A millenial’s guide to taking a huge step
Let me paint you a picture. Straight out of college, Yuppie You lands a fantastic job in your dream city. You have all it takes to step out of your comfort zone, and step into your own place – your first place! Yuppie You knows that you will be buying a home in the not-so-distant future, and why should you delay? You think you are ready to take this huge step, but… your funds are not enough to finance your big investment.
Do you rent, or do you borrow? What’s a pre-approval for? What is an LMI? Did your parents have to go through all this?
And then you realize that you haven’t done your homework.
The home buying process can be quite intimidating; luckily, we’re here to tell you that it doesn’t have to be. And if you are refinancing your home loan, or purchasing an investment property, join in.
Here are some pointers to keep in mind when you get a home loan:
1. Loan Type – How do you know which type of loan is best? Do you get a fixed or variable mortgage? What’s a low documentation loan? An introductory rate loan sounds ideal… What does it all mean? Compare home loans, each pro and con.
2. Loan Amount – Here’s a tip that works a 100% of the time. Do not borrow more than you can afford to pay off regularly, and do not just rely on the basic formula of ‘income less expenses’ to determine whether you can handle the mortgage repayments or not. Consider any possible event that might affect your future income, have a solid back up plan for when things do not work out, think of changes in the interest rates, and set your mind to a lifestyle you can live with during the mortgage payment years.
3. Loan Features – The cheapest home loan rate might not be the best to go for. Check for a redraw facility (lets you access extra added to the mortgage), additional repayments, lump sum repayments, mortgage offset and portability, and split options.
4. Downpayment and closing costs – Know how much. Save up.
5. Repayments – To stay afloat, get a loan you can repay regularly without sacrificing more than 30 percent of your income. Have a realistic debt-to-income ratio.
6. Deposit and credit scores – Typically, loans need a deposit of at least 5 percent. Also think of upfront charges to cover. General rule: The higher your credit score, the easier the home buying process.
7. Fees, charges, ongoing costs – Do a research on all the expenses to be incurred. The last thing you need are financial surprises. No one likes hidden costs. Get acquainted with these bad boys:
a. Application fee
b. Ongoing fee
c. Additional repayment fee
d. Late payment fee
f. Exit fees
g. Mortgage discharge fees
h. Redraw fee
i. Re-fix fee
j. Switching fee
k .Portability fee
8. Documents, documents, documents – Pay slips, bank statements, and any and everything else to prove your credit history and identification (you know, just in case).
Don’t be too hard on yourself, though, as your lender will assist you along the way. And before anything else, having read all this (and imagine how much more you’ll have to research on in the process), take time to assess your level of commitment. Yuppie You and this milestone deserve a rewarding experience, so make it work.