Buying a house is part of the big Australian dream. It is more like a rite of passage to your prime life. However, we all know that it is probably one of the biggest commitments we will ever make in terms of money. And it isn't one of our random buys over the weekend, that can be exchanged or refunded or perhaps even sold on eBay. Though I secretly wish it was that way!
With the real estate market apparently in a slump and the banks have slashed their lending rates, we assumed it would be a good time to buy. I do not think there is ever a good time to buy and that is partly because of the nerve-wracking, stressful and tumultuous experience you have as a home buyer. Being a migrant amplifies the confusion since you think you have it all covered but when you hit the ground running, it is a different experience altogether. You also pretty much do not have anybody to seek advise from. Having said that, this episode simply opens you up to so many new learnings. We grew and continue to grow so much with every interaction. And as you must have presumably heard before, there isn't a single formula that can be applied to every house purchase as every house is different.
So we began our house hunt and we entered this dark yet thrilling burrow and are yet to find the light at the end of the tunnel. This post is all about our enlightenment. The open-ended questions we have encountered, few that were assumingly answered and few that are yet to be unanswered. Also, this is for already available houses. Building a house, ground up is a different ball game altogether.
This is the first question you need to ask yourself. A lot depends on the suburb you decide on. How much you need to borrow, what will your options in terms of houses/apartments, your lifestyle etc. are deeply reliant on the answer to this. If you have lived around various suburbs in Melbourne and have a suburb of choice, consider yourself lucky. We pretty much lived around a single Melbourne neighbourhood and hence do not know what to expect of the other suburbs.
Your family demography i.e. the number of children, are they schooling age, do you work in the suburbs, your travel time to work etc can really help narrowing options. Young couples would prefer living in the CBD or the inner suburbs as that guarantees easy faster access to work. Families, however, might focus on school zones, easy access to grocery or swimming lessons for the kids etc.
Unfortunately, your budget has a big say in where you can actually afford your home. I would love to live closer to the beach and closer to the city, however, I also know that with our current jobs we can totally not afford St Kilda or perhaps Elwood. Are you looking to buy for yourself or as an investment? This helps you to detach yourself as you know you probably would see yourself living in such a house for a short duration.
When you start researching your different suburbs, you may feel overwhelmed by the sheer amount of information that you need to digest when trying to decide whether or not a particular location will be right for you. From planned infrastructure developments to the socio-economic status of an area to the number of public amenities nearby, researching (and comparing) different property markets can be challenging.
Do we buy a house or a townhouse or an apartment? The next question that needs to be answered... One of the biggest choices you will have to make when selecting a property is whether to buy a house or a unit. While houses are typically more expensive, they've historically seen higher levels of capital growth. A detached house also offers more flexibility for renovations and additions.
Units, meanwhile, can have enormous potential as rental properties. They also have a lower price point than detached houses, so can be a good choice for first home buyers.
This is interlinked to your borrowing capacity and can be a major influence. So I guess this one is more of a personal preference in terms of maintainability, borrowing capacity and choice of neighbourhood.
Private sale or an auction?
It goes without saying that private sales are any day better than auctions for a buyer. However, it is rare to find a house that you like, where the owner is keen on prior offers. In my opinion, based on the number of people interested in a house, the agents gauge whether it is sensible to proceed with an auction or if the owner should consider a prior offer. However, if you come across a house that you like and it is up for a private sale, it would be a no brainer.
The perks of a private sale are bargaining around the price and putting a subject to finance clause in your offer. Both ensure that you as a buyer are safe.
How much loan are we eligible for?
The stumbling block for people who want to buy a home is usually the deposit which is 20% of the purchase price. When borrowing, however, the bigger your deposit, the lower your loan to value ratio (LVR). This is calculated with the amount of the loan divided by the purchase price of the property.
If it turns out that your loan to value ratio is higher than 80%, you will be required to pay lender's mortgage insurance, a cost that you will want to avoid if possible. This is why in many cases it is better to wait until your deposit is a little bigger to avoid higher ongoing costs.
THE UPFRONT COSTS OF BUYING A HOME
The following costs will need to be accounted for during your budgeting and loan application:
Stamp duty - A one-off tax that varies by state based on the property price and location.
Conveyancing fees - A conveyancer will be required to ensure you meet all legal requirements necessary when purchasing a new home.
Removalist - Moving in will cost money, best to get a bunch of different quotes.
Inspections - Having a qualified building inspector asses structural integrity, wiring, etc.
There is, unfortunately, a lot more than just the price tag when it comes to buying a home. You have to take into account:
Fees for legal requirements and conveyancing
Loan application or ongoing fees
Building inspection fees
Add to this the ongoing cost of property ownership which can include:
Emergency Services Levy
Body Corporate Fees
If you are a first homeowner, however, you may be eligible for the first homeowner grant, a one-off payment for those buying or building their first home.
Do I approach the banks straight away or hire someone to do it for me?
This one was a revelation. Post the Royal Bank Commission, there was quite some debate around the usage of brokers. I would strongly recommend walking into a bank and discussing your loan numbers with a relationship manager as well as calling upon the mortgage broker. Since it involves your money, mind you, a huge sum of your money, it is important that you do some due diligence. Depending on what your options are, what your broker offers and what's the best rate in the market, you can make your choice. A broker makes the loan process an easier one since they do most of the paperwork for you. You do not have to pay the broker for their services.