1. Do Your Research
It’s vital to research builders thoroughly as there are so many to choose from and they will all offer slightly different things!
Firstly reputation is key, what are their clients saying?
This will be the main source of truth to help you narrow down who you even want to meet with. Platforms such as Product Review that are independent sites, where reviews are honest and have no ability to be altered or hidden should be utilised.
The cheapest isn’t always the best! Stay away from too good to be true house designs and packages. If you’re looking to proceed with a builder that has lots of the nice sparkly and fancy inclusions for a cheap price, this is a red flag, have the important costs been factored into the price? This includes things like site works which can blow out and be a huge cost if these haven’t been included in your package price. What kind of bricks and method is being used to build your house? A cheaply built foundation will only result in headaches down the track which cannot be fixed easily or without significant financial impact.
A builder with a good reputation that is not willing to sacrifice on quality will be confident in the packages on offer when meeting with you, they will not try to over-compensate with all of the “extras”.
We understand that it can be challenging to save for a deposit while you’re still paying rent. So we have a choice of lending options that require little to no savings! If savings are needed, our in-house finance specialists will draft a detailed savings plan for you. So you can buy your new home soon as possible. WOW!
Have an understanding of your current income and expenses. Be prepared to cut back on some of the luxuries such as your morning coffee, those little cut backs can go a long way to savings and securing your choice of house and land package!
Here’s a few tips on saving:
- Stay at home – Going out with friends is one of the biggest expenses for people who are trying to save for a new home. As a rule, in the months leading up to saving for your first home, you should invite your friends over or go to someone’s house instead of going out. Playing some board games or just catching up over a home cooked meal is not only fantastic bonding time, it also means that you can save all of the money previously spent on overpriced cocktails and tapas.
- Get tech savvy – There are a number of apps that can help you manage your money. Apps like Clarity Money will help you figure out where your money is actually going, so you can see where you can close some gaps of on your expenditure. You can even earn some extra money using apps like Acorn, which rounds up your purchases to the nearest dollar and invests the money in your Acorn account.
- Get yourself a “side hustle” – If you need to give your bank account a little boost, it might be time to find something you can do on the side. There are thousands of people out there paying off credit card debt and saving for holidays by driving Uber so they can work around their work schedule. If you have a talent, sell it. It’s a gig economy, people.
- Bring a packed lunch – The average young worker spends more than $100 per week on lunch when they are out and about working. The best way to reduce your spending is to bring a packed lunch four days per week (you need a day to splurge). Make sure that you make a delicious enjoyable lunch that you look forward to, and you will never need to spend another dollar on overpriced sandwiches ever again.
- Pay off your credit card – This is a non-negotiable. If you’re not smart with your credit cards, the fees you are regularly charged could be chewing up the potential for you to purchase a new home. Pay off your debt, and start with a clean slate.
- Work on your tax return – Make sure you have an excellent receipt filing system so you can maximise your tax return every year! Getting an extra couple of hundred dollars when tax time comes around can ultimately help you crack the deposit number.
- Slash and burn – Haven’t gone to the gym in 4 months? Cancel that membership. Go through all of your direct deposits from the bank and see which services you’re no longer using. Be vigilant and be aware. Regularly checking your bank account can also help you pick up on any services that you are no longer using, but still paying for! This could add up to thousands of dollars per year.
- Coin jars are in! Did you know that a 600mL Coke bottle full of $2 will equal $1,000, give or take. Whether you like a novelty tin, or you’re happy with a clear jar, creating a dumping ground for all of those 20 cent coins saves them from the inevitable destiny they face of falling down the back of a couch. Without thinking you’ll potentially be able to save thousands of dollars.
- Invest like a pro – If you have a few years before you’re in the market, try your hand at investing in different markets. Be aware though, that this is a risky path to take and you could end up losing money. But if not, you could end up saving your entire deposit. Seek professional advice on the best investment plan for your current situation.
- The wait-a-minute rule – Whilst you are on the path to saving, enforce a rule on all purchases of a discretionary nature. For new clothes and shoes, wait 30 minutes before you actually purchase that item and for larger purchases, give it a few days. This will both avoid buyer’s remorse and overspending on unnecessary items.
Finance is one of the biggest hurdles first home buyers face. This can be due to a number of factors related to the person’s personal situation, right through to the processing of the application. This is a critical step towards home ownership and banks require a lot of information to assess an application.
A few areas first home buyers can prepare themselves to be in the best financial position for assessment include:
- Have a stable work history, with longevity and consistency in positions.
- Savings in the bank, even if you only have a small amount of savings it’s a start!
- Clean financial / credit rating, the less debt you have the better.
- Income that is sustainable to pay a mortgage and incoming expenses.
4. Determining How Much You Can Borrow
When it comes to working out how much you can borrow, the first step is to draw up a budget. Write down your monthly income and then all your expenses. This will give you a good idea of how much you are already spending each month, and how much you have left over to potentially put towards a mortgage.
When doing a budget, you should always allow for a buffer for unexpected expenses and interest rate changes. To calculate your borrowing capacity, consider your income, expenses, any personal debt and the appropriate type of loan.
When considering a mortgage, you have to take into account the lending criteria, which can vary greatly between banks.
Common lending criteria can include:
- Minimum deposit based of the loan to value ratio of the loan (LVR). LVR is the proportion of money you can borrow compared to the value of the property.
- Employment status and current income.
- Previous credit card limits and personal debts.
- Your savings history or previous repayments history for any other loans (i.e. car loan).
If you meet their criteria, the lender will be able to advise you how much you’re able to borrow from them. Then, it is up to you to work out if this is manageable with your current income and lifestyle.
5. Choosing a Lender
Your Finance Broker will review your personal situation and circumstances in full detail to ensure they can provide you with the best possible options available to you which may include one of the following borrowing options:
- Fixed or variable?
A fixed rate home loan means your loan repayments will be charged at the same interest rate for however long the fixed rate period is. This rate is commonly for a period of between 1 and 5 years, but longer fixed rate terms do exist.
A variable home loan start with a lower interest rate and after an agreed time, the rate fluctuates according the market index, as set by the Reserve Bank. It means the interest rates move up or down with the market.
- A Keystart Loan?
The Housing Authority offers a range a home ownership product through its lending provider, Keystart Home Loans. Keystart is an initiative of the State Government to assist Western Australians get into affordable housing.
These loan products help eligible people to buy their own homes through low deposit loans and shared equity schemes. Specific loan assistance is available for public housing tenants, sole parents, people living with a disability and Aboriginal borrowers.
Keystart loans are available in the Perth metro area for:
Keystart loans are very attractive as you only require 2% deposit of the property price, of which only 1% needs to be genuine savings.
The other difference between a Keystart loan and other major banks is that they don’t require any mortgage insurance.
- A Guarantor Home Loan?
A Guarantor Home loan is when another person (such as a parent) puts up a property they own (or have equity in) as security, allowing the borrower to borrow up to 107% of the purchase price of the home without needing a deposit.
This helps young people get into the property market sooner. Once you have paid off part of your loan or your property has increased in value, then you can apply to remove the guarantee.
6. Choosing a Lender
When building your house and land package it is important to consider the following factors:
- Each suburb has ranked house prices within three categories (Upper Quartile, Median and Lower Quartile). Your house and land package is reviewed by Bank Valuers and either approved or declined based on the house package price (house + land = house package price).
First home buyers should be prepared to keep their house package within the median quartile bracket for the best possible chance of obtaining finance approval without delay. REIWA has a tool that can be used to source this information: https://reiwa.com.au/the-wa-market/#suburbs-regions
- When selecting your block it is important to consider the following as this can cost you significantly in time and money:
- Will the block require planning approval? Blocks under 260sqm require planning review and approval which can take 3 months or more.
- Is the block titled? Blocks that aren’t titled by the developer will delay any work that can proceed until the titles are received.
- Is any site clearing work required? A site that hasn’t been cleared will need this to be done prior to construction commencing which could result in an additional expense.
- Does the block require retaining? Retaining if not provided by the developer or the seller will require an additional expenses and need to be arrange prior to construction commencing.
Be mindful that you select a package that is affordable; your Consultant, Builder and Finance Specialist should guide you along the right path to ensure you are not locked into something you cannot afford or are not happy with. Living in a home you can’t afford will place you under unnecessary stress. This goes back to choosing the right builder as they will complement the entire process and guide you through the various factors and areas that could be problematic.
7. Key Milestones to Start the Journey
Understanding the key milestones to get underway to secure the right builder to build your dream home, right block of land and finance broker to help guide you through achieving home ownership begins with:
- Initial consultation – a Finance Health Assessment (FHA) will be conducted to establish your borrowing capacity or how much the banks will lend you.
- Consultant will help structure a house and land package in an area that you want to be.
- Documentation for House, Land and Finance will be prepared and then lodged to the recommended lender for what is known as Formal Approval.
- Once your loan application is formally approved by the bank the builder can commence works for the construction of your new home.
At WOW Homes, we’re problem solvers, we can help you achieve your dream of home ownership. We can assist with all things finance, helping you into a position where you’re able to build your first dream home, without over-stretching yourself!
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