You are in the market for a house but are not sure what you can afford to buy. It’s tempting to make up a figure that sounds reasonable, but spending some time to figure out what you can really afford will pay off dividends down the line and make your first home buy much smoother.
Looking at the numbers can sound painful if you are on a limited budget but it’s better than the alternative: getting in above your head and being unable to make your monthly payments. Fortunately, financing options can help, and government assistance exists that is designed to make homeownership more affordable for all Australians.
The following is an overview for assessing how much you can afford to spend.
Understand Your Costs
Whether you are buying established or building a new home, there are significant fees and expenses to consider besides the pure cost of the home. For those who buy established, legal and conveyancing fees will be a significant cost to keep in mind.
Those who wish to buy a new home should consider rental costs while their home is being built. Both new and established buyers will need to consider loan establishment fees, as well as Lenders Mortgage Insurance (LMI) if they haven’t saved enough for deposit.
Obtain Pre-Approval From a Lender
A good way to work out how much you are able to borrow is to get pre-approved for a home loan. This involves going to a lender and getting a credit evaluation. Pre-approvals can be as simple as a 15 minute phone consultation or a lengthy credit check requiring formal documentation.
Generally the quick “pre-approvals” are less legally binding and will give you a ballpark figure but shouldn’t be relied upon. The longer multi-step approvals are generally more solid. If you want to get a formal pre-approval for a home loan, make sure to get the approval in writing.
It’s not all expenses and debt when it comes to buying a home. The Western Australian government encourages home ownership by making grants available to new home buyers. Australians who build a new home in WA can enjoy a $10,000 First Home Owners Grant. In addition, stamp duty is waived on land up to $300,000 which can then have property built on it with no additional duty.
Having to make full monthly payments on a home when it’s not even built is frustrating. This is why the construction loan was invented. With a construction loan, the builder is paid in stages as construction progresses, often with an inspector coming out to verify stage completion and release the next stage of funds.
For the home buyer it lets them pay interest only on the portion they have drawn down. When the house is finally completed, the rest of the loan is released and the construction loan converts into a regular home loan.
Property is a big purchase and understanding your costs is essential. Government assistance and construction loans can help with affordability on a home. For more information about home ownership, talk to your friendly FHOC representative today.