09 May 9 Things To Remember If You Are a First Home Buyer
While the dream of home ownership may be taking a bit of a beating as a result of property price inflation, most Kiwis still say that buying a house is in their life plan. That’s because home ownership is a key part of many people’s long-term financial strategies and can provide the space needed to start a family.
However, owning a home is a significant, long-term commitment that requires strong financial standing and the right timing.
If you’re a first homebuyer (and you’re on a first home buyer’s budget) be realistic about what you can afford. Know that you probably won’t find your dream house at this stage in your life. If you find 75 percent of what you’re looking for, you’ll have done pretty well for yourself.
The keyword when buying a home, especially if you’re a first home buyer, is ‘compromise’!
Here are 9 tips for buying your first home:
1. Make sure you’re ready to buy, both emotionally and financially
A home is one of the biggest assets you’ll ever have – and the biggest debt. Figuring out why you want a home is absolutely critical before you begin looking at options. Are you going to live in it? Are you going to rent it?
Owning a home gives you stability and, once you’re on the property ladder, it opens up opportunities to upsize or upgrade later.
However, owning a home also means you’re responsible for maintaining it and paying for everything that comes along with home ownership, e.g. rates and taxes. If you have a mortgage, your payments can increase if interest rates rise.
If your circumstances change and you have to move, it takes some time to sell a home or find tenants for it.
If you’re a first home buyer, before you do anything, look at your life, your career, your finances and your future expectations, and determine whether buying a house is the right move for you at this time.
2. Get your finances in order first
Before you even think about what sort of home you’re after, you need to figure out what you can actually afford. The last thing you want is to get your sights set on a property only to discover that it’s way outside your price range.
A good rule of thumb is you should spend no more than 30% of your gross monthly income on housing.
That means taking an inventory of your income, expenses, assets, savings and debts. Debts are taken into account when you apply for a home loan, so pay off as many as you can beforehand. Consolidating debts like credit cards, hire purchases or loans into one personal loan can help you pay them off faster.
Once you know where you stand, sit down with a financial advisor (your lawyer, accountant or banker) and get some help to determine what you can reasonably afford.
Your first home buying budget is the amount you can borrow (which depends mainly on how much you can afford in home loan repayments), plus whatever savings you can contribute as a deposit. In most cases, you will need at least 20% of the house price as a deposit. If you’ve been contributing to KiwiSaver for at least three years, you could qualify for a KiwiSaver HomeStart grant.
It’s also a good idea to have an extra $3000 to $5000 over and above your deposit to cover lawyers’ fees, movers’ fees, and the cost of things like builder’s reports and valuations.
3. Calculate each and every cost
Just because a bank says you can borrow $600,000 doesn’t mean you should. You also need to wrap your head around all the other costs involved with owning a home. The deposit and mortgage payments aren’t the only numbers you need to consider, so avoid emptying your bank account for these costs.
Property taxes, home insurance and maintenance, repairs and utilities can really add up – and they’re on-going! Plus, it costs money to move, change locks, put down utility deposits and buy things you never needed before, like a lawn mower.
Do all your sums.
4. Find the right team
You don’t have to go through the first home buying process alone. Friends and family who have bought homes can provide invaluable advice about what to do and not to do.
Make sure you find a real estate agent who is right for you. Your relationship with your real estate agent is just like any other financial relationship. It’s important that you mesh well and that they’ll go to bat for you when you find the house you want.
Get yourself a good lawyer (Read our 5 tips for finding the right lawyer.). There’s a range of legal procedures to be completed when you buy a home. Your lawyer will check contracts, make sure the property’s title is in order, transfer the property to your name (this is known as conveyancing), register your mortgage on the property title, and help you to make a Will and Power of Attorney.
A mortgage broker works with banks and lenders to find you a mortgage. They’re paid a commission by the bank or lender that gives you your loan. Not all lenders offer loans through brokers. If you’re not using a mortgage broker, talk to your bank’s home loan manager.
5. Decide where you want to live
No matter how much the property market has changed in recent years, one adage still matters a lot: location, location, location.
While you may be happy living in several neighborhoods in your city, you won’t be happy if you choose the wrong location. And that’s where your research should start: deciding exactly where you want to live.
Location plays a big part in determining a house’s price – and its resale potential.
Different areas have different things to offer. A sought-after area holds its value because other people will want to live there too – but competition is tough and prices steeper.
Check neighbourhood profiles. Consider things like facilities – shops, places to eat, libraries, churches, playgrounds, supermarkets, schools, doctors; safety – including crimes statistics; transport links; proximity to friends and family; and the overall ‘atmosphere’ of the area – are neighbours pleasant and tidy?
Group houses by area – it’s a good idea to visit several open homes in the same area at the same time. Visit the locations you’re interested in at different times of the day – and during the week as well as on the weekend. Check out the traffic, noise levels, sun – decide how the area makes you feel.
Your choice of real estate agent will also depend on where you want to live because a neighbourhood expert can help you find the best home for you at the best price. You want an agent who works in the areas you’re looking in.
6. When you look at homes, focus on the right things
Put together a list of what you’re looking for in a property. Break it down into ‘must-have’, ‘nice-to-have’ and ‘must-not-have’.
Don’t be distracted by the owner’s wacky décor, paint colors, dirty carpet or anything that is easy to change. Focus on the things that are not easy to change, e.g. you can’t easily add another bedroom, a better location or a more functional floor plan.
After visiting each house, make a list of its pros and cons so you can compare it against others later.
When you’ve found a house you like, go back again for a thorough inspection. Try to visit (or at least drive by) at different times of day and in different weather to get a feel for what it might be like to live there.
Get a friend or a family member to visit the house with you for an objective view.
Talk to the neighbors about the neighborhood and about the houses you’re considering. The neighbors will know if there are (or have been) problems – things such as barking dogs, petty crime, the size of utility bills or worse, such as drug usage.
Methamphetamine contamination is a growing problem in New Zealand, with Kiwi homeowners spending millions each year fixing P-contaminated houses. A recent article in the NZ Herald said that “the surge in P-contaminated homes – badly damaged from their use as P labs or from previous inhabitants’ personal use of methamphetamine – has been likened to potentially being as costly to homeowners as the leaky home crisis”.
Yet another very good reason for would-be home buyers to talk to neighbours of the homes they’re thinking of buying and check on the background of the people who previously lived there.
If the real estate agent has any information about downfalls of the house, they have to tell you – but only if you ask.
7. Know what’s important to you
No house will be perfect – as we said at the start, the key word when buying a home, especially if you’re a first home buyer, is ‘compromise’!
So ask yourself what you are willing to compromise on. If you want to be in a specific school area, are you willing to accept a smaller house? If you want to be near the water, could you be happy with an apartment? Are you willing to accept a longer commute to get a larger house?
8. Ways to buy a home
There are three main ways to buy a home in New Zealand – by offer and negotiation, by tender and at auction.
Buying by offer and negotiation: the property is advertised at a set price or price range. You make an offer in writing and then negotiate with the seller until you both agree on a price and any conditions of purchase or sale.
The process is good for buyers as you can put conditions on your offer that will let you check the place out fully before you’re committed to buying it. You can make your offer conditional on your finance being arranged or on an acceptable builder’s inspection or LIM report.
Sellers can also add conditions, such as an ‘escape clause’, giving them a way to back out of your offer if they get a better offer, or they can give you a deadline to make your offer unconditional.
Buying by tender: in a tender, no price is set. If you’re interested in the property, you submit an offer in writing in a ‘closed bid’ and the seller picks the offer they like the most.
Buying at auction: everyone interested in the property bids for it at the same time. The highest offer wins, as long as the seller’s reserve is met. Because people are bidding against one another, the competitive spirit of the bidders can drive up the price of a property. It’s important to never get swept up in a bidding war and end up paying more than you should or wanted for a property. Your bid at an auction is binding, so you have to have done all your pre-purchase work beforehand, including arranging your unconditional finance.
There’s also a fourth, though a less common way to buy a home, namely by private sale. Private sales usually follow the same process as with the ‘offer and negotiation’ process, except all the negotiation is done directly with the seller instead of through a real estate agent. It’s very important that you consult your lawyer before signing or committing to anything in a private sale.
9. Making your offer
Find out as much as you can about the property before you make an offer. Compare it, including its price, with similar properties in the area. Get a valuation. Figure out how much you would need to spend on it to make it truly your own. Decide what your first offer is and what your highest offer will be, and stick to it. You’ll also need to decide what conditions you want to put into your offer.
If you’re buying by ‘offer and negotiation’, you can make any checks and reports as conditions of your offer, and do them while you’re negotiating. If you’re buying at auction or by tender, you’ll need to have most of this sorted beforehand.
Once your offer is agreed and everyone’s signed the Sale and Purchase Agreement, any conditions in the Agreement need to be met. When they are, your offer goes ‘unconditional’, at which point you’re legally bound to buy the home.
Do you need support with your conveyancing?
Contact a conveyancing lawyer in Auckland at Quay Law. Our conveyancers will support you during your property purchase or sale process.