No matter what stage you’ve reached in your journey towards your first home loan — just looking around at mortgage options, getting your finances together, or going out and inspecting properties first hand — it’s important to be as prepared as possible in order to have the most realistic picture as to what sort of property you can afford, and what your ongoing commitments will be.
This last point is an important one, as in your enthusiasm to get out there and get on the property ladder as soon as possible, it can be easy to fall into the trap of not looking sufficiently far ahead, and omitting to factor in some of the essential ongoing costs associated with home ownership.
At the same time, it is also important to ensure that you have taken full advantage of the various schemes on offer from the federal and state governments to assist people who want to buy their first home.
What assistance is available to first home buyers?
Both the federal and state governments provide assistance to first home buyers as a means of helping them build or purchase their first property.
The federal provides grants for eligible owner-occupiers (including first home buyers) to build a new home, with up to $15,000 available.
State governments also offer a range of First Home Owner’s Grants and Assistance Schemes, usually in the form of cash grants. In some cases, stamp duty concessions are also available from state governments to make it easier for first time buyers to purchase a new property.
What does buying a home involve?
Although there are many benefits and rewards associated with home ownership, it does also come with some added responsibility and costs.
Therefore, as part of your planning for you need to think about how the ongoing financial commitment is going to impact on your lifestyle both now and in the future. First time buyers in particular need to be aware that the costs associated with home buying are greatest in the early stages, at a time when you won’t have had the opportunity to accrue any equity in your property.
In addition, as mortgages are taken out over twenty-five or thirty years, your personal life circumstances can change significantly, as can the wider economic conditions in the country, so you need to take account of how significant rises in interest rates could impact on your ability to meet your mortgage repayments both now and in the future, for instance.
Costs associated with buying a home
One of the most significant costs when buying a first home is the deposit. In most cases, you will need to have saved or have access to a sum equivalent to 20% of the purchase price of a property before a lender will consider giving you a home loan.
However, there are also other initial costs that you will incur. For instance, you will need to have any prospective property professionally valued, and you may also be required to undertake a pest and building inspection.
In order to complete the purchase, you may be required to pay stamp duty (a state government tax), as well as conveyancer and/or solicitor fees.
In terms of additional, regular costs besides the repayments on your home loan, you might also decide to take out mortgage protection insurance, a form of personal insurance that covers you in case you default on your mortgage, and can cover the cost of your regular monthly repayments if you die, become seriously ill with a medical condition, or lose your job. This will add to your regular outgoings as well.
Other ongoing costs of home ownership
There are other regular and ongoing costs that you are likely to be liable for as a home owner that you are not usually called upon to pay if you are renting.
If you buy an apartment or unit, for instance, you may need to pay strata levies (also known as body corporate fees) as your contribution to the maintenance and upkeep of the common property, e.g., stairwells, corridors, car parks, the building exterior, etc.
As a homeowner, you will also be liable for water rates (a fee for the supply of water and sewage facilities) and council rates (charged by your local authority for the provision of services such as rubbish collection, asset maintenance, etc.). These are in addition to normal household costs, such as electricity, gas, phone, internet, etc.
Another significant cost that you will incur as a home owner is insurance, and it is important to make sure you’ve got the right insurance cover in place. Many lenders will in fact make this a condition of your mortgage.
If you have bought an apartment or unit and you are a member of a body corporate, building insurance will likely be covered in your strata fees, but you will still be responsible for your personal contents insurance.
Building insurance provides cover against damage to the actual physical property (rather than your personal possessions), and will generally cover the main home, the garage, and other structures on the property that can be locked. In some cases, it can also cover plumbing, cabinets and wardrobes, although it is important to check the specific details of any policy in this regard.
The sort of damage that is covered will also depend on the specific policy you choose. Most building insurance policies provide cover against fire, storms and theft, but not necessarily flooding. There are other options that you might want to consider as part of your building insurance, such as covering the costs of temporary accommodation, emergency repairs, and mortgage discharge fees should your home be lost permanently.
Contents insurance is designed to cover you against the losses, damage or destruction of your personal possessions inside your home and property. The level of insurance you take out, and the items that are covered, are ultimately up to you, but they might include: furniture; computers and electrical appliances; clothing, personal items (such as jewellery); carpets and rugs; blinds and curtains; or tools and gardening equipment.
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