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Buying a home is exciting but nerve-racking because this will probably be the most important, and expensive, purchase you will ever make. Understanding the process will help you avoid problems and rely less on luck to make the right decisions. It takes time to find and buy a home so dont try to rush it or you may be caught out!
Owning your own home is the great Australian dream but its not always the most economical route. Renting may work out to be a better deal than buying if:
If you owe $80,000 on your home loan at 7% and are paying it back over 30 years at $532 a month, paying an extra $88 each calendar month ($20 a week) will slash the term to 20 years and save $43,000 interest. Once the term of the loan has dropped to five years there may be better ways to invest surplus cash, such as superannuation, trusts, term deposits or shares.
These days there are almost as many loans to choose from as there are homes to buy, so finding the right one for your needs can be confusing. Many borrowers mistakenly believe that the best mortgage is the one with the most added features, such as credit cards and offset accounts.
Traditionally, this type of mortgage will have a slightly higher interest rate or set-up charge, so if you dont really need those features, why pay for them?
The key to finding the "best" mortgage is defining your own needs to determine the type of loan you should be looking for - finding it is the easy part.
Answer the following questions and make a simple checklist of the lifestyle needs your mortgage must satisfy. You could save thousands of dollars over the life of your loan:
|Types of Home Loans||Descriptions|
|Fixed rate interest rate||A loan where the interest rate and repayments are set for a pre-arranged term. Generally at the end of this period your loan will revert to the standard variable rate applicable at the time, but we do allow members to 're-fix' their motgage if they so wish.|
|Standard variable interest rate||A loan where your repayments may rise or fall at the discretion of the lender, often in line with official interest rate changes. May include special features such as a redraw facility.|
|Basic variable interest rate||As above, but without extra features, and usually a discounted interest rate applies.|
|Honeymoon rate||A loan offering an attractive introductory interest rate for a fixed period, usually twelve months. Find out what interest rate your loan reverts to when the honeymoon is over and if any restrictions apply during the honeymoon.|
Note: more complex mortgages sometimes have an establishment or application fee levied to cover the cost of setting up the loan. Some lenders may waive application fees for some customers - be sure to ask if you are eligible for a fee waiver
Before you can calculate how much you can afford to pay for your home, you first need to work out the total cost of the purchase. As a general rule, the total cost of purchase is around five per cent of the price of the home, and includes legal and government charges, loan establishment and administration fees and mortgage insurance if you are borrowing more than 80 per cent of the property's value. Stamp duty is calculated as a percentage of the purchase price, so the more expensive the home, the higher the total purchase cost will be.
On top of your deposit, you will need to have an additional five or six per cent of the price of the home to cover purchase costs such as:
|Legal Costs||solicitor or conveyance fees;
inquiries or disbursements ie. title and other searches*
|Inspections||property and pest inspection
strata records inspection (if applicable)
|Government charges||stamp duty on transfer*
stamp duty on mortgage*
|Financial costs||lenders application or establishment fee
mortgage insurance, if applicable
|Miscellaneous charges||adjustment of council rates*
insurance - fire and perils, contents
connection fees for services*
The usual deposit is 10 per cent of the purchase price, but the more deposit you can save:
Mortgage insurance protects the lender against losses incurred if you default on your loan. Mortgage insurance is usually charged when the loan to value ration (LVR) is greater than 80 per cent, i.e. when you are borrowing more than 80 per cent of the value of the home.
Income protection insurance offers optional cover for the borrower. Policies are tailored to meet your specific needs and are designed to meet your mortgage repayments if you are unable to, for example if you lose your job or are ill for an extended period.
Your new home doesnt have to be a house, in fact in many cities around Australia living in smaller propertiesapartments, townhouses or studiosis becoming popular because they can be more affordable, newer and better located than some more traditional homes. Before choosing the type of home you want to buy, consider your lifestyle and budget then ask yourself these questions:
If the answer to these questions is yes then consider proceeding with legal and structural checks of the property. If not, tell the agent what it is you dislike about the property so they can steer you towards more suitable homes next time.
Like most other markets, the property market has its ups and downs. If you know when and why property prices are on the move you will have a better idea of when is the best time to buy your home.
The ideal time to buy is:
Tip: Look for properties that have been passed in at auction. This means that bidding did not reach the vendors minimum (reserve) price for the property. You may be able to negotiate down on price and avoid an auction bidding war.
Ask any real estate agent what most buyers are looking for in a home and the answer you will hear is: location, location, location. The best way to find a home in your ideal location is to draw up a list of facilities and features that meet your needs.
There are no warranties for home buyers so to protect yourself have the property checked out before you finalise the purchase. Get specialist advice from a legal consultant or conveyancing service and a building consultant before you sign any contracts. Store this information in a fireproof container or safety deposit box - it will make it easier to resell you home later on.
Hint: To keep legal costs to a minimum, get property inspections done before proceeding past the first basic legal steps.
Property inspections should assess all accessible parts of the property, reporting on problems in these areas:
New properties and properties that have been renovated recently are just as likely to have serious problems as old homes so dont skip the property inspection. A building consultant can detect incomplete or defective work on new homes and locate relevant documents verifying council approval and quality of workmanship.
Also obtain the following information about your builder:
Source: Money Matters in your 20's and 30's - Buying a home