You are ready to become a homeowner if you have the following things in place:
The bigger deposit the better when you’re saving for a home. A deposit of 20% of the purchase price plus enough to cover costs is ideal.
The bigger your deposit, the lower your loan to value ratio. This is the amount of the loan divided by the purchase price (or appraised value) of the property. If your LVR is higher than 80%, you will need to paylenders mortgage insurance, and the lender could charge you a higher interest rate. Avoid these extra costs by saving a bigger deposit to lower your LVR.
You should also think about how you will pay for other up-front costs like stamp duty and legal fees.
A history of regular savings in your bank account and a solid track record of employment will make it easier for you to get a home loan
Your savings will act as a buffer if interest rates rise and your repayments increase. Alternatively choose a loan that allows extra repayments so you can build a buffer early on and redraw it if you need it.
Not everyone can afford to live in their ideal location so what can you do to get into the property market?
If you’re trying to get a foot in the market consider moving out of your comfort zone into an area you may not have considered before. Areas further out from cities or towns can be good value for money and offer a great first step into the market.
If you really want to live in a particular area you may have to start small and work your way up. Consider an apartment or a smaller house that you can add to over time.
Properties that are dated or in need of renovation can be a cheaper option for home buyers. Look for a home that is structurally sound and then clean it to your standard. Add a lick of paint here and there to improve the look and renovate as your budget allows.
Investment properties outside capital cities or in smaller towns or rural areas can have decent rental yields, making up for much lower.
The benefit of a positively geared is that a tenant repays your loan while you build equity. This allows you to sell the property later and use the proceeds as a deposit on a property closer to where you want to live. Find out more about property investment.
You might consider an interest-only loan if you’re trying to get into the property market but you need to think carefully about whether it will be the best loan for you in the long run. Read about the risks and benefits of interest only loans.
Land banking is a real estate investment scheme that involves buying large blocks of undeveloped land with a view to selling the land at a profit when it has been approved for development. Land banking may be appealing to investors who are trying to get into the property market but there are many risks with this type of investment. Find out more about land banking.
Top Tips for first home buyers
[some content sourced from moneysmart.com.au]