Friday, 5 August 2011

Stop Renting and Start Buying! Tips to Save For Your First Home and Find the Right Mortgage


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If you are a first home buyer currently renting your place and cursing the fact that you can't hang any of your paintings on the walls, then owning your own home probably seems a long way away. However, there are a number of savings strategies and first home buyer savings tools which you may not know about, but which you can use to your advantage to help you successfully apply for a dedicated, affordable and fully featured first home buyer loan.


Start Saving for your First Home

Most lenders will require between 5% and 10% of the property value for your home loan. On top of your deposit you also have to take into account costs such as loan application fees, stamp duty, lender's mortgage insurance, valuation fees and settlement fees. As a result, it is a good idea to budget another 5% of the property value for these expenses.
Now that you know how much it will take to get you into your own home, you can use the following tips to help you set up a savings plan to reach your goal:
  • Put away 20-30% of each pay cheque. Putting away this amount may seem like a lot, but it will help you reach your savings goal, show your lender that you have a committed savings history, and start getting you into the habit of living on a smaller amount, because once you start making mortgage repayments, it will take a bigger chunk of your income each month than your rent has been.
  • Clear your debts. Before you attempt to buy your first home, try to pay off as much of your debt as possible. This includes credit cards, personal loans and store accounts because the amount of debt you already have will impact the amount you can borrow. You also want to free up as much cash flow as possible so that you can quickly grow your savings, and so that once you are in your new home you aren't financially overcommitted with a number of credit card bills to pay on top of your mortgage. Plus, if you don't have credit card bills, you will be able to direct more of your income towards your home loan and pay it off sooner.
  • Budget for your lifestyle. Your lender will like to see that your home loan repayment doesn't account for more than 30% of your income each month, and budgeting for repayments of this amount can ensure that you will be able to afford your new home, and afford a comfortable and happy lifestyle. Therefore, part of your savings plan for buying your first home should include putting together a detailed budget so that you know what sort of home loan and lifestyle you can afford.

Loans for First Home Buyers

There are hundreds of different home loans available in Australia, from hundreds of different lenders. Luckily as a first home buyer you can narrow your search by looking for a loan with the following features which have been specifically tailored for first home buyers:
  • A small deposit is required.
  • Lower interest rates, often in the form of introductory rates which are discounted for a certain period while you adjust to being a mortgage holder.
  • Low or no ongoing fees.
  • Low or no application fees.
  • The ability to take a repayment holiday and defer your repayments.
If you are looking to qualify for first home buyer concessions on stamp duty costs, in some states there will be a limit to the value of the property you can purchase to be eligible. As the stamp duty costs and concessions vary from state to state, the property value cap will depend on your circumstances.
At the same time, be aware that in choosing a low interest rate, fee free home loan which is specifically targeted at first home buyers, you can be missing out on some great loan features. Features such as additional repayments or a 100% offset account are often not included in a basic first home buyer loan, but these features can help you repay your home loan sooner with very little effort, and save you thousands on interest. Therefore, make sure you look for a first home buyer loan which is both affordable, and meets the goals you have for repaying your mortgage.
This article was written by William from Home Loan Finder. Visit Home Loan Finder to compare mortgage brokers.