How to finance building your new house
Purchasing a property is a big decision that requires careful consideration. For First Home Buyers, financing your new house is often the biggest consideration and buyers may find themselves wondering what are the actual costs of buying a house and what are the hidden costs of buying a house I need to be made aware of?
Whether you’re a first home buyer, or purchasing an investment property, if you have questions about how to apply for finance or are apprehensive about doing so in the current market, here are some tips on what buyers should consider when purchasing a new home.
How to budget for your property?
It’s crucial to be realistic about what you can afford in terms of borrowing money and monthly repayments. Unfortunately, its not all saving hard and cutting back on discretionary items, it is your income that plays a main role in determining your loan serviceability.
As a guide, it’s best if your repayments don’t exceed 30% of your after-tax salary. This is even more poignant with rising interest rates. Allowing for a buffer to cover rising interest rates ensures you are well placed to secure a mortgage, make monthly repayments and have taken the necessary steps to keep your financial position secure.
What are the hidden costs of buying a house?
There are extra expenses to consider when securing a home loan for a house and land package, beyond the sale price of the land and the costs of the build itself. It’s common for people to advise “save for a 20% deposit”, however, this doesn’t consider other associated costs of buying a home like stamp duty, conveyancing fees and council rates.
It’s also a lot harder to save this amount when housing prices continue to rise.
Start by doing your research and you will have a more accurate understanding of the associated costs of buying and be better prepared financially for this significant investment.
Consolidate debt.
It’s not all saving hard and cutting back on discretionary items but it is somewhat about them.
When looking at borrowing money, your financial institution will review a minimum of 3 months of your living expenses to ensure you can comfortably meet your mortgage payments. So, minimising your spending and reducing your debt commitments, will have an impact on your borrowing capacity.
For some helpful savings tips, you can check out our saving for your deposit blog post here.
What else should I know when applying for a home loan?
Did you know, lenders evaluate the frequency a borrower changes jobs and moves house? Regular change of employment as well as a residence may be considered unstable from a lender’s perspective, and can negatively impact your eligibility for a home loan.
If you have recently started a new job, you may find it hard to secure finance with one of the big four banks. Thankfully, mortgage brokers can usually help these individuals secure finance elsewhere as well as helping to get a lower home loan interest rates.
Know the market.
When securing a home loan for a house and land package, an important point to make is that your loan will not be granted until after land titles have occurred. This can be both good and bad as the current market conditions may not apply when the time comes to secure your home loan.
It is important to account for possible fluctuations by considering a higher contribution or a lower property purchase or build price.
A benefit of purchasing when interest rates are up, if your budget allows you to, is that you have experienced the market in a tougher state. When interest rates then go down, you’ll be able to refinance to a better rate or pay off your mortgage sooner by continuing the elevated payments.
Different types of loans and their features
Should I pick a Fixed or Variable Rate? Should I get a home loan with an offset account? The choice ultimately rests on your personal preference and your long term financial goals. Typically, lenders will offer Variable Rates during the land purchase and construction phases, allowing you to fix the rate upon construction completion.
There are both pros and cons with either option, and you must consider all the features and benefits to make an informed decision.
> Variable Rates offer flexibility regarding repayments and allow fee-free access to additional loan repayments. However, the applicable rate is exposed to the market rate and Reserve Bank, potentially leading to increased repayments. On the other hand, in a reducing rate market, your mortgage payments can decrease.
> Fixed Rates guarantee peace-of-mind with a fixed mortgage payment for the agreed term period and can be good for people on a tight budget. Things to note include, there can be restrictions on your ability to make additional repayments or end the terms early.
What does a mortgage broker do?
Using a mortgage broker can be a great asset to the home-buying process, providing insight into the different types of loans, their features, and benefits. With their in-depth understanding of the market and industry, it’s great to have someone in your corner translating the finance jargon and helping you get a lower home loan interest rate by evaluating the different loans and their features.
Other reasons why it can be beneficial to use a mortgage broker include they can save time and suss out any hidden costs of buying a house, guiding you to make smarter financial decisions.
We have teamed up with a highly experienced mortgage broker – Bill Jara, a Senior Lending Manager at Loan Studio who specialises in residential mortgages. He can assist you and answer any questions you may have about how to finance your new home.
Call Bill on: 0466 896 029 or email: bill@loanstudio.com.au.
Want to chat to a member of our team? Our friendly sales team are always happy to help answer any queries you may have.
Please feel free to reach out on either of the following methods below:
Phone: 1300 888 181
Email: info@marigoldtarneit.com.au
View available House & Land packages at Marigold here
View Land for Sale at Marigold Tarneit here
