- buying vs renting
- steps to buy
- offset account
- mortgage insurance
- housing affordability
- 2017/18: home buyers
buying vs renting
- Australians commonly debate as to whether buying or renting a property is better. This video presents that there can be no definitive answer due to the presence of numerous variables.
- Buyers indefinitely face more upfront costs and are locked in to make repayments, whereas renters must succumb to the fact that home ownership will not eventuate with rental expenses.
- It often comes down to basic math calculations in determining which is suitable for each individual.
steps to buy
Step 1 – Financial Situation
The first step in the buying process is to address your financial situation because this will govern your ability to buy the home that you are after. You really need to be asking yourself a series of questions from the get-go to determine whether it is the right thing to do:
How much money can I afford to deposit on a home? Bear in mind that you will need at least enough savings for your short-term living costs.
How stable is my job, and the nature of my income? If you have chosen a career where employment and stable income are unpredictable, then this can greatly impact your decision. If you are paying off a mortgage and you suddenly lose your job, the risk increases that you will not be able to make repayments.
How good is my credit score? This can impact your ability to get a loan, and the interest rate which you ultimately pay if you are successful in your loan application.
Step 2 – Research
You need to determine which property type you want. This could be a free-standing house, semi-detached house (where 2 houses share one common wall), or an apartment. The important part is that you know the advantages and limitations of having certain types of properties.
Knowledge of the property market is important too. Certain market conditions can invite you in, or exclude you from having a chance at getting the home want. A good metric to look at is your local suburb’s auction clearance rates. This looks at the percentage of auctions where a successful sale is made. A high percentage like 70% will indicate that the properties in your area will be very popular, and that property buyers are probably paying a premium price for homes. Situations like this can be exclusive, especially if you are a first-home buyer.
Also refer to other measures like your local area’s House Price Index. Changes in this index represent the average change in house prices over a period of time, and can be helpful to see whether property is in high demand, or whether the market is calm enough to start participating. All of this comes down to your judgement of what is best.
Step 3 – Due Diligence
Look at the property features such as age of the property, proximity to public transport, and installations like air conditioning and smoke detectors. The point of doing this is that you make sure that the property has all of the features you are after. The second area of due diligence is the building structure and pest problems. For this area it can be useful hiring the services of a professional building and pest inspector who can look at issues like rising damp (which is where moisture from the floor gets absorbed into the walls). They can also check to see whether the property has termite or white ant infestations.
Step 4 – Sourcing a Loan
This is an important step, because even the difference in half a percent on the interest rate can significantly impact the long term costs you’ll face. To illustrate, let us say that there are 2 different loans available (loan A & loan B) – both for $400,000, but Loan A has an interest rate of 4%, and Loan B’s rate is 4.5%. The extra on the loan would cost you roughly an extra $2,000/year. When sourcing a home loan, try to get the best deal you can.
Another very important thing to consider around your home loan, is the concept of the loan-to-value ratio (or LVR). This is the ratio of the loan amount, to the home value. For example, if you take out a $450,000 loan on a home that is worth $500,000, the LVR is 90%. In Australia, lenders often make borrowers purchase lenders mortgage insurance, if the LVR is greater than 80%. The only exception where banks will not force you to purchase this insurance is if you have a guarantor. The guarantor is someone who agrees to support your loan repayments, in the case that you cannot repay.
Step 5 – Getting Organised
By this point you should have a purchase price in mind, your loan documents in order, and have received approval for a loan. You should also have a solicitor on hand, who will be able to advise you on how to proceed with parts of the next steps.
Step 6 – Making an Offer
This will depend on the type of sale that goes ahead. For instance if you are a successful bidder at an auction then you will likely be required to pay the seller a 10% deposit at the close of the auction, and sign a binding agreement i.e. you cannot back out. If you are buying through a private sale, then you can make an unconditional offer. This is where you sign an agreement, and are fully committed to buying the property. You can also make a conditional offer, for example, you only commit to buying the property if it has passed a building structure and pest inspection.
Step 7 – Finalise Loan
You need to make sure that all necessary documents are signed, and that you are given the loan amount required in order to complete the full purchase of the home.
Step 8 – Property Settlement
At this stage your solicitor will be involved in organising the legal transfer of ownership from the property seller to yourself, and that the keys are handed over to you. This will usually be within 4-6 weeks of signing an agreement.