As rent prices have continued to rise sharply, interest rates have done the same.
With the cost of living a growing concern, the decision to buy your first home has become increasingly complex.
Timing can be everything, especially when preparing for one of the most significant financial decisions of your life. Whilst you don’t want to miss out on capital gains or your dream property, there’s nothing worse than exposing yourself to financial hardship.
In this article, we’ll break down when you should buy your first home and answer the most common questions we get from first home buyers.
What are the advantages of buying a home?
One of the most significant advantages of becoming a homeowner is increased stability. You’re no longer at the mercy of a landlord who can raise the price of rent or kick you out of a home at any time. Additionally, a fixed-rate home loan can give you greater financial stability, with your mortgage repayments remaining steady over the course of your home loan.
Homeowners also have complete control over their property, meaning they can treat, style and renovate their home whenever they please.
Perhaps the biggest advantage of home ownership is that property has historically been a great financial asset. This is because property values typically appreciate over time, providing steady capital growth for owners.
Over the last decade alone, Melbourne house values have risen 7.9 per cent per annum. Due to the sturdiness of the property market and the potential to borrow a larger amount on a home loan, property ownership is often seen as a solid long-term investment strategy for many.
Owning your own home also allows you to put your money towards building equity in your home rather than giving that money to someone else.
Lastly, the emotional satisfaction that comes with homeownership cannot be overstated. Having a bit of land to call yours is part of the great Australian dream and is an important milestone for many Australians.
What are the disadvantages of buying a home?
Buying your first home comes with enormous financial responsibility. With home loan terms typically lasting for 20-30 years, you’re agreeing to take on a large amount of debt for a large portion of your life. If your financial circumstances change during this time, you may open yourself up to severe financial hardship.
Ongoing maintenance is another disadvantage of owning property. With maintenance solely the property owner's responsibility, repair costs can quickly become substantial and further into your budget.
This financial responsibility can be particularly stressful for younger home buyers and detrimental to your overall quality of life.
How much of a deposit should I have before buying a home?
Whilst the answer to this question will depend on your personal circumstances, there are a few important factors to consider.
Your deposit size will strongly influence your borrowing capacity and, ultimately, your property budget. Additionally, if you’re loan-to-value (LVR) ratio is about 80 per cent, you will likely have to also pay for Lenders Mortgage Insurance (LMI), which can be substantial.
Building up a larger deposit reduces the risk of being caught out against unforeseen circumstances. If you are forced to sell your home for a lesser price than you bought it, your deposit can protect you from being left with serious debt.
Whilst buying earlier may allow you to take advantage of capital gains sooner, taking on too much debt can expose you to stress and financial hardship.
What are all the costs associated with buying a home?
First home buyers should be prepared for all the costs associated with purchasing property, beyond just putting down the deposit.
These additional costs can include the following:
- Stamp duty
- Lenders Mortgage Insurance
- Government fees
- Conveyancer costs
- Building and pest inspection
- Moving costs
You can check out our expert guide here for a complete list of every additional cost when buying a property.
What is the best age to buy your first home?
The best age to buy a home is when you can comfortably afford all the costs associated with owning the property.
Recent figures have found that the average age of Australian first home buyers is 36, which is older than many other developed nations.
The perfect timing for this decision will depend on your individual circumstances, such as your financial situation and your ability to handle ongoing maintenance and repairs. With the many costs involved with property ownership, you should also intend to hold the property beyond the short term.
Nevertheless, whilst there may not be a “right age” to buy a home, leaving it until too late in life can come with its own problems. For example, entering into a 30-year mortgage after the age of 40 may leave you needing to make loan repayments well into your retirement.
Before taking out a mortgage, consider the length of the home loan and your ability to make mortgage repayments across the whole term.
How do I know what type of home I can afford?
Several key factors will determine the amount you can borrow, including your household income and the amount you can put down for a deposit.
Your mortgage broker can break down all of these criteria and help you estimate a property budget. You can use our borrowing power calculator which will give you a clear guide to your borrowing capacity.
What government grants are available to first home buyers?
Luckily for first-time home buyers in Australia; many government incentives are available to help you break into the property market sooner.
You may be eligible for the following schemes:
- First Home Owner Grant
- First Home Loan Deposit Scheme
- First Home Buyer Duty Exemption
- First Home Super Saver Scheme
For a complete list and information about all the government schemes available to first home buyers in Victoria, you can check out our article here.
Ultimately, there are many factors for first home buyers to consider. Not being able to fulfil your mortgage responsibilities can come with severe penalties, so remaining disciplined financially is paramount to the success of your purchase.
For detailed advice on when the best time to buy is for your individual situation, it’s essential to reach out to your mortgage broker. To book a free consultation with one of our finance professionals, visit our website or give us a call today.