Buying your first home is as exciting as it is daunting. It takes careful planning and some serious savings to achieve the end result - YOUR OWN FIRST HOME! Given below are some tips for first home buyers which will help with planning and budgeting and will also be useful in working out the total cost of buying a home (that includes both one off costs like Solicitors fees and recurring costs like Insurance).
Some general tips for first home buyers or for any home buyer for that matter:
1. Keep your accounts clean
The Lenders like to see accounts that are well managed without delays and/or any defaults. Dishonored direct debits or going into un-arranged overdrafts regularly can affect your credit score and make you look like a risky prospect for the bank to lend to and you could be declined.
2. Keep credit cards & store cards to the minimum
The Lenders view Credit cards as an existing debt and will allocate a certain amount as committed expense regardless of whether you pay off your card every month or not. The important thing to remember however is that the higher your limit, the less you will be able to borrow, regardless of whether your card has a $0 balance or not. A card with a limit of $5k could reduce your borrowing potential by around $20k. A $20k limit could reduce your borrowing ability by up to $80k or more! So it is better to reduce the limits on your card(s) and pay off and close all unnecessary cards.
3. You will need to prove what you say
Banks want to see some evidence that you can afford that new mortgage repayment. Demonstrating that you can save and can afford the repayments without compromising your lifestyle will give the bank some comfort that they won’t be putting you in to financial hardship should they approve your loan.
Even if you don’t have 20% deposit, Banks have some capacity to lend to you with a low deposit. When you don’t have a 20% deposit however, the banks will generally want to know you have genuinely saved at least 5% of the deposit by yourself. Showing that you have contributed some of your own money to the purchase gives some comfort to the bank that you are personally committed to ensuring that you will keep up you loan repayments obligations.
5. Other debts
Debts such as large car loans or personal loans can impact your application and limit the loan amount you might otherwise get if these debts are too high and the repayments on these can really start to impact on the general affordability of your application. The banks also assess your overall Assets Vs Liabilities (Statement of Position). Whilst you may have saved enough for your deposit If you have a large car loan also, this would mean your overall equity position will be reduced by the loan amount. For example if you have saved a deposit of $60k and have a car loan of $20k then your equity position would be $40k.
6. Costs involved in purchasing your own home
Before you buy a property you will need to do some due diligence on the property being purchased to ensure that you don’t end up buying a “Lemon”.
LIM report: A Land Information Management (LIM) report is issued by the local authority (council) giving details about the property such as rates owing, consents & drains and other noting pertaining to the property & its immediate surrounding. LIM report is used for property with an existing building. A Land Information Memorandum (LIM) identifies any issues with the land the house is built on, such as drainage and landslip risks.
Builders' report: A builder’s report can identify any possible problems with the house you’re looking at buying. An experienced builder will find things that the untrained eye will miss and may save you thousands.
Registered Valuation: A registered property valuation is an assessment of market worth of a house done by a registered valuer.
A property valuation is done for a number of reasons including:
· To work out how much you should pay for a house
· To work out how much a house is worth when selling
· As part of a mortgage application
· As part of a refinancing application
You are most likely to need to get a valuation when you have had an offer accepted on a house, and you need finance (a mortgage) particularly if your borrowing is going to be above 80% of the value of the property.
Solicitor’s fees: Prior to purchasing property signing any sale agreement or mortgage paperwork you’ll need to get it looked over by a Solicitor who will act on your behalf. Your solicitor will also handle the ‘conveyancing’ or transfer of ownership to you once the property is purchased. Solicitors’ fees vary. So it would be a good idea to call up a few solicitors before engaging one.
Moving-in costs: You’ll need to set money aside for things like:
· Moving services or truck hire
· Connection fees for phone, power and Internet
· Any renovations or decorating you need to do straight away
Insurance: You may also be required to pay for Lenders Mortgage Insurance (LMI) or Low Equity Premium (LEP) if you are borrowing more than 80% of the property value.
Mortgage repayments aren’t the only thing you’ll need to budget for in your new life as a homeowner. Council Rates, Home Insurance and Mortgage Protection Insurance also form an important part of the ongoing costs. You will need to budget for these.
For Personalized professional advice on Home Loans, Insurance and KiwiSaver call us today for a FREE no obligation consultation on 022 09 MKART (65278).