Purchasing your first home is an exciting experience but it can also be very nerve-racking as it will probably be the most important and expensive purchase you will ever make. I remember when I purchased my first home several years ago at the age of 20 – just a couple years out of high school while I was still studying at university. House prices were going up and up and I knew I had to get in the market. It took planning; research and careful budgeting from a much younger age which allowed me to enter the property market and obtain a mortgage for my first home.
In this article I am going to outline some tips and considerations for obtaining a mortgage for the first time and how to best prepare for this exciting process.
The four things lenders look for before approving a loan
1. Capacity – can you afford to make the repayments on the loan
2. Character – are you a good financial risk – how’s your history in making servicing your debts
3. Collateral – is the property you are buying adequate security against the loan you are applying for
4. Capital – What you already own
While preparing for your first mortgage it is important to keep these points in mind and ensure you are working on fulfilling these requirements as best as you can
Do the math
Be aware of your buying costs and have a set accurate and detailed budget calculating all the expenses associated with purchasing a property including stamp duty, legal costs, inspections, government charges, lender fees, loan mortgage insurance (if applicable), etc.
How much deposit do you need?
The more of a deposit you can save:
– The less you need to borrow
– The better property you can afford
– The lower your mortgage repayments
– The lower your loan mortgage insurance will be – or you could eliminate paying this altogether if you have a large enough deposit
The usual deposit is 10%. Gone are the days where you can borrow up to 100%. Maximum borrowing now sits at 95% including loan mortgage insurance.
Loan Mortgage Insurance is applicable on loans where there is less than a 20% deposit – when you are borrowing 80 per cent or more. This protects the lender NOT the borrower against losses in the event you default on your loan and the property doesn’t cover the loan amount. If you are borrowing at 90% most lenders will allow you to capitalize this expense on your loan.
Budget & make changes to your lifestyle
Obtaining a mortgage for the first time is a major commitment that you will be taking on – it takes sacrifice especially in the early days. Carefully manage your spending and stick to a budget. This will help you achieve two things – firstly, it will help you in saving a deposit and secondly, it will prepare you for the additional expenses that come with owning a home including mortgage repayments, insurance, rates, etc.
What to buy
Buying your first home is different to investing in property but I would advise every first home buyer to seriously consider looking at their first home with an investment perspective. This is what I did when I purchased my first home and it certainly paid off growing 25% in value in just over 18 months. This opens up a world of opportunity and puts you in a great position where you could borrow off the equity and use the funds for investment purposes such as building a property portfolio.
Here are a few things to look for when purchasing your first home
– Buy close too amenities including schools, transport, shops, workplace, parks, recreational facilities, etc
– Buy in an area where there is a limited supply of properties and demand
– Consider buying when prices are low or in a market that is just starting to rise
– Look for a property with a nice outlook i.e. water, trees, views, etc
Speak to an Expert Mortgage Broker
A Mortgage Brokers services are free and they will help you save time and money and find the right home loan for your needs. With hundreds of home loan products on the market it can get confusing a mortgage brokers services are free and we take all the hustle out of the process for you. At Real Estate Investment Finance we not only help first home buyers obtain finance for their first home but we also assist by ensuring we set the right financial structures up to assist home buyers who want to view purchasing their first home as a step towards building a property investment portfolio.
If you are looking to obtain a mortgage for the first time contact us at Real Estate Investment Finance for an obligation free finance assessment today.