3 things to do before starting your property search
So you’ve decided it’s time to buy a home or investment property? It’s exciting but can be daunting at the same time, especially if the process is new to you. A little bit of preparation and research though will help you avoid stress and financial pain down the track.
Here’s three things you need to do before starting your property search:
1: Determine how much you can borrow
The most important step in buying a home is determining your budget. This will influence both where and what you can afford to buy.
It’s likely that you already have an approximate budget in mind, but it is important that you:
- Make an appointment with your mortgage broker or bank to discuss your financial situation and to determine how much you are able to borrow. Your broker or bank will want to discuss and see evidence of:
* your income
* your savings history
* how much deposit you have saved
* any existing debt you have (including personal loans, car loans, credit card debt)
* your living expenses
* your personal circumstances. If you have children or are close to retirement are a couple of examples that will affect your borrowing capacity.
- Determine how comfortable you are with debt. Lending institutions will often approve borrowings above your comfort level. Only take on what you can afford, and be sure to take into account the possibility and impact of future interest rate rises
- Investigate the full range of borrowing options. Interest rates are important, but other features such as offset accounts are worth investigating with your lender
- Finally, obtain pre-approval in writing from your chosen lender. That way you’ll be in a good position to respond as soon as you see a great property. Remember to take note of any conditions of the pre-approval, most importantly how long it is valid for. Most pre-approvals in Australia are valid for 3 months.
2: Calculate the costs of purchasing your home or investment property
There are many additional costs you need to take into account before setting your final budget. These include:
- Transfer Duty (previously called Stamp Duty)
Transfer Duty is a state government tax that is payable when you buy a property. After the actual property cost, this is the largest additional expense you’ll face.
The amount of stamp duty you’ll need to pay depends on the purchase price and is usually payable within three months of signing a contract for sale or transfer, except in the case of off-the-plan purchases. First home buyers also now have a choice between paying upfront transfer duty or an annual property tax. This is called First Home Buyers Choice.
Calculate your Transfer Duty cost here.
- Mortgage fees
Some lenders charge up front “set-up” fees, ongoing annual charges and loan discharge fees. Make sure you ask your broker or bank and understand what will be charged should you proceed
- Mortgage lenders insurance if required
Mortgage lenders insurance is insurance that protects the lender in case the borrower defaults on their mortgage. It is typically required when the loan-to-value ratio (LVR) of a mortgage exceeds 80%, or more simply if your deposit is less than 20% of the purchase price. Your lender may also take into account your extra expenses such as transfer duty when calculating whether mortgage lenders insurance is required. It is a one off fee which can be paid upfront or included in and amortised over the term of your mortgage
- Conveyancing costs
You’ll need to pay a conveyancer or solicitor to handle the legal aspects of the purchase. This includes conducting the necessary research, preparing and reviewing of legal documents, and ensuring that the transfer of ownership is done in accordance with the law. The cost is usually anywhere between $1,000 and $2,500 depending on the complexity of the purchase
- Building and Pest Inspections
Before proceeding with a purchase, it’s important to seek advice from a professional to assess each property of interests’ physical condition and identify any potential problems, such as structural damage, termite infestations, or other pest issues. Sometimes these inspections are paid for by the vendor or by the final purchaser but it’s important to keep some funds set aside in case needed
- Strata Inspections
If you are purchasing an apartment you’ll need to arrange a strata inspection. This is to review the strata records and by-laws, check for any building or maintenance issues, and evaluate the financial health of the strata scheme, including the strata levies and insurance coverage
- Moving costs
Remember to factor in moving costs, the largest one likely being the cost of a removalist. Ask friends and family for their recommendations. The cost will depend on how much you will be moving, the distance between properties plus potential accessibility issues such as stairs, lifts etc.
3. Be aware of the ongoing costs of owning a property
It’s important to also understand the ongoing costs of owning a property. These include:
- building insurance (if you are purchasing a house)
- home contents insurance
- quarterly strata levies (if you are purchasing an apartment)
- council rates, water rates, gas and electricity
- ongoing property maintenance costs