Lifestyle check<\/h3>
When determining whether it\u2019s the right time to own the roof over your head, you need to carefully consider your lifestyle needs both now and in the future. Your job security, number of dependants and lifestyle habits will influence your borrowing capacity when you submit a mortgage application, and can indicate whether you\u2019re in a sound position to buy a home.<\/p>
At this point in the process, you may choose to get some help from a broker\/adviser<\/a>. The main reasons for doing this are to get an accurate idea of your borrowing power and to find the best mortgage deals available to you.<\/p>
Here are some key points to run over, either alone or with guidance from a mortgage adviser:<\/p>
Job security<\/h4>
When reviewing a mortgage application, most lenders prefer that you\u2019ve been in your current job for at least 12 months as this demonstrates you have a stable source of income that can be used to service your mortgage repayments. If you have high job security, then you represent a lower risk to the lender.<\/p>
Lenders will also be interested to know about your type of employment (contract, part-time or full-time) and the prospect of your continued employment.<\/p>
If your employment is secure, then you may be ready to buy.<\/p>
On the other hand, if you\u2019re a low-income earner or you\u2019re receiving benefits, it may be more difficult to qualify for a mortgage. If this describes your situation, seek independent advice about your readiness to buy a home. While it may be possible for you to qualify for a mortgage with a specialist lender if you can prove you have a secondary income source to repay the mortgage, you need to think about whether this is a financially responsible move.<\/p>
Parent-to-be borrowers<\/h4>
One of the biggest lifestyle changes comes with the decision to settle down and have kids.<\/p>
While this can be an exhilarating time, you need to think about the cost of extending your family and how this will influence your ability to purchase a home. This is because the number of dependants you have can affect your borrowing capacity. Some lenders reduce the amount they lend to people with children by 10%, while some may go as high as nearly 20%.<\/p>
Recognising the sharp rise in costs that will result from having kids, some lenders will request that you factor in the cost of childcare, education fees and unexpected medical expenses when listing your day-to-day expenses.<\/p>
Even if the mortgage provider doesn\u2019t take children into account, it\u2019s something you should factor in when calculating how much you can borrow to make sure you can afford your mortgage repayments in addition to your other expenses.<\/p>
If you plan to receive government benefits, keep in mind some lenders only consider this as a secondary source of income and you\u2019ll need to supply supporting documentation when completing your mortgage application.<\/p>
Sticking around?<\/h4>
Your intended length of stay in the home you purchase can help you determine whether you\u2019re ready to buy.<\/p>
Due to the significant transaction costs of servicing a mortgage and owning a home, many financial advisers believe you should only buy a home if you intend to live there for 5\u201310 years. This is enough time to build up equity in your property and to allow your property to appreciate in value.<\/p>
Affordability<\/h4>
Taking out a mortgage will probably be the biggest financial decision you\u2019ll make in your lifetime, so you should sit down with an accountant during this preliminary stage to see how much you can afford to borrow.<\/p>
Even if you haven\u2019t started looking at suburbs or properties yet, it\u2019s a good idea to get an idea of how much you can afford to borrow as this will help fine-tune your search later on.<\/p>
Existing debts<\/h4>
Your credit file and the amount of existing debt you have can reflect whether or not you\u2019re ready to purchase a home. Request a copy of your credit file to review your financial health.<\/p>
If you have bad credit, you may not be a good candidate for a mortgage application. However, there are lenders that specialise in borrowers with bad credit<\/a>.<\/p>
Deposit<\/h4>
Ideally, you want to come up with at least a 20% deposit.<\/p>
If you don\u2019t have at least 10\u201320% deposit saved, there are low-deposit mortgages<\/a> available. However you may want to think about whether you\u2019re financially prepared to buy a home.<\/p>
Costs<\/h4>
When estimating the costs of buying a home, you need to break down government charges (such as stamp duty), lender\u2019s fees (including the application fee) as well as other associated costs (such as conveyancing or survey fees). We have created a comprehensive guide on many of the associated fees and costs. <\/a><\/p>
Remember you\u2019ll also need to factor in a contingency buffer for holding costs such as repairs and maintenance or a rise in interest rates if you take out a variable rate mortgage.<\/p>
Upfront and moving costs<\/h4>
Here\u2019s a round-up of some of the major upfront costs.<\/p>
- Mortgage application fees<\/li>
- Broker fees<\/li>
- Solicitor fees<\/li>
- Valuation and house surveys<\/li>
- Stamp duty<\/li><\/ul><\/li>
Find the property<\/h3>
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<\/p>Once you\u2019ve decided you\u2019re in a sound position to get a mortgage to purchase a home, and you have a decent idea of your budget, it\u2019s time to start thinking about the property and its location.<\/p>
How your property location fits into your lifestyle is one of the most important decisions you\u2019ll make in the home buying process. It\u2019s a matter of balancing your priorities and finding a suitable location that will match your needs and improve your quality of life.<\/p>
After fine-tuning different locations for your future home, you now need to research different properties that are listed on the market.<\/p>
Here are some things to keep in mind when deciding on property type.<\/p>
House or flat?<\/h4>
One of the biggest choices you\u2019ll have to make when selecting a property is whether to buy a house or a flat. While houses are typically more expensive, they have historically seen higher levels of capital growth. A detached house also offers more flexibility for renovations and additions.<\/p>
Flats, meanwhile, can have enormous potential as rental properties. They also have a lower price point than detached houses, so they can be a good choice for first-time buyers.<\/p>
Size<\/h4>
Regardless of the type of property you choose, you\u2019ll need to have an idea of the size. How many bedrooms and bathrooms do you need? Is the amount of space you need now the same as the space you\u2019ll need in the future? Do you want an extra bedroom for guests or potential tenants? Do you need a study if you plan to work from home?<\/p>
Think about your lifestyle needs and the property size that will allow you to live comfortably. This will help you determine whether you need a 2-bedroom or 3-bedroom property, as well as whether you need additional rooms such as a living room, a baby\u2019s room or an outdoor entertaining area.<\/p>
Structural integrity<\/h4>
One of the most important issues to think about when evaluating different properties is the structural integrity and quality of the build. When reviewing the structural integrity of the property, make sure you enquire about plumbing, electrics, insulation, materials in the structure and any existing damage (if it\u2019s an established property).<\/p>
To help you understand whether the property is structurally sound, you should organise a house survey to pre-empt any issues that may appear further down the track, (remember that surveys should only be organised if you have a strong intention to purchase the property, as you will have to pay for each survey you request).<\/p>
Compare your finance options<\/h3>
You may feel a sense of relief after locking in a location and property for your upcoming purchase, but there\u2019s still work to do before you get the keys to your property. Analysing your financial situation, knowing how much you can afford to borrow and understanding the type of mortgage that will suit your homeownership goals are just some of the things that need to be ticked off your list before you apply for a mortgage.<\/p>
When you\u2019re comparing mortgages, you\u2019ll want to consider the following factors:<\/p>
- Interest rate.<\/strong> Ideally, you want to find a mortgage that offers a competitive interest rate by market standards. A lower interest rate can go a long way in helping you maximise your savings. You should always pay attention to the comparison rate of different mortgages, as this reflects the true cost of the loan by taking fees into account.<\/li>
- Fees.<\/strong> When comparing different mortgages, you should keep an eye out for upfront fees, ongoing fees and discharge fees. Finding a mortgage with fewer fees will help you to minimise your holding mortgage costs.<\/li>
- Features.<\/strong> As mentioned previously, there are many competitive features available that can help you save money. Compare if the lender allows you to make additional repayments without penalty or if a 100% offset account is available.<\/li><\/ul><\/li>
Make an offer<\/h3>
When you\u2019ve found a home you want to buy, the next step is to make an offer, usually through an estate agent. As a buyer you won\u2019t have to pay any fees to the estate agent, as they are paid on commission by the seller. Learn more about the things you should know before making an offer<\/a>.<\/p>
Usually it\u2019s the second or third offer that gets accepted, so you\u2019ll typically want to go in below your maximum (or if you don\u2019t, make sure the seller appreciates that this is you limit\u2026 but there\u2019s no guarantee they\u2019ll believe you).<\/p><\/li>
Mortgage application process<\/h3>
Once you\u2019ve decided on a property to buy, compared your financing and mortgage options and made an offer on the property, it\u2019s time to submit your mortgage application. Your lender will need to make sure the home is worth at least what you\u2019re paying for it \u2013 so they\u2019ll need a valuation.<\/p>
At this point in the process, you\u2019ll also need to appoint a solicitor. This is a lawyer who will handle much of the legal paperwork involved with the purchase of the property, acting on your behalf. <\/p>
Survey\/valuation<\/h4>
There are three basic levels of survey to choose from:<\/p>
- Valuation.<\/strong> This survey is done by the lender to make sure the property is worth the price you\u2019re paying before it approves the mortgage. It\u2019s not an extensive survey and will not identify all the repairs or maintenance that might be needed. In rare cases, a physical visit may not even happen.<\/li>
- Homebuyer\u2019s survey.<\/strong> This fairly standard survey inspects the property for any damages. Many buyers purchasing more modern properties are happy that this level of survey is sufficient.<\/li>
- Full structural survey.<\/strong> This is the gold standard, nuts-and-bolts job. It will almost certainly throw up a few issues (because every house has them). The cost will depend on the size of the property but you\u2019re probably talking at least \u00a31,000.<\/li><\/ul>
After a survey there may be a renegotiation \u2013 e.g. if a buyer feels they need to hold back \u00a35,000 to cover some roof repairs. In the rare even that your mortgage lender isn\u2019t happy with the valuation (perhaps given some damage to the property), then they may implement a \u201cretention\u201d \u2013 that\u2019s when they say something like they\u2019ll have to hold back \u00a35,000 of the mortgage, unless the roof is fixed.<\/p>
\n\n\n\n - Homebuyer\u2019s survey.<\/strong> This fairly standard survey inspects the property for any damages. Many buyers purchasing more modern properties are happy that this level of survey is sufficient.<\/li>
- Fees.<\/strong> When comparing different mortgages, you should keep an eye out for upfront fees, ongoing fees and discharge fees. Finding a mortgage with fewer fees will help you to minimise your holding mortgage costs.<\/li>
- Interest rate.<\/strong> Ideally, you want to find a mortgage that offers a competitive interest rate by market standards. A lower interest rate can go a long way in helping you maximise your savings. You should always pay attention to the comparison rate of different mortgages, as this reflects the true cost of the loan by taking fees into account.<\/li>