Determine your budget.
For the first step you need to be prepared to be a little introspective. You need to take a long, hard look at yourself and determine what your plan is for the years ahead – and how much you can afford to repay.
So how much can you afford? There’s a handy repayment calculator on the Your Mortgage website www.yourmortgage.com.au/calculators/repay_basic
Begin with your total monthly income. Use the after-tax income of both you and your spouse (if applicable), asa well as regular income you get from term deposits, cash management accounts, share dividends or property investments. This becomes your total monthly income.
The next step is to determine your monthly expenditure. This is a little trickier than determining your income, because your cash is likely to go towards a number of different places over the course of a month. Obvious categories of expenditure include food, clothing, electricity, phone, gas, medical, insurance, entertainment, personal, car, transport, childcare, credit cards – the list goes on. Do not include your current rent if you are purchasing a home to live in. If things go well, you will not have to pay rent for much longer.
Subtract your total monthly expenses from your total monthly income and (hopefully) you will have a healthy, positive number that is roughly what you can afford to repay each month on a loan. Now if the figure you arrive at is suspiciously high, look carefully at your expenses. If they indicate you can save $2,000 a month, and you have only ever been able to save $1,000, then clearly you have left a few expenses out. People are creatures of habit – if you have not saved before, you are going to find it difficult to save now. Be honest with yourself from the outset. There are no prizes for having the biggest house and then not being able to afford to live in it.
With the numbers under control, you also need to consider more abstract things, such as where you think your career is headed financially and whether you or your spouse are considering raising a family – and how they will affect your ability to service your loan.
Now that you know the total amount you can devote to mortgage repayments each month, you can roughly determine how much you will be able to borrow. This amount will vary from lender to lender, and many now have handy calculators on their web sites that allow you determine the amount of money they are prepared to part with. There is also an affordability calculator on the Your Mortgage website that calculates a very conservative estimate of the amount you will be able to borrow and the costs you will face depending on the state you are purchasing in.
What you get for you money:Now that you have established your budget, it is time to determine how much ‘home’ you can afford – and in which suburbs.
Home loan homework:
Before you go hunting for the best possible mortgage, it is time to educate yourself. Your Mortgage’s Mortgage of the Year article is a good place to start looking for the best loans in the market.
Step 4 .
Shop for the best deal:
The next important step in obtaining the best possible deal from your lender is to know what is out there. Television and radio advertisements, newspapers and magazines such as Your Mortgage are great places to find out which deals are currently on offer. Or Find a mortgage broker
Get the application approved:
Having found the best possible deal, it is time to find out if your lender of choice wants you as badly as you want them! Find out what the lender requires beforehand to get home loan approval and make sure you have the required documentation on hand.
Time to buy : Well informed and armed with a preapproval, you’re ready for action.
Government departments need to be notified of the change in ownership, and this is typically taken care of by your solicitor or conveyancer. Now the drudgery begins.
Telephones, electricity, gas, water, pay TV and insurance all needs to be in place now that the property is well and truly yours. Little things like food in the fridge is probably a good idea as well!
Congratulations, you are now the proud owner of your new home. It’s only taken you ten steps to get here, and now you are a property owning veteran. What will be next? A newer, larger, better home in five years time? Maybe this will be the first purchase in your property investment portfolio?
Regardless of your future movements, there is probably nothing more stressful than making your first purchase. Mistakes will be made and lessons will be learnt, but isn’t that what life is all about?
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