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Ten things to remember as you dive into home ownership

By David Gordon

Buying your first home is a huge leap.  And it’s one made more difficult by the fact that property prices are high, no matter where you look.  Most first-home buyers always have a tough time, though. They usually have to look in areas outside their preferred location or buy a property that’s smaller or more rundown than they prefer. The important thing is to get your foot on the first rung of the property ladder — even if you have to lower your expectations a bit. But don’t buy before you’re ready — financially and psychologically. Here are some tips to help you take heart.

1. Buy when you’re ready to buy

When you’re looking for a property, everyone you know is an expert about when is the best time to buy.  They  tell you the market is going up fast,  so you need to buy  now, not  in six months’ time;  or that the  market’s going to crash, so you ought to wait another year  to catch the  bargains when  interest rates go up.

Ignore them!  Yes, all of them. The right time to buy a property is when you’re ready to buy.

You know you’re ready to buy when:

  • You find yourself dreaming about renovating your own home.
  • You find yourself incessantly looking at the property section of the local newspaper or browsing the real estate listings on the internet.
  • You start putting every last penny into the bank, rather than spending it on new clothes, going out or other treats.

Given the huge financial commitment involved in buying a property, you need to be psychologically ready for that step. Assuming you’re  going to hang  on to the  property for a while and you find a property that suits at a price you can  afford,  who cares what  the  wider  market is doing?

2. Think outside the square

If you can’t  find anything you can afford  in the  suburb or area of your  choice, you may need to think  laterally or scale down your  expectations just  to get your  foot on the  first  rung of the  property ladder. Traditionally, first-home buyers tend to look beyond their first choice to find a home they can afford.

To find somewhere more affordable, investigate suburbs just beyond those of your first preference. These nearby suburbs may have similar qualities to those you have your heart set on — they’re just a bit further out than you may like. They can also offer other unexpected benefits, such as bigger properties and bigger yards and a neighbourhood more conducive to raising a family in the longer run.

Don’t forget, you’re not alone. The  middle suburbs and  many country towns are  filling up with  people just  like you who  are priced out  of suburbs closer to the  city and  who  eventually put their own stamp on the “new” area.

Another alternative to your  first  choice is to buy  a property still within  your  chosen area but  that needs a lot of work  — or one  that originally may not  have  been a residence at all. First-home buyers are a creative-thinking lot and are able to convert old warehouses, factories or shops into interesting new homes.

3. Look at your first purchase as a springboard

As property owners, Australians tend not to buy just the one property and stay in it for the rest of their lives.  If the first property you buy isn’t the property you can imagine living in forever, think of it as just your first step onto the property ladder. In four or five years, you can sell it on to someone who is in the same position you’re in today. Between when  you buy and  that time,  your  equity in the  property builds up — from the repayments you make  on the  loan  and  hopefully from  the increase in the  value  of the  property itself  — and  you can  use that financial gain to buy  a property that better suits your  needs.

4. Borrow no more than you afford

Temptation can come knocking, especially in a hot market when prices are rising quickly. Before you know it, you want to go beyond your budget to buy the home of your dreams. And lenders are  only too  happy to lend  you as much as they  think your  income can  bear, even  if you don’t  have  enough money, after  making  the  required mortgage repayments each month, to step outside your  new front  door for the  next  few years.

You need to cover more than the cost of the actual property. You have to foot the bill for a number of transaction costs and costs associated with getting a loan and getting legal advice. These costs can really send you over the financial edge if you don’t budget for them.

Owning a home also involves expenses you may not have had to carry while you were renting. You’re now the  one  who  has  to pay  the  council and  water rates, for that new hot  water system and  to keep  the  house looking  good  over  the  years. Stretch the repayments too far over the limit, and owning a new home isn’t going to be much fun at all.

5. Another property is always around the corner

When you miss out on a property that tugs at your heart, you may feel like you’re never going to find a property you can both love and afford.  Keep going.  Fortunately, new properties keep coming on to the  market each week,  and  eventually you’re  going to find the  one  that fits your  criteria and  your  budget.

You may need to make a compromise on your criteria here or there, but don’t settle for something you’re not going to be happy living in for at least a couple of years. Chopping and changing properties more often than that is too expensive to contemplate.

Have faith  that with  consistent searching and  effort the  right property eventually comes along  and  is available at a price that you’re  able  and  willing to pay.

6. Don’t pay too much for a property

Each property has a fair value.  Don’t be too desperate to find a home. You don’t want to pay more for a property than it is really worth — in terms of its location and in terms of the property itself.  First, paying too much can mean you have less to spend on improving your property. Second, you’re  going to have  less equity in the  property, and  your  loan-to-value ratio may go over  the  80%  level — meaning you have  to pay  mortgage insurance, which  adds several thousand to your  purchase price.

Do your research on how much properties in a particular area are worth, and make sure you get a building inspection report so you’re aware of any problems with a property and how much it costs to repair them.

7. Keep your emotions in check when looking at a home

Deciding you want to buy a home can be a bit like falling in love — sometimes your emotions can overwhelm your reason. You can fall for a property that looks gorgeous on the outside but may not be suitable to your needs. That cute white picket fence and those gorgeously painted ceiling  roses may conceal a host of structural problems that could cost a fortune to fix up.

Retaining a business-like reserve when  you’re  looking  at one  of the  biggest purchases you’re  ever  going to make  pays  you back handsomely. Take along  a hard-headed friend you can  trust

to point out  negatives when  you look at properties. And if you really fall in love, get a thorough building inspection done before you make  any serious offers.  You should at least know about a property’s faults  before you commit to it.

8. Be sceptical of selling agents

With rare exceptions, remember that the  real estate agent isn’t your  friend — even  if the  agent pretends to be. It’s not  that agents are  against you; the  agent’s just  working  for the  sellers of the  homes the  agency represents. The  agent’s primary interest — and,  in fact,  a legal obligation exists — is to sell those properties for the  highest prices possible. So when  agents take you aside to tell you about the  special prices they  can  get for you, be aware that they  probably say that to everyone.

That’s  not  to say that an agent can’t  help  you find the  home you’re  looking  for. When  you get to know the  agents in the  area, they’re more than happy to inform  you about properties that fit your  bill. Agents  can  help  you to forge  a win-win situation that helps both their clients and  you.  Just  don’t  expect any special favours just  for you.

9. Renovating can wait

Most  first -home owners don’t  have  much spare money to think about anything but  the  most basic renovations after  they  buy a home. But rushing into  the  renovations may not  be the  best approach. You need to give yourself some time  to live in a property to see  how  you can  improve it to better suit  you and your  family.

By living in the  home for some time,  you get a sense of how  your family uses the  property and  you can  identify:

  • How much time  you need to save  some money to put towards your  renovation.
  • How much you can  afford  to spend on your  renovations.
  • How the  inside interacts with  outdoors.
  • How the  sun  moves through the  home.
  • What  are  the  bad  features you just  have  to remove.
  • What  are  the  good  features you want  to enhance.
  • Which  rooms work  and  which  don’t.

10. The mortgage does go down — eventually

When  you buy  your  first  property, your  mortgage can  feel like a huge  weight  around your  neck.  You’re committing to an enormous amount of money, it’s true. And for the  first  couple of years, you may have  to deny  yourself many  of the  treats you’re used to — eating out,  buying CDs, travelling overseas — just  to scrape together those monthly repayments.

After a few years of owning  your  own home, financially positive things begin  to happen:

  • You pay  down  the  principal of the  loan  and  the interest repayments start decreasing as well — almost infinitesimally at first  but,  after  a few years, the  interest amounts become noticeably smaller.
  • As long as you stay  employed, your  wages  are  probably going to keep  increasing. That  means that the  interest payments become smaller in another way — as a proportion of your  income.
  • If you buy  well, the  value  of your  home may also  go up, so that the  amount you owe to the  lender also  becomes smaller (as  a proportion of your  home’s value). At the  same time,  your  equity in your  home becomes greater — without you doing  anything much at all.

Of course, if you decide to borrow against the  increased equity in your  home, you’re  heading for a bigger  loan  and  being  back where you started — but  at least you know you’ve  got a growth asset on your  hands that you can  sell if your  financial situation changes for the  worst.

(Article written by Karin Derkley and taken from

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