So, you’ve decided that it’s time for buying a home. For many people, the prospect of buying their first home can be daunting and filled with endless documents featuring indecipherable language. If you don’t know your amortization from your appraisal, don’t panic – we’ve put together the following guide to tell you (almost) everything you need to know.
Money, money, money
Before you start browsing those real estate sites, it’s time for a reality check. Shopping for your first home can be really exciting but, first, you need to take a good hard look at your finances. First and foremost, get a copy of your credit rating as this will determine how likely it is that a bank will give you a mortgage. Once you’re convinced that your credit rating is solid, you need to examine your current earnings and be honest with yourself as to whether you expect this to increase, stay the same or, worst case scenario, be reduced. Set up a spreadsheet and list every single thing that you spend money on – from that cappuccino on the way to work to your annual vacation. These figures, offset against your salary will give you a good indication of how much you can really afford to spend on mortgage payments.
Next, in most cases, you’ll be expected to put down a deposit of around 20% of the price of your new home so you’ll need to make sure that you have this in place before you begin – if you don’t yet have this, it’s time to start cutting back on the take-outs and after-work margaritas.
Once you have all of your facts and figures, you’re ready to take the first step toward securing a mortgage.
As a general rule, most banks will offer a mortgage of two to three times your annual income but, as above, it’s more important that you know what you can afford. Check out the websites of major banks as, most will feature a mortgage calculator to give you an idea of how much you may be eligible to borrow. Always shop around to make sure that you’re getting the best deal possible. There are several options available when it comes to mortgages but, you’ll most likely be looking at one of two.
- fixed-rate mortgage: which means that your interest rate will remain steady for the duration of the loan
- adjustable rate mortgage (ARM), where your rate will fluctuate depending on the market.
The moment that you start house-hunting, it’s time to start research homeowner insurance. In some cases, you’ll need to have this in place before your mortgage can be completed but will always need to be there by the time you complete on a property.
So you’ve got your deposit sitting safely in the bank and, you’ve secured your mortgage – it’s finally time to start shopping! Signing up with a real estate agent is probably the quickest and most efficient way of finding your new home but, will incur fees. Try browsing local classified ads, social media sites and other networks as these are great ways of finding out if a property is about to go on the market. Before starting your search, draw up three lists of features that your new home may have and label them ‘Must have’, ‘Would be nice’ and ‘Not necessary’. This will help you when making your shortlist of potential properties. Once you find a property with potential, check out local amenities such as stores, transport links and schools and, make sure that you view each property twice – once during the day and, once at night – you’ll be surprised at the difference.
Putting in an offer
Taking the plunge and putting in an offer on a property is a tricky business and, the key is in getting the balance right. If your offer is too low, you may be dismissed as ‘not a serious buyer’ and end up losing out. If your offer is too high, you could end up paying above the odds. Take a look at other properties in the area to see what kind of price they sell for to give an indication of the number you should be looking at. Also, find out how long the property has been on the market – if it’s been a while, the owners may be willing to accept a relatively low offer in order to finally sell up. Once your offer is accepted, you’ll be issued a contract; although it’s not obligatory, it’s always best to have a lawyer look this over for you to avoid any nasty surprises further down the line.
Before going any further, you’ll need the services of a property inspector – this is somebody who will examine the property for defects such as serious mold or structural defects. Your inspection report may include some issues which are so major that you’ll be advised not to go ahead whereas, it may include only minor items such as an old boiler or faulty fireplace, in which case you can ask for a reduction in price to cover the cost of these repairs. Once you’re happy that the property is in good repair, you’re ready to sign the papers and find your removal company.
Although your mortgage will, of course, be the biggest financial outlay of buying your home, there are numerous other costs involved and, you need to make sure that you have the cash to cover these. Although there are no hard-fast rules, these costs can run between $3000 and $500 and can include:
- Real estate agent fees
- Homeowners insurance
- Inspection fees
- Mortgage insurance
- Lawyer’s fees
- Removal company costs
- Storage costs
Buying your first home can be exciting and stressful in equal parts and, the key is to make sure that you’re as prepared as you can possibly be before you start – which means getting your finances and paperwork in order. Happy hunting!