Rasti Vaibhav* sharers seven tips for first home buyers on how to get into the market right now.
Rising interest rates and the surging cost of living, especially rents, are making life very challenging for most households.
If you’re looking to buy your first home, you’re probably wondering how you’ll be able to manage.
Getting into a home of your own is not easy; however, some things can still be done to get you out of your rental property and into homeownership.
But it is going to take some planning, discipline, and talking to the right people who can help.
Here are some things first home buyers need to look at.
Define your goal
You can’t achieve your goal of getting your own home without a clear picture of what that actually is.
First, you must identify all the elements of the property you want to buy.
That includes looking at the location, size and type of dwelling and then ensuring you can realistically afford what you are looking for.
Use recent sales data to understand what you’ll need to spend on a property in your chosen area, and then work backwards to see if you can afford it.
Budgeting and saving
After you’ve got an idea of the price and what you are prepared to spend, you can start assessing what you need to get there.
Start by tallying your income and expenses and see how much spare capacity you must spend.
Remember, when you stop renting, you can use that money towards your mortgage.
This is usually a great time to sit down with a mortgage broker and let them assess your financial situation.
If they think you have the income to afford the type of property you want, you should start moving through the application process and getting pre-approval.
A pre-approval indicates that you can potentially get a home loan as long as your circumstances don’t change and the property fits the criteria the lender is comfortable with.
Your broker can help you here.
When you get a clear picture of what you’re bringing in and spending each month, this is also the time to sharpen up your budget.
If you need more borrowing capacity, consider cutting back on unnecessary expenses.
Getting a side job might even be an option just to help you get over the line.
Tidy up your debts
One of the biggest killers for first home buyers is often that debt is weighing them down.
This typically includes car loans, credit card debt, or personal loans.
These types of debts come with high-interest rates; if you get late on your repayments, they will also weigh down your credit score.
When working with a mortgage broker, it can be an excellent time to look to either pay off your debts before applying for a home loan or consolidating.
This is when you take out one new loan with a lower interest rate and pay down multiple high-interest loans.
This frees up your income and helps boost your borrowing as well.
Research government incentives
First-home buyers have a lot of government schemes and incentives at their disposal to help them get into a home of their own.
Government programs like the First Home Guarantee (previously known as the First Home Loan Deposit Scheme) allow first-home buyers with deposits as low as 5 per cent to qualify for a mortgage.
Other incentives include stamp duty exemptions for first-home buyers (these can differ between each state) and grants.
These government-backed programs can make it far quicker to purchase a home as it means you don’t need to save for a 20 per cent deposit.
Weigh up your ideal location.
You don’t have to buy your dream home on your first attempt.
It can often be a good idea to get into the property market wherever you can and then look to upgrade when your financial situation improves.
There are many great locations where you can afford units, or you could consider purchasing a property in a nearby suburb until you can eventually upgrade.
Being in the market is better than sitting on the sidelines and watching home prices increase without you.
Rentvesting
A popular way for people to get into the market while still living in their ideal location is with rentvesting.
Rentvesting involves buying an investment property in a location you can afford and then renting where you want to live.
Typically, it is easier to buy a rental property because you can use the rental income to help service a loan.
It also allows you to purchase many properties and build a portfolio a lot easier than if all your spare income is going towards paying down your mortgage on your principal place of residence.
Just note that if you do go down the rentvesting route, you might miss out on some of the benefits and incentives that first-home buyers get as well as some tax benefits.
A good middle ground can sometimes be to purchase your PPOR (principal place of residence) and then rent out some of the spare rooms to help pay the mortgage for you.
It’s also possible to purchase a property with someone else to help buy a better property in a better location.
Talk to professionals
Just because you’re buying your first home doesn’t mean you can treat the process any differently than a professional investor would.
Before beginning your journey, it’s a good idea to get a team of professionals around you, including a mortgage broker, accountant, and buyer’s agent to help you devise a plan and identify the best property for your personal circumstances.
It will also help you when dealing with pushy sales agents and cast your net further and wider than you might be able to on your own.
*Rasti Vaibhav is the author of The Property Wealth Blueprint and Founder of Get RARE Properties, a bespoke independent buyers’ agency helping hundreds of clients across Australia secure their financial freedom through property. Rasti can be contacted at getrare.com.au
