Buying the first home is for most people the largest single investment of their life. Not just in monetary terms; it is also a very emotional experience with a mix of genuine excitement and fear. The Five Ways to Save tips below have been designed to bring some common sense to this big investment and to put you in a strong position to buy a property that will be both a great home and a successful investment
1. Get your Savings in Order
The global financial crisis (GFC) started because banks allowed people to buy properties that they could not afford. Both the home buyers and the banks were losers in this exercise.
Before you set about buying a property, demonstrate to yourself and the bank that you can save. This will ensure that you and the bank feel much more comfortable about the purchase. Ideally you should be able to save to around 20% (and more) of the property value to form a deposit. Also, you should make sure that the mortgage repayments are not greater than what you have been able to regularly save.
2. Research, Research, Research
There is a lot to research to be done when buying a property. Here are some key points to consider:
- Your preferred location(s) – You want to be comfortable with the location
- Design and size of the home – No point buying a house if it doesn’t meet your living needs both now and for the future. For example, would it be easy to extend?
- Potential growth prospects of your preferred locations – Are there many new developments happening in the area? Do people want to live there? Locations with limited growth potential may limit future price growth
- Actual price growth of the preferred locations – Has the location shown real price growth? Potential growth is one thing, but real growth shows that there is an appetite for people to live in the locations
- The total costs of buying and keeping the home in order – Think past the mortgage repayments
- Finance options – Checkout various opportunities and always remember that cheapest does not mean best
- How to protect your new home – Protect the home via home insurance and protect your salary via personal insurance (note: Tip 5 has more on this).
Start your research with friends and family as you can learn from their experiences. Obviously the web is great and a good banker/mortgage broker can also help. Remember, real estate salespeople work in the interests of the seller so they will have some bias. However, a real estate specialist in the location you are seeking will have valuable information that is hard to find elsewhere. After a bit of trial and error, you’ll soon work out which ones you can work with.
3. Compromise, but not too much
Life involves compromise from time to time, but be careful. Once you have done your research you could be disappointed that you can’t find anything around your price range in the location you want. As a result, you may make a make a snap decision to buy a nice house in a cheaper location. A snap decision to buy can also be as a result of ‘deal fever’ This can often happen through sales pressure, particularly at auctions. It’s all too easy to sign a deal very quickly because it feels emotionally right, at that particular time, rather than rationally thinking it through.
One last point on compromising – It is important to understand that the value of a house is largely based on the location. The actual house (bricks, fittings etc) do lose value. Therefore, consider compromising on the actual house before the preferred location. You can always fix things about the house, but you can’t fix things about the suburb.
4. Learn how to negotiate
You’ll be up against some very sharp sales people. Your mortgage provider needs a deal and real estate sellers are known for their ability to sell just about anything. By contrast, most first homebuyers have had a fairly sheltered life when it comes to negotiating big investments.
Buy a book on how to negotiate. If you are simply not good at it, find a good friend or a family member to help you. Most families have the proverbial ‘wheeler and dealer’. There are ‘buyers agents’ available and they could be worth talking to. Negotiating is not easy but it can pay off huge dividends if you can do it well.
5. Protect the new home (and that includes protecting you)
There are several steps to help protect the home, its value and your ability to meet the repayments:
- Property inspections – Have it inspected for build quality and for termites. The inspections can seem expensive at the time, but they come in handy when negotiating the price and better prepare you for future costs if you do buy the home
- Choose building and home contents insurance wisely – Make sure you are covered for all the big issues in the area that you buying in. For example, if you are near a flood prone area, can you get flood damage as opposed to storm damage?
- Make sure your income is safe – Personal insurance is vital to protect against unforseen illness and accidents. You can also better protect your income by making sure you are a ‘valuable commodity’ in the market place through on-going education
- Maintain your home – Try and do as much as you can to keep the home in good shape. Have regular pest inspections, keep the garden in order etc. As the saying goes, a ‘stitch in time saves nine’.
Hopefully you found these tips useful. If you have some of your own, please let everyone know through the comments section below.Time to review your loan? Quick and easy at humble savers