Usually, the size of a loan you can get and maintain from a financial institution will be a deciding factor in the purchase price you can commit to. So, before you start looking for a property, it’s important to have a clear idea of your borrowing power. There are calculators that can help guide you as a first step, but speaking to a specialist or professional can help you with a more tailored estimate.
In fact, Karkal suggests having a conversation with your bank or your mortgage broker at least six months before you’re ready to start looking. They may help you understand what is adding to, or detracting from, how much you can borrow.
“Have a conversation about what you'd like to borrow, and work with your bank to see if you can get to that amount. If you can’t, work with them to identify what you'd need to do, to increase your borrowing power,” he says.
“It might be decreasing credit card limits, or cancelling cards altogether. You might want to adjust your spending habits. Banks will look back three-to-six months to assess your ability to budget, and understand what you’re spending money on.”
Consider pre-approval for your loan
One nerve-wracking part of the property buying process is that your financial institution will typically not give you unconditional approval for a loan amount until they have valued the property you want to buy, but at the same time, you need to move quickly to secure the property.
This is where pre-approval comes in. Pre-approval gives you clarity on what a bank would be willing to lend you based on your circumstances. Though it’s not binding, pre-approval can give you some confidence that if you’re making an offer on a property, you will have the finances to back it.
“Regardless of whether or not you're going to go ahead, you should absolutely get pre-approval,” says Karkal. “A pre-approval means you've spoken to your bank, and they've said, ‘Yes, based on what you've told us or provided us, we're happy to lend you this amount.’
“It's not a written contract, but at least you know what you could potentially borrow and that could save you a lot of stress. We've had countless examples of people making an offer before getting pre-approval – then they’re scrambling around, asking for deposits from family and friends. All of that can be avoided.”
Be aware of the additional costs of buying a home
One obvious cost of buying a home is saving for the deposit. Often, borrowers prefer to save a 20 per cent deposit to avoid paying Lender’s Mortgage Insurance. Savings plan calculators can be a useful tool in helping you save for your target deposit.
However, it’s the forgotten costs – the ‘extras’ – that can catch you out. This is important to consider, as they often require upfront payment. Even if you have accounted for all costs, remember they can be variable, so allow for wiggle room in your budget to prepare.
For example, stamp duty is calculated based on the final purchase price – which is something that is set in stone when you’re towards the finish line. You can use stamp duty calculators to help determine the maximum in stamp duty you would pay, based on the maximum you would offer.
Other costs to consider include:
Conveyancing: Set fees are often quoted for conveyancing services, but remember they can vary in the event of complications, for example if settlement needs to be extended.
Inspection reports: Building and pest inspections are one way to ensure the property you are purchasing is in reasonable condition. They can be helpful tools for negotiation also – for example, if a building inspection finds defects that require fixing, this can be grounds to reduce the purchase price.
Council rates: These are typically issued based on a set time frame and may be payable soon after you purchase the property.
Strata fees: If you have purchased a unit, town house or villa home within a strata complex, you may also have fees payable soon after purchase.
Finding your new home
Once you have your finances in order, the excitement of searching for your new home can begin.
“Immerse yourself in it; don't rush,” Karkal adds. “If you want to live near a specific place, look at the areas that surround it on a map. You might identify a suburb you’ve not considered.”
Narrowing down areas that suit your aspirations and your finances have been made much easier in recent years, with digital tools and search engines giving you access to the fundamentals of a property, including its look and floorplan, plus the area it’s in, including surrounding infrastructure.
Domain’s nationwide home price guide tool, for example, has various useful features, including the School Zones Guide and valuable suburb profile data, including recent sales in the area. This information is useful for negotiating on price, for example, as it can give you an understanding of what similar properties sold for. CoreLogic is also a popular resource for both budding buyers and property professionals, giving access to data, insights and market news.
It’s important to remember that while these tools can help indicate what a property’s value is, they do not constitute a lender’s valuation – which is what a financial institution uses when it is assessing your application for unconditional approval.
Enjoy the journey
You might find the market stressful at times, especially if you’re buying during a growth cycle. It’s important to remember that what you are buying is not just an asset, it’s an achievement – one you can be proud of, excited by, and happy to call your own.
