Advice for first-time home buyers

06 Feb 2013

Many dream of owning their own home but with so much economic uncertainty and the stringent mortgage credit criteria, it may seem daunting.

Many dream of owning their own home but with so much economic uncertainty and the stringent mortgage credit criteria, it may seem daunting.

This is the word according to Seeff Chairman, Samuel Seeff, who says this need not be the case, provided that you do your homework and buy smart. He says start small and grow with your needs but buy sooner rather than later.

The upside of the economic downturn is that the historic flat interest rate and house prices look set to hold into 2013, making home ownership more affordable in over three decades.

According to mortgage originator, ooba, there is a willingness to buy among first-timers and it reports a year-on-year growth with more than half of its applications falling into this category.

Seeff says the decision as to when, what and where to buy depends on your circumstances and needs. Provided you pay fair market value, any time is the right time to buy, but now is undoubtedly a better time than most.

Before shopping for your new home, find out what you can actually afford, how much mortgage finance you qualify for and how much cash you will need for the costs associated with buying a property.

Aside from a good credit record, the general rule is that your bond repayments should not exceed 25 to 30 percent of your gross monthly earnings and homeowners need to keep in mind that transactions costs can add up to 20 percent of the value of the property.

Be sure to also budget for moving, electricity and other deposit costs, and allow for potential short-term utility cost hikes and other expenses in your monthly budget.

While home buying is more about security than investment returns, Seeff says, it is nonetheless important that buyers ensure that they pay fair market value. Research the market values in the street and suburb, and whether there is room for improvement of the property.

Factors such as security, travelling time and costs, access to main arterials and facilities such as shopping, medical care and schools will all play a role when selecting the area, he says.

The type of property will depend on how much free time you have for garden maintenance for example. A convenient lock-up-and-go apartment or townhouse, perhaps in a complex with communal gardens and a swimming pool may be a better choice.

On the other hand, you can generally pick up good value and more space by buying an older home, but it will likely require renovation.

Guard against potential over-capitalising by keeping improvements and costs in line with the potential capital growth gains.

Know what you are buying and inspect the property carefully before putting pen to paper, he says.

Check aspects such as building, electrical and plumbing compliance, damp and leakages and the swimming pool and roof structure. Negotiate repairs as part of the suspensive conditions of the offer to purchase.

Seeff says the global economic crisis has highlighted the need for deposits as this creates a vital equity buffer against financial difficulty or should you need to sell for whatever reason.

Although the average deposit requirement is between 10 and 15 percent, Seeff recommends that you aim for 20 percent.

Bond originators work with the major banks and assist buyers with multiple applications and interest rate negotiations. Deciding whether to fix or float your interest rate depends on your financial preference. A fixed rate will be higher than the prevailing rate, but creates a buffer against future hikes. A floating rate, however, could provide significant savings in the short term. Speak to a financial expert before making the final decision, he says.

The rule of thumb is that it takes about five years before you will start seeing a reduction of the capital amount borrowed. Seeff recommends that you invest any spare cash in your bond as this will result in significant interest rate savings. Aim to pay your home loan off as soon as you can as this will create security and stability in the long term.

Property is one of the best investments and there is no price that can be put on owning the roof over your head, but it is one of the biggest decisions you will ever make and it should not be undertaken lightly, says Seeff.

Take the time to research your options and costs thoroughly and ensure you buy the right property at the right price that suits your needs and fits in with your financial position.  

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