Buying a First Home
Most young couples dream of owning their own home and having a nice environment in which to raise a family. Buying a house is often as much about emotion as it is about money. For that reason, some couples make mistakes with their first home purchase.
For a start, it’s easy to get emotionally attached to a house that really is not affordable – it’s a natural human tendency to want something that is slightly out of reach. Emotional attachment can also mean you pay a higher price because you are afraid of missing out. Impatience can lead to another mistake, and that is not taking a long term view of how affordable the house is. How will the mortgage be paid when there is only one income coming in? How will repairs, maintenance and upgrades be paid for? Will interest rate increases be affordable?
The starting point for buying a first home is to establish some criteria for the kind of home that will best suit your needs – for example the size of house, proximity to transport and schools, type of construction etc. Have a look at some properties that meet those criteria to get a feel for how much you will have to pay.
Talk to your bank or mortgage broker about how much deposit you will need, how much you will be able to borrow, and what your fortnightly repayments will be. You will need to be in a strong financial position before you buy, because once you are committed to a large mortgage, it will be difficult to save. Compare the cost of the rent you are paying with the costs of owning a house. These costs include mortgage payments, rates and house repairs (plumbing, electrical, painting etc).
For example, you might be currently paying $300 per week in rent, whereas once you own a house you will be paying $600 per week in mortgage payments, rates and insurance. If your house is truly affordable, you should therefore be able to save $300 per week before you buy. Start saving that money now towards the deposit on your house. The higher your deposit the lower your repayments will be, giving you a bit more leeway to cover interest rate increases or a drop in income.
Your first home doesn’t need to be a big family home that is going to last you for the next twenty years. Being forced to sell because you can’t manage the mortgage may cost you a lot of money, so start with something small and affordable and work your way up from there once your mortgage becomes more manageable.
Some young couples start out by purchasing an investment property. It can be easier to find a house that is affordable if you are not going to live in it yourself, because you can then consider buying in areas other than where you would choose to live. Expenses such as interest, repairs and depreciation will also be tax deductible, making the purchase much more affordable. Through most of your life, your home will probably be your biggest asset and the choice you make with your first purchase will have a significant impact on your future wealth. It’s worth doing your homework to avoid making a costly mistake.