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Five key things you need to know before buying a house

With the official RBA cash rate at an all-time low, there’s rarely been a better time to be in the market to purchase a home.

It’s also worth noting that a reduced amount of available properties and favourable credit conditions are contributing to a market recovery.

With the market heading back in the right direction but still affordable, it’s an opportunity for those looking to upsize or for first home buyers to take advantage of stamp duty relief.

Even with great property prices, purchasing your home is one of the most expensive investments you’ll ever make.

By being as prepared as possible, you can navigate what is an incredibly complex process while at the same time maximising your investment.

Keeping that firmly at the forefront of your preparation, here are five key steps to ensuring your property search won’t end in a giant headache.

1. Consider what you can realistically afford

This is the most important step and it’s one you must take before you even start looking for a home.

For an initial idea use an online budget planner to figure out how much you spend each week, fortnight or month. Alternatively, you could use free technology like Pocket Book, which is an app that uses your account details to develop a highly accurate budget. Then use a borrowing power calculator to understand how much you’ll likely be approved for.

Keep in mind you’ll need to have at least 10% of the value of the property regardless of how much you can borrow. And it’s critical to note the extra costs, such as stamp duty and Lenders Mortgage Insurance, when finalising your budget.

While this is a great guide, the best way to work out exactly how much you can borrow is to speak to a lending specialist as they can give you the most accurate rate and credit requirement information.

2. Factor in silent or forgotten costs

As mentioned, it’s the extra costs that will sneak up on you and create some budgetary mayhem.

Things like

  • Council rates – if the current owner has paid the council rates for the year depending on when you take over the property you’ll have to pay them a portion
  • Stamp Duty – this is a big one as it can cost many tens of thousands of dollars so it’s best to use a stamp duty calculator to understand how much you’ll need to pay
  • Lenders Mortgage Insurance – if you’re borrowing more than 80% of the value of the property you’ll likely pay additional fees called Lenders Mortgage Insurance (LMI)
  • Additional Insurance – most people know you should have home and contents insurance when you move into a house, but many banks will ask you to insure the home before settlement. That could mean you’re paying for two sets of insurance: your existing home and the one you’re buying. Get a quote to understand how much it will cost.
  • Loan Fees – it’s worth comparing bank comparison rates rather than simply the variable or fixed rate as this will take into consideration the fees associated with a loan. Sometimes a really great rate actually has lots of hidden fees.
  • Conveyancing – Your conveyancer can be your biggest asset throughout buying a home. They work for you, and will inspect the purchase contract, do searches on the property you want to buy and more. Fees for conveyancing can vary from provider to provider, so keep in mind there will be a basic fee for their service plus the additional costs when they need to do more work like add a clause to the contract or negotiate with the seller’s conveyancer.
  • Building and pest inspections – if you think this is needed in your circumstances, or if it will provide you with extra piece of mind, consider budgeting for between $500 to $1000, but this can quickly add up the more houses you seriously inspect.

By preparing properly and factoring in all the extra expenses, you won’t be hit with any unpleasant surprises when it comes to signing on the dotted line.

3. Research, research, research

You can’t be too prepared when purchasing a property.

Start off by first narrowing down what areas you’d like to live in. Look at recent sale prices history and the suburb profiles on real-estate websites. Then, have a chat with local Real Estate Agents to get a feel of how the market has been trending in that suburb.

You should consider what’s important to you but also be aware of things that help improve property value for when it’s time to sell. Things like:

  • School zoning
  • Future building plans – Visit the local council website
  • Transport
  • Access to amenities
  • The neighbours – visit the neighbourhood at different times to get a sense of how quiet or lively it can be, even speak to some locals to get a better sense of the area.

But it’s not just about researching the suburb you’ve targeted either; take a deep dive on the surrounding suburbs.

When you’ve found a house or houses you’re genuinely interested in, use property profile reports to get an idea of what similar houses have sold for, the sales and rental history of the house and even an estimate of what the house is worth today.

By taking your time and doing the necessary groundwork, you’ll be far less likely to overpay or settle for something you didn’t really want.

4. Weigh up the cost of buying vs. renovating

If you don’t have a home to sell and it’s simply about buying a home the decision becomes simple. However, if you do have an existing property in a market such as this one, where house prices have possibly fallen since you purchased, you may need to weigh up your options:

Renovating vs buying

If you have the space to renovate or extend, it’s worth considering as you can avoid the hassle of looking for a new place and the large costs associated like stamp duty and legal fees, and real estate agent commissions. You can also create exactly what you want rather than settling for what’s available. However, there is an inconvenience attached to renovating as you may have to find another place to live while work is going on. Plus, there are costs and time associated that can sometimes blow out if not budgeted for correctly. It’s worth understanding more about the cost to renovate before you make your decision.

Buying your next home

If you’ve decided buying is the way to go, you’ll need to understand realistically what you might get for your house. Then decide on whether you plan to sell or buy first. It’s best to speak to a lending specialist to understand the financials involved depending on the order you do this.

5. Negotiate with confidence

The very worst thing you can do is rush your decision-making process. This is likely the biggest financial investment of your life and the last thing you want is an impulse-based purchase because you feel pressured to say yes.

While you can negotiate with a firm price ceiling in mind, always remember it’s also perfectly ok to walk away if the deal isn’t right. There’ll be other properties that meet your requirements.

Real estate agents will always have the seller’s best interests at heart and will leverage any personal attachments you may have to obtain the best possible price for their client. It’s also worth keeping in mind that during a private sale (not an auction) even when a purchase contract is signed there is a legal requirement for the buyer to have three clear business days to consider the purchase, where they can back out.

At the end of the day, you shouldn’t ever feel like you have to rush a property purchase. Work to your own timeline and make sure your demands are met to your satisfaction before you commit.

In saying that, when it’s time to negotiate there are a few things to consider:

  • Supply and demand – If you’ve noticed that there is little interest in the property either by limited people at the open houses, lots of similar houses on the market or the agent is really pushing for an offer, you could be in a position of power, meaning you could be one of few or the only interested party. This gives you room to offer below the asking price.
  • The market, not the asking price – The asking price has ultimately been given by the seller with guidance from the agent. If you have noticed similar sized and located houses in the market are selling for less than the asking price don’t use it as the starting point or even the gauge. Keep in mind a house is only worth as much as someone will pay for it. This means the seller will either have to settle for a lower price or take the house off the market.
  • Price isn’t the only negotiating tool – You can also negotiate settlement terms, for example, if it suits you to get into the house quickly because you’ve already sold your house. You can also offer a leaseback as an incentive to a seller who isn’t ready to leave the house due to waiting on the purchase of their next home. This is where you rent the property to them. You can even negotiate repairs and buying some of the furniture in their house, particularly if its custom made for the space.

Keep in mind that while the real estate agent is working for the seller trying to get the best price, they also need to make a sale to get paid, so if they feel you have no more room to increase your offer they will push the seller to sell.

To get you started why not speak to an Australian Unity lending specialist to properly understand your borrowing power.

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