Over half of renters, 58%, say the Covid-19 pandemic has spurred their desire to get a home loan, according to a survey from Lowe’s released this week. Not only are Australians looking for more space as many spend more time than ever before at home, but mortgage rates are at historic lows.
It’s a great time to buy property with record-low interest rates, but homebuyers are cautioned to avoid these mistakes when shopping for loans. With unprecedented cuts to Aussie home loans and ultra-low interest rates, now could be the ideal time to buy, but buyers have been warned to shop around before committing to a mortgage.
Evaluate if getting a home loan is the best option for you
Not everyone is wants or can afford to be a homeowner and that’s OK. To determine if buying a home is the right choice for you, he recommends asking yourself a few simple questions:
- What is it about owning a home that you cannot achieve through renting?
- How is owning a home directly in line with your core values?
- What would you do with the opportunity cost of the money you are putting toward the home?
- What other goals do you have that may be impacted by buying a home?
You should be looking in the 2s
“You should be looking in the 2s and you shouldn’t be paying in the 3s,” Canstar’s group executive of financial services Steve Mickenbecker said. For those who already own a home, Mr Mickenbecker said mortgage holders should absolutely not be paying in the 3 per cent range.
“They’re old rates. The average rate is 3.37 per cent, that’s way more than people need to be paying now. It makes such a huge difference over the life of your loan,” he said.
Make sure you can afford the total costs of homeownership
Even though interest rates are low, don’t buy more home than you can afford. That includes more than just the down payment and monthly mortgage payment.
Most buyers should factor in other fees and ongoing expenses such as closing costs, homeowners insurance, property taxes, and repairs and maintenance. All together, these can add up to 1% to 2% of the purchase price each year.
Closing costs, which can include home inspection costs, loan application and origination fees and even two months’ worth of property taxes, can also add up. The average closing costs range from about 2% to 5% of the loan amount, and they’re due at the time of purchase.
Make sure the locations you’re looking at stack up
They say location is everything, which is especially true when it comes to making a smart financial decision on your home purchase. To help you buy a home you love – and for the right price – consider:
- how much properties are going for in the suburbs you’re interested in
- how far you’re willing to live from family, friends and work
- whether there’s off-street parking and local amenities, such as schools, shops and transport
- whether you’ll need to renovate and if you have the extra funds to do so
- if there is price growth potential in the suburbs you’re looking at
- if there are proposed developments in the area that could impact the value of your home
- what the crime rate is like in the areas you’re keen on
- if you’re moving far away, how the local job market fares.
If you need help gathering some of this information, try speaking to real estate agents who work in the area, or look at real estate companies online. Of course, different features will appeal to different people when looking for a home to live in, so consider what works for you.
Find out whether you’re eligible for home loan
There are a number of ways you may be able to help fund your home purchase. We’ve outlined some options to look into below.
First Home Owner Grant
State governments offer a one-off grant to first home owners who satisfy all the eligibility criteria. If you’re unsure about eligibility, contact your state revenue office and be sure you apply with plenty of time.
Stamp duty concessions
Certain state and territory governments offer additional incentives to first home buyers, some of which involve stamp duty concessions. It’s often worth researching what’s on offer in the area where you’re buying.
First Home Super Saver Scheme
Eligible first home buyers can withdraw voluntary super contributions (which they’ve made since 1 July 2017), to put toward a home deposit. Under the First Home Super Saver Scheme (FHSSS), first home buyers who make voluntary contributions into their super can withdraw these amounts, up to certain limits, in addition to associated earnings, from their super fund to help with a deposit on their first home.
If eligible, the maximum amount of contributions that can be withdrawn under the scheme is $30,000 for individuals or $60,000 for couples.
So if you’re still some way off buying a first home, making voluntary super contributions (as opposed to saving them in a bank account), to access later under this scheme, could produce tax benefits that help you reach your first deposit goal faster.
Don’t worry about missing out, lower rates will linger
It’s not worth rushing into buying a home. Keep in mind that mortgage rates are set to remain low for the next two to three years, so there’s no rush to jump on them now.
Slow down and buy when you are ready. People have been buying houses for a long time, even when interest rates were at 17%. Slow and steady wins the race.
Know where you want to live, speak to lenders and get a pre-approval to give you a good indication that you’re good to go. Be ready to go and keep your eye on the market. If the prices do correct and you say now is the time, you’re good to go.