7 Money-Saving Tips For Buying Your First Home

Topics: Reading time: 5 minutes

Buying your first home is a huge and exciting milestone. Yet, the big question still remains: where do you start? There’s simply so much information to read through and so many steps to follow before you seal the deal. It can be an intimidating process.

We can all agree it’s fun to look at homes for sale online, but this is only one side of the story. The hard part is working through the financial aspects of the home buying process to ensure that you can close the deal efficiently and within your budget.

The good news is buying your first home doesn’t have to be a chore. This guide will help you get started with the best home buying tips from the money-saving experts.

1. Plan Your Home Buying Budget

For most people, a home mortgage is one of the biggest debts you’ll ever take on in your life. Knowing that, you want to tread carefully so you make sure you know exactly what you’re getting your finances into.

First and foremost, it is important to set a budget and decide how much you can actually spend on your first home. Many first-time homebuyers spend more than they can afford because they don’t realise that it’s not just the mortgage payments they need to pay for, but also insurance, maintenance, and real estate taxes.

Without a budget, you could spend too much on your first house and dig yourself into big debt later. The golden rule is to keep your mortgage, taxes and insurance payments for your home between 25 and 30% of your income. This is a safe number that leaves you extra room in your budget for emergency repairs, renovations, and other debts.

2. Settle Your Debts Before Applying

Financially investing in a new home is a big decision. That’s why it’s important to settle any outstanding debt you owe before applying for a home loan. You need to prove to banks and lenders that you’re reliable, and that you repay your debts on time and efficiently.

If you’re drowning in debt, you don’t look like a good candidate to lenders. Take action to pay down your credit cards, car payments, and so on to keep your debt history in good standing. To get a head start, you might sell your car for a less expensive one to put this savings towards your debts, or you might live frugally.

It’s important to make your home loan a priority. Having fewer debts can only help you when it’s time to apply for your mortgage.

3. Invest in a Mortgage Broker

For the first-time homebuyer, a mortgage broker can be a valuable investment. A mortgage broker is a professional who analyses your financial situation to help you find the best home loan within your budget.

As you’ll soon discover that a home loan can be quite complex. Unless you have a background in finance and lending, you’ll need help breaking down the complexities. In addition, a mortgage broker can help manage the home loan process all the way through to the settlement.

If you’re worried about the extra cost, think again. When you invest in a mortgage broker, you generally won’t have to pay your broker directly. He or she usually receives a commission upfront from the loans in addition to receiving a trailing commission, so this is a service that doesn’t usually cost you a thing. A mortgage broker is one of the best-kept home buying tips.

4. Understand Variable vs Fixed Rate Home Loans

One of the most confusing aspects of mortgage loans is understanding the difference between variable vs. fixed rate and how it affects what you owe. Here’s a simple breakdown to make things easier:

  • Fixed rate –  With this type of loan, the interest rate stays the same for an agreed period of time. This means that your monthly mortgage payments won’t fluctuate periodically like with a variable interest rate, and you always know what you’re going to pay for the fixed period (usually 1 – 5 years). However, these loans have less flexibility, and once the fixed period ends, the loan reverts to a variable rate.
  • Variable rate – On the other hand, variable rate mortgages are much more popular in Australia. These interest rates change based on an underlying benchmark interest rate that changes periodically. That means if this benchmark rate drops, so do your mortgage payments. These loans tend to offer lower rates and more flexibility.

Which type of rate is best for you? Again, this is one of the reasons why it helps to have a mortgage broker to analyse your specific situation. In general, it depends on the current economic market, as well as whether you’d prefer knowing how much you’ll be paying each month.

5. How to Save for a House: Build Your Deposit

When it comes to saving for a house, the bigger the deposit the better! By saving up a large deposit (20% is recommended but not required), it shows potential lenders that you have financial discipline over a long period of time. In addition, the large deposit adds more equity to your property and decreases your monthly mortgage payments right from the start. This means you pay less interest on your home in the long run.

Also, by depositing 20% into your new home, you can potentially avoid paying what’s known as Lender’s Mortgage Insurance (LMI). LMI is additional insurance you need to purchase when taking out a loan with less than a 20% deposit. It’s extra security for lenders who are risking more by lending to you. Because you want to keep costs as low as possible, always try to build a bigger deposit when buying your first home.

6. Credit Report and Credit Scores

It is important to receive a copy of your credit report and credit scores before applying for a home loan. While you should always have an eye on your credit, this is the time to clean up any mistakes. Before a bank decides to give you a loan, they will assess your history as a borrower to determine if you’ll actually pay back the loan. The lender wants their money back (with interest) after all.

If your report has any errors, make sure to clear them up with the reporting agency before you apply for a loan. Things like wrong addresses, incorrect payment statuses, and even accounts that don’t belong to you can appear on your credit report and damage your credit score.

While they might seem small, these are all very important factors that will affect your chances of being approved for a mortgage. While there are options for bad credit home loans for first-time buyers, you’ll want to keep your options as open as possible.

7. Check Your Eligibility for Financial Assistance

Last but not least, you might be eligible for some help when purchasing your first home. There are a few government programs and grants that are designed specifically to help first-time buyers achieve their home dreams.

While your options will depend on your financial situation and where you live, here are a few common options:

  • First Home Owner Grant – This grant is offered by several state governments, and it’s something you can apply for when you’re applying for your mortgage if you’re eligible. This is a $10,000 one-time grant that’s available to Australian citizens or permanent residents.
  • First Home Super Saver Scheme – Under the First Home Super Saver Scheme, first-time homebuyers who have made voluntary contributions into their super can withdraw these amounts (with limits) to put towards their home deposit.
  • Stamp Duty Exemption or Concessions – Depending on the dutiable value of your home and whether you purchased after July 2017, you might be eligible for a first home buyer duty reduction or exemption. This duty exemption varies by state, so check with your local requirements to see if you qualify.

Home Buying Tips You Can Trust

Purchasing your very first home can be such an exciting milestone in your life, but it is important to be mindful of your financial situation and understand what your financial limits are and how much you can really afford.

As long as you take these home buying tips above seriously, you’ll make a smart investment in your first home. If you’re thinking about buying your first home, speak with us first. We’ll go through your situation and discuss the best option for you. We’re here to help! Give us a call today on 1300 368 322, chat with us online or fill in the contact form below to arrange a time for us to call you.

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