Top 8 Tips For First Home Buyers

Posted on July 19, 2012 ยท Posted in First Home Buyers

Here are some useful tips for first home buyers.

  1. Tell your family and friends about your plans and seek their input – they have experience and can help you steer away from the speed bumps
  2. Obtain a pre-approval – bank rules concerning repayment capacity and deposit are changing and differ radically between lenders and knowing your maximum borrowing capacity from a website must be formally accepted by a bank to remove uncertainty and set a floor limit on how much your final approval will be. A warning here that some lenders will not send your application to the mortgage insurers (refer to Tip 3) so please make certain your contract is ‘subject to finance’.
  3. Save Save Save – in the months leading up to your first home purchase every $1000 in the bank will save you @$3000 over the term of a loan. In addition, you will save on the largest bank cost, lenders mortgage insurance (lmi). LMI is charged if you borrow over 80% of the property’s value (LVR). It can run into the tens of thousands depending on how much you borrow and you LVR – 95% is generally the maximum but not at all lenders so ask your financial adviser.
  4. Know your purchase costs. These can be confirmed via State government websites in SA look up but also introduce yourself to a conveyancer or property lawyer and review the costs with them. As a rule of thumb I always allow 5% and this generally covers your building insurance premium.
  5. Ask your financial adviser to provide a quote for your building insurance because you have an insurance interest in the property after the hammer drops at auction or after cooling off if you purchase via private treaty or expression of interest.
  6. Obtain a referral for a building inspector. This $400 cost could save you thousands. Ask to see their professional indemnity cover and ensure that they are licensed.
  7. Your building may be insured for a couple of hundred thousand dollars but your income should be insured for several million dollars. Your Mortgage Broker or Financial Adviser owes you a duty of care to explain how to protect yourself against injury or accident. If you have a family and the bread winner is either unable to work for a short time or permanently it does not mean you will lose your home in fact the advice you receive should help your family lose your mortgage. Income Protection is tax deductible and alternatively it can be established inside super and not effect the family cash flow.
  8. Your Financial Adviser should provide you with alternatives to reduce or eliminate an lmi fee. Here are two – a family guarantee and a personal loan. With a family guarantee the loan to value ratio will not exceed 80% as another property is used to top up the security value. We have helped many clients with personal loans where the loan to value ratio exceeds 80% but the first home buyer(s) have a large disposable income. So, a $30,000 loan that could be repaid in a year or so could save thousands by removing the LMI bill completely.

Happy with the advice so far…? Well here are a couple of other tips that my clients have appreciated.

Create a Will

If you have saved, purchased a home and have a reasonable level of family risk protection then you have a size able estate. I have learnt that protecting first home purchasers while they are alive but incapacitated is just as important and an Enduring power of attorney is the answer.

Create a Budget

Wealth Creation is maths. Earn what your worth, spend less that you earn and insure yourself are the keys to financial success. Need a hand ask me to send you the finance wise budget monitor. It’s an excel spreadsheet ready to go.

Complete an Annual Review

My clients catch up with me in May and June to review their complete financial situation. Topics covered include Superannuation, Fixed home loan rates, Budgeting, Will changes and Insurance sums insured. This review with a licensed financial adviser should be tax deductible and that leads me to my final point.

Use an experienced and licensed Financial Adviser.

For the best holistic advice your adviser must operate their own license. This may be harder to find that you expect as around 90% are owned by banks, fund managers or insurers. If your adviser just deals in mortgages then you will not receive a tax deduction for your annual review and they won’t be able to help you with suitable risk protection. Use professional full service licensees as they will have less clients to manage but handle a diverse range services and that means better outcomes for you – the valued client.