Found your dream home? Here's how to navigate a period of high interest rates.
Category Property Finance
In the property market, tough economic times generally favour the buyer. If you are a new buyer, or looking to expand your property portfolio, now is a good time to be looking for a bargain while the supply of housing stock currently outstrips demand and buyers can pick from more options.
"There is a cautionary tale here, however," warns MortgageMe director, Andrea Tucker. "Being too bullish may result in buyers over-extending themselves, only to end up becoming a desperate seller sooner rather than later. There are always a number of material and financial considerations that need to be weighed up before rushing into a house purchase."
First off, Tucker recommends drawing up a budget. This means not only deciding how much you can afford to spend on a house but calculating all the ancillary costs including transfer costs and other fees. Make sure to calculate what you can afford monthly now plus two additional rate increases to get a realistic view of your affordability.
"Get pre-approval for your home loan before you go house hunting as this will give you additional leverage in any negotiations. When you are shopping for a mortgage, it helps to put down the biggest deposit you can, as banks and financial institutions will look more favourably on your application the less risky it is. With banks looking for quality credit customers in these times, you are in a position of power to negotiate the best interest rate possible.
"Nevertheless, it is crucial to conduct thorough research regarding the associated expenses at that particular bank. Consider comparing transaction fees against the savings on your home loan. Otherwise, you may find yourself in a situation where your monthly transaction fees exceed the amount saved on your home loan. Additionally, ask your bank for a fixed and variable interest rate, and weigh up all the pros and cons of each over the period quoted, and how either will impact your expense budget going forward," she says.
Next, start looking at the suburbs in which you can afford to buy. "In a buyers' market, it's worth looking at houses / suburbs that may previously have been slightly out of your price range, as many homeowners are reducing their asking prices to effect quicker sales," says Tucker. "If you can afford to buy in a better suburb, your investment will pay off when the market recovers, which it always does," she adds.
Another tip is to get to know the estate agents in the areas where you are looking. "They have all the local knowledge, what the price patterns have been, the average rates and taxes, the catchment for schools etc. You can also be proactive and set up alerts on property portals that will send push notices of properties that match your search criteria, which will save you hours of scrolling," Tucker notes.
While you may have set your heart on having certain features in a home, it's wise to draw up a 'must have' and 'nice to have' list and keep this in mind when you go and look at houses. "This will help keep the emotion out of your eventual decision, as you make a pragmatic choice based on factors that influence an asking price. For example, a pool, which is a 'nice to have' might be the reason the house is out of your price bracket, and you have to let it go."
Tucker says buyers should be aware of so-called 'estate agent speak' when looking at properties. Photos will show a house to its maximum advantage, and the vocabulary of the adverts will sometimes exaggerate the home's features. In this case, buyers should never set their expectations too high, to avoid disappointment. "If you are thinking of buying a 'fixer-upper' consider the long-term financial implications of renovating. These are the kinds of expenses that can lead you into unanticipated debt."
Other critical factors when buying include checking if there are sitting tenants in the property, especially if you have taken advantage of a forced sale that has gone through the courts and effectively been repossessed by the bank. If you are buying in a complex, check the rules and regulations of the body corporate. "Taking advantage of a buyers' market can get you a great purchase price on a property you might not otherwise have been able to afford. However, all the other pros and cons, pitfalls and things to look out for apply, even if you have closed the best deal ever," says Tucker.
Buying a house is a long-term investment - whether it is a home for you to live in or a revenue-generating property, you do not want to be brought down by hidden costs when the prevailing buyers' market has worked to your advantage.
In an article published on 11 May 2023, Pam Naidu, Director of Sales and Marketing at Devmco Realty, shared some key learnings which every first-time buyer should know when deciding to purchase their dream home.
1. Location, location, location! Also known as the Three L's:
There are three micro locations that define the actual location of a property on a macro level. If the property you want to purchase is in an estate for example, you may want to find out what area of the estate it sits in and what that actual area provides, such as a good sea views, etc.
2. Financial stability is important:
Get your credit card payments and debts in order.
3. Budget:
Establish a realistic budget to determine your affordability. Create a budget and try to stick to it so that you can enjoy the process and not put yourself under too much pressure.
4. Find a trustworthy real estate agent:
This is the person that will assist in picking out your potential home and exploring your new neighborhood and is also responsible for scheduling tours and negotiating important contracts on your behalf. Ensure that this is someone you trust, to have your best interests at heart.
5. Get approved:
Get a pre-approval letter before you start shopping! This will help you have realistic expectations on what you can afford.
6. Be mindful of transfer and closing costs:
First time buyers usually tend not to factor these costs in, and it comes as a huge surprise at the end. Doing your homework is a very vital part of house hunting.
Becoming a first-time homeowner can be an overwhelming experience and requires careful consideration of several factors. With the expert advice from Devmco Realty, first-time home buyers can make an informed decision and successfully unlock the door to their dream home.
Author: Property24
