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 propertyobserver.com)