Buying your first home can be an exciting time. But before all of that excitement kicks in with champagne on the balcony, you’ll want to make sure that you’re structuring your first home purchase right. And by right , we mean in the best possible way for you.
Here are some things that you should understand when buying your first home and entering the property market for the first time.
How much can I borrow for my first property?
Technically speaking, the banks will lend you a whole lot of money. But if you can’t afford to pay it back and still live a fruitful lifestyle - what’s the point?
Working out how much you can borrow for your first property can be daunting, but trust us, there is an easy way to work this out.
Firstly, think about how much money you are now paying for rent.
As a rough guide, consider this to be your mortgage repayments.
It is always a good idea to have a significant down payment (25% or so) so that you have less to pay in a mortgage, but let’s think of it this way:
C a s e S t u d y
Alice lives with her boyfriend and they each pay $200 each a week in rent for their two bedroom unit. They’ve been putting away money for a property and have saved up for their 25% deposit.
Alice goes in to speak with her accountant who can get them a 3.68% interest rate for their loan. Technically, Alice and her boyfriend can afford a $300,000 loan within their current living expenses in place of rent.
This then means that their weekly repayments are around $190 each per week. This fits well into Alice and her boyfriend’s lifestyle as this is around the same amount as it is roughly the same amount they are paying in rent each week.
Some things to keep in mind when purchasing your first home
● Consider your long term goals - Will you be living in this area for years to come or do you plan to rent the house out?
● Yards are work - Will a unit suit your lifestyle or do you love a bit of gardening?
● Pests - Get the appropriate checks done before buying your first home. The last thing you want is to find out your new place has a termite problem you didn’t know about ● Work with professionals - Choosing the right accountant will save you stacks of money over the course of your mortgage repayments
● There is no rush - You don’t have to invest in the first property you see. Time is on your side and giving into pushy real estate agents because you feel pressured by them shouldn’t be an option
What is an offset account?
While paying of your mortgage within your means is great, having a backup account will also work in your favour. This is known as an offset account. After you have paid your mortgage and purchased all living expenses, if you have any money left over, it is a good idea to keep it in an offset account.
This is basically a bank account that is linked to your home loan to save you money on the interest you are paying and can be a savings or transaction account. When you are also contributing to your offset account while paying off your mortgage, you are only charged the difference in interest.
For example, in Alice and her boyfriend’s case, if they had a $300,000 mortgage, have paid off $50,000 and have $50,000 in an offset account, they will only be charged interest on $200,000, depending on the type of offset account.
While you don’t necessarily need a huge amount of savings in your offset account, every dollar you put in is saving you money long term and it is a good way to structure your first home purchase.
How can I purchase my second property?
Once you have entered the property market and structured your first home purchase right, you may be wanting to move onto a second property.
Now that you have the first property, you are able to use equity to purchase your second. This is essentially the difference between the value of your home and how much you owe. Lets use Alice and her boyfriend as an example.
Alice and her boyfriend have since paid off $150,000 of their $300,000 mortgage. Now, their equity is valued at $150,000 and can be used to purchase a second property. In most cases, the bank will lend you 80% of the value of your property in case there is a dip in the value of your property.
Alice and her boyfriend can now use this to purchase a larger house with, essentially, a $120,000 deposit. This works well for Alice and her boyfriend who have also been storing money in their offset account along the way.
Do you still want to find out how to structure your first property right for you? Book in to speak with one of our friendly and experiences accountants today. The whole reason we are here is to save you money, let us help you structure your first property right, from the beginning