Steps to home ownership
Steps to home ownership
When buying a home, it can be extremely complex and expensive, but if you have a plan in place, it can be much less painful, and the best way to start on planning is to look at the process:
Your Credit Score
Before even looking at how much you want to spend on property, you will need to take a closer look at your credit score. Unfortunately, no matter how confident you are in taking a large loan, if your lender is not prepared to assist you, it can often cause your plans to go awry. The higher your credit score, the better, so if you are making long-term plans to purchase property, working to boost your score is not a bad move.
Your Budget
Your credit score isn’t everything, as you also need to make sure you end up with a loan you can effectively pay off, as well as keeping up with interest payments. For more details on setting up a budget, look at our other article How to get more property for your dollar.
Finding a lender
There are a wide range of options available to you when looking at home loans, but also a lot of dangers of finding yourself with an inefficient loan. It’s a good idea to discuss with a professional at this stage, as the right assistance can help you find a much better loan than you may otherwise end up with. You need to ensure that your budget is covered up to your maximum planned spend, as well as making sure that your interest rate is low and that the lender is reputable.
House hunting
It’s time for the fun part – finding the perfect place. Make sure you cover off your needs list first and foremost, then work on looking at your wants within your price range. Make sure you account for your surroundings too – neighbours, access to shopping, safety and travel times are all important elements to consider. Carefully inspect any amount above your preferred budget to ensure you’re not overspending for the sake of unnecessary extras, and ensure you can.
Making an offer
Once you’ve set up a shortlist of houses that fit your needs, you will need to make offers to start the buying process. Don’t put all of your eggs in one basket though, as the property may have competition from other buyers. If you’re at a loss for where to start, a good rule of thumb is starting 5% below the asking price, and haggle from there (be aware though, too much haggling may turn the seller away from your offers)
Securing your loan
Once you have figured a price with the seller you will need to go back to your lender. Many options are available to you for a mortgage, but the main 3 are Adjustable Rate, Fixed/Variable Rate and Interest Only.
Adjustable Rate is a shorter mortgage, giving you lower interest rates in the short term, and adjusting annually in the long run. If you are confident in your ability to pay the loan quickly, this is an option to investigate closely.
Fixed rate loans are a mortgage option that allows you to set a level interest rate for a pre-determined loan period, after which the Fixed rate will be set to the current interest rate. In comparison, a Variable Rate is linked directly to current rates, and does not have a loan period over which the loan is locked at a pre-determined rate. Typically when starting out, a fixed-rate will be higher than the standard interest rate, but should the rates rise over the life of the loan, the standard interest rate may be higher than the fixed rate being paid.
An interest-only loan is a mortgage option where you don't pay your loan's principle for a set number of years - the only payment is the loan's interest. After this period of time, your interest will often change to fairly high rates for the remainder of the loan. Due to this, these loans are typically taken out by investors looking to flip the property in a short period of time, or buyers looking to avoid large repayments in the short-term.