Top three tips for buying your first home
Published on: August 22, 2019
For people living in cities like Sydney and Melbourne, where the property market has exploded in the past 10 years, it can often seem like something that just isn’t achievable without significant help or a lottery win factored in! While there has been some good news in the past 12 months as the market has eased, the reality is the average house price is still close to $1m in Sydney. It’s still excluding many younger people from the market, particularly in inner city locations.
Factor all that in, and it can feel like you’re at the bottom of a very big mountain with a pretty tough climb ahead. The good thing is that it can still be done, as long as you’re willing to plan for it.
Here are my top three tips for getting on the property ladder.
1. Be clear on your purpose and budget
This point is absolutely crucial: You need to be very clear on your purpose for buying a property. For example, is it going to be your future home, a steppingstone home to the next bigger thing, or purely an investment property? Answering this will go a long way to deciding how you want to approach purchasing your first property. It will help you structure the type of loan you need; you can save yourself a fair amount of heartache by ensuring you have the right loan upfront for either a home you will live in or an investment property that you’re going to rent out.
Once you’ve got your purpose covered, the next step is to lock in your budget. Here’s where you need to factor in a little ‘reality’: How much can you really afford? Straight away, let’s drop the mindset of ‘what the bank will lend me is what I can afford’. Essentially, you need room in your budget to continue to live the life you want and make further savings while paying off your mortgage. You don’t want a situation where you’ve exposed yourself to a debt that you can’t handle.
2. Once you know your budget, set your cash flow like you’ve already bought it!
We live in a time when the banks are under enormous pressure to set stringent lending criteria and it’s well publicised that they want to know your spending habits when you take out a loan. It’s a good idea to start making changes to the way you spend now to show that you can live to a budget.
My tip here is to start putting money aside straight away as though you’ve already purchased the property. For example, if your rent is currently $500 a week, and you know your mortgage repayment is going to be $1000, start putting the additional $500 a week away now. Prove that you can live within your new budget; it will not only help you put some money away now, but also get you into the habit before you need to start. Think of it as a great litmus test before you make the leap into property ownership!
3. Research the best bang for your buck
It’s advice that I have given in various forms over the years: Be realistic about where and what you can afford to buy. Inner city property is going to be expensive. Keeping an open mind will help you to ensure you maximise your property purchase.
If you like living in the inner city but can’t afford a property there, apply the ‘rent where I want to live, buy where I can afford’ principle. That way you can get onto the property ladder in an area you can afford, while living day to day in an area that’s a better fit for your lifestyle.
It’s also important here to do your research. Going back to point one, if it’s a property you’re going to live in for some time, look at your lifestyle and your goals around that property, i.e. starting a family, travelling to work, etc, and ensure that the area you’re looking at fits the bill. The same applies for investment properties, look at markets where there’s good capital growth.
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