to rear their head when you buy your new home. Consider creating an official household budget, so you can be sure you can cover the costs of those inevitable bills. Planning is the key, and you can never be too prepared.
- How much can you actually borrow?
Everyone wants to live in their dream home, but I can’t stress enough to my clients – buy what you can afford now! Your first home isn’t necessarily your last home, and with the changes life can bring; marriage, kids, study, etc, will you still be able to afford the repayments if your circumstances change? Speak to your home loan lender to find out how much you can borrow and then calculate how much you can afford to pay, should your life take a detour.
- What is your initial deposit?
One of the biggest hurdles many first home buyers face, is saving up a sizeable downpayment to make their initial purchase. Most first home buyers are advised to have around 20% of the value of the home they are planning to buy. This means, if you’re planning on buying a property worth $400,000, you’ll need $80,000 upfront. If you want to borrow with 10% or less, you’ll most likely have to pay mortgage insurance in case you forfeit on your home loan repayments. Having a bigger deposit also means you’ll have more equity on your home, should you want to purchase another property in the future, or want to redraw for any emergencies.
- Can you handle a rate rise?
Interest rates can fluctuate at the drop of a hat, and while mortgage rates are at an all-time low, there’s only so far they can drop. Can your budget afford a rate-rise to keep up with the market movement? What could you cut-back on should an interest rate rise occur? A great tip I give first home buyers is to try upping their repayments for a set period when they first borrow. This will get them used to pay a little extra and give them some pocket change they can use if or when rates do go up.
About Steve Jovcevski
With over 20 years experience in the property and home loan market, Steve lives and breathes real estate. He is passionate about helping borrowers save on their home loan and writes for financial comparison website mozo.com.au.