Buying your first property can be both exciting and overwhelming. People often jump into making the decision to purchase, without realizing that they may have missed a few things for consideration.
Below are our top tips for you to think about and discuss with your ‘A’ team – being your accountant, mortgage broker, solicitor and financial adviser.
1. What is the purpose of the property?
a. To live in? – If so, how long will you live here? Do you need to be close to work? Schools? Hospitals? Shopping centres etc.
b. To invest in? If so, are you aiming for rental income or capital growth – Have you worked out what the net income yield is after tax. How does this fit with your overall financial world and goals? What is the tax on capital growth over the long term and what is your eventual exit strategy?
c. Holiday home – If so, is the property for you to eventually live in or just have access to as and when you please. Do you understand the impact on your cashflow?
2. How much do you have and need to have as a deposit?
a. These days you can purchase a property with as little as 5% deposit. However this may mean you will have to pay lenders mortgage insurance (LMI), which is not necessarily a ‘bad’ thing but this is nonetheless a cost that does not benefit you! It benefits the home loan provider just in case you can’t meet your mortgage obligations.
b. If you have 20% deposit you don’t have to pay LMI and this could mean you have access to a wider range of home loan providers that even end up giving you favourable interest home loan interest rates. Shop around to get you the best deal! Not just with interest rates but home loan features such as $0 monthly upkeeping costs, ability to split loans, offset facility, drawdown facility and $0 early repayment fees.
c. Have you accounted for other fees such as solicitor/conveyancing fees, pest & building inspections and costs to move?
3. What is your capacity to service the home loan?
a. Often people get caught up on what the bank/home loan provider is willing to lend you, and they end up forgetting about their individual cashflow position. Have a think about what you and your family are willing to sacrifice each pay period just to have this home.
4. Are you eligible for any government benefits to help purchase your home?
a. It is worth exploring and understanding what (if any) government benefits are available to you. There are first home owner grants and super schemes just to name a few. Make sure you are informed and know what you can access.
5. What name will you hold the property in?
a. Will you hold it in your own name, in joint names, tenants in common, a company, trust or SMSF. Understand your options and know which one will give you the most benefit or advantage from a tax and estate planning point of view.