With our property markets surging around Australia, many first home buyers are wondering if now is a good time to get a foot on the property ladder.
Last year first homebuyers benefited from a combination of historically low interest rates which boosted their borrowing power; a pause in investor competition for entry-level properties; and government support through programs such as the First Home Loan Deposit Scheme, which lowered the deposit hurdle for many new entrants.
This led to the biggest year for new entrants to the property market since 2009.
However, with the property price increases we’ve experienced over the past two years, first homebuyers are unlikely to find conditions as accommodating in 2022.
So, if you are thinking about buying your first home, consider the following tips before you sign on the dotted line.
While the thought of living in your own home is a tempting one, there is a financial incentive to making your first house an investment property.
This allows you to live where you want to live but can’t afford to buy as a tenant, while still providing the opportunity to enter the property market investment property we can afford to.
In doing so, all costs become a tax deduction and therefore up to 40% cheaper than your own home.
Do not try and run before you walk.
Many people want to start in this sort of home that it took their parents 30 to 40 years to be able to afford.
Instead, why not consider buying an apartment, but not in one of those high-rise Legoland blocks in the CBD – they have no scarcity, no owner-occupier appeal, and very little capital growth.
Instead, consider it an established apartment in a small block in a great neighbourhood close to public transport and amenities.
3. Consider the bank of mum and dad
Younger buyers seem to have more difficulty saving their deposits because of flat incomes, rising living costs, and the need to have a substantial deposit to qualify for the state-government first homeowner grants.
On the other hand, their parents have benefited from significant increases in the value of their family homes, giving them plenty of equity to borrow against to help their children.
Lending from the bank of Mum and Dad is on the increase, with more than 55% of first-time home buyers requiring financial assistance from their parents.
4. Understand the costs involved
Too many first home buyers are fixated with the purchase price of a property and give scant regard to the variety of other costs involved in homeownership.
Firstly, there is stamp duty, which can be about five per cent of the purchase price – although there are a number of first home owner stamp duty concessions, they come with strict guidelines and maximum purchase prices.
Another cost is conveyancing, which are the legal costs involved in the transaction including transferring ownership from the seller to you.
Of course, there are also moving costs to consider, too.
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When renters become homeowners, they also learn about all the other costs that their landlord used to pay, which they were probably blissfully unaware of.
These include insurances, council rates, body corporate or owner’s corporation fees if your new home is an attached dwelling, as well as repair and maintenance.
These costs can be thousands of dollars annually, which you will need to budget for every year.
Another homeownership cost is rising interest rates on your mortgage, which you will have to pay if and when it happens.
5. Get advice – do not fall prey
Some agents prey on first home buyers by drawing them in with sharp marketing and then negotiating with an eager, naïve customer who is anxious to get on the property ladder.
Before long they may have paid too much, bought on the main road, and have usually overpaid.
This consistently ends in the first home buyer's regret, and them wishing they had never wanted to buy a property in the first place.
6. Fear of missing out
Fear of missing out causes a lot of buyer mistakes.
The pressure of auctions, being fed up with looking, or following what others are doing can all lead to disaster.
Getting carried away or being too over-exuberant with negotiating a property deal can lead to mistakes that are expensive and can take years to unwind.
Overpaying is one of the biggest mistakes that first home buyers make because they are so excited about the opportunity of becoming a homeowner they’re thinking with their hearts, and not with their heads.
7. Think long term
If you don't want to own the property in 20 years, do not buy it – walk away.
If you need your money back in 0–5 years, do not buy property.
The entry and exit costs are far too steep; the mistakes too costly.
8. Invest in yourself
By far, the biggest investment you can make is in yourself; nothing pays like specialist knowledge.
Spend 30–45 minutes every day increasing your knowledge, reading articles like those in Yahoo Finance, reading blogs, and listening to podcasts until you are at the top of your game.
This will help you into that first home even sooner and set you up for financial success.
9. Don’t try and do it on your own
The homebuying process is complex and first home buyers are often seen as “shark bait” by real estate agents, property marketers, and lenders.
Don’t be scared to ask for help.
Buyers agents, mortgage brokers, and solicitors are all examples of professionals who are experts who can help make sure you’re buying process goes smoothly and you get what you want and understand what you’re getting.