You probably have heard this a million times, getting your own home is the most important financial decision of your life. And it is true. Buying a home tends to be your most expensive purchase by far, with each purchase a complex endeavour in itself. Fortunately, we can simplify it, by keeping in mind a few key points.
#1 - Have a clear goal of what you want to buy
This goes without saying and many people would have done this subconsciously. Still, you should make this a deliberate exercise because it would keep you focused on the final goal.
This is typically done by asking 3 questions:
Why do you want to buy it, either to live in or to rent out? I compared an owner-occupied home and an investment property in another post here. This is most important when you buy your first home and becomes less crucial for the second, third, or tenth one, but you might still need to choose in some cases.
How much are you willing to pay? This is perhaps the most important question you need to answer, and it is best done early. Having a clear price limit from the beginning will make sure you stay focused and don't overstretch yourself.
Where do you want to buy? This is fairly straightforward. Your location of choice should suit your purpose and budget. This can be partly answered by the above questions, but can also affect them. If your budget is not enough for a house where you want to live, you may consider buying an apartment for investment first and build up your finances from there.
#2 - Educate yourself
This can be done at the same time as or even before the previous step. Buying a home involves a lot of planning and research, so the sooner you start, the better.
Free information online is a good place to start. However, I do caution that some of them can be misleading and most cannot give you the full picture, which is due to limitation of a written format. You can learn a lot from them, but do expect to read extensively.
Buying a home involves a lot of planning and research, so the sooner you start, the better.
Working professionals would be your best source of updated information. These include Solicitors or Conveyancers, Buyers' Agents, and Mortgage Brokers. They can guide you through the process but most would charge a fee the more you engage them. The exception is Mortgage Brokers; most brokers do not charge you for their service and still guide you through the whole process.
Note that I do not include Real Estate Agents. There is a common misconception that you go to Real Estate Agents to learn about properties, but they work for the seller and have limited information to help you as a buyer.
The good news is that a lot of these knowledge do not change all that quickly, so whatever you learn can accumulate and it will get easier the second, or third, or even tenth time you buy a property.
#3 - Follow the process
Once you understand what is involved and how one thing leads to another, it is crucial that you follow it religiously. Buying a property is complicated and time-consuming, taking many weeks to a few months, so it is easy to get off-track.
My recommendation is to write down or at least visualise the whole process step-by-step, set milestones, and track your progress. This is a good way to keep everything organised and easy to follow.
Be very careful with trying to rush and skip a few steps. Since home-buying takes a long time, it is easy to have this urge. Unfortunately, this leads to mistakes more often than not, and can turn very costly if things get too far. The rules and regulations are there to protect you, not doing your due diligence is too much of a risk for too little gain.
#4 - Be clear about your budget and stick to it
Remember we talked about price limit at the beginning? This is so important it has its own section.
Setting up a budget requires some math. Fortunately though, it only has 2 parts:
How much of your own funds can you bring to the table? This is more than just to cover the deposit for the home. You need to account for Stamp Duty, conveyancing, and other costs as well. A good rough guide is that you need a minimum of 12 to 16% cash in most cases.
How much can you borrow (also called borrowing capacity)? This is where it gets a bit tricky because everyone’s situation is different. Worse still, different banks will look at the same situation differently, so you might get approved by one bank and declined by another. My advice is to get a Pre-Approval, it takes so much out of the guesswork, and it is cost-free and obligation-free.
Get a Pre-Approval, it takes so much out of the guesswork, and it is cost-free and obligation-free
This is just scratching the surface. Setting up a budget is a separate topic in itself, which I will discuss in another post. For now, just remember that it is very important to have a budget.
Most importantly, don’t ever go over your budget. You will find yourself getting emotionally attached or tangled in a bidding war, especially when buying your first home. These tend to get out of hands quickly and can have serious consequences. Therefore, stick to your budget and only push it when you have absolute confidence in your finances.
#5 - Have a team of professionals
Even when you have done your due diligence and learnt all that you can, it is impossible to do everything yourself. I am a Mortgage Broker and can arrange my own finance, but I still need a Solicitor to handle the legal parts, an Inspector to check the property, and so on. You will not have enough time and, most importantly, enough expertise to get all of it right.
Look for skilled and motivated professionals. Most of them charge a fee, except Mortgage Brokers as I mentioned, but they are minor compared to what you are paying for a house.
Also, communicate with them at all times. While they will take care of their parts automatically, getting involved will help you get so much more value. Keep everyone in the loop, seek their advice, bounce ideas around to make the most of their service. Make sure they communicate with you as well. One of my criteria for choosing a professional is whether they are willing and able to provide necessary information when I need them.
So there you have it. Five key points to get you started on your home buying journey. Have you heard of other tips before? Be sure to let me know in the comments and I will do my best to answer.
Until next time, stay sensible.
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