Advice on first homes and first real grown-up debt

Buying a house is a scary prospect and may be something that you have put on the back burner. You may tell yourself that you are being wise – after all the current economic climate is dicey and you may worry about the future. However, do you know that should you buy a house, you not only save on rent (in other words paying someone else’s bond) but your asset may well make a profit after the first year? This means it is one of the better debts you may enter into in your life time. Admit it, the vast majority of us yearn for a place to call our own…

Oh how exciting to dream about that wonderful inner sanctum – your place of rest and restoration, your blissful harbour of peace and rejuvenation. Maybe you have dreamed of it for a long time and have even thought about a colour scheme and have a particular style in mind. You may be loath to admit it, but you may have already bought a few pieces you just know will go perfectly with your new casa mia.

Down, boy, down!

As your Financial Advisor it is my job to bring you down to earth. There is homework to be done that goes beyond interior decorating.

For one thing, you need to know how much debt you can enter into – in other words how much the banks will lend you and at what rate, before you shop for a house and fall in love with the wrong one – the one you cannot afford.

Big Brother will watch out for you if you let him

Luckily for you, there are professionals that can help you not to, quite unwittingly, make mistakes. If you had come to see me, your long-suffering Financial Advisor, I would have advised you against going to each bank individually and asking for a loan from each of them. Each of these attempts at leveraging finance counts against you in terms of your credit score.

When it comes to organizing the funding for your house purchase, I would have sent you to a bond originator rather than an estate agent. The estate agents may try to tell you that they can negotiate finance in-house, but it really is best to go to an impartial broker. This person will look at your credit report and, on your behalf, make a single applications to all the banks. This will only count against you once! Your bond originator will be able to tell you which bank will approve a loan, for how much and which one will do it at the lowest interest rate. The best part is that you do not pay for their services – the banks do, since they know that this produces business for them.

Location, location, location – it is important in more than one way

Some areas are better to invest in. They may show greater valuations over time. It is quite important to find out all you can about the area in which you want to buy as well as about the surrounding areas. This is important not only in terms of existing infrastructure, but also in terms of any plans the city may have for building additional commercial infrastructure, roads or housing. This may affect the value of your property, both in terms of actual monetary value, but also desirability of the area.

If you are considering buying in an older area, find out about rezoning rules such as for mixed use and whether the area has been earmarked for densification. This means that certain house owners have been given the rights to sell their houses to build flats that may drive up noise, exacerbate parking scarcity, obscure views and drive down the value of the surrounding properties. You can buy reports that will tell you what other properties in the same area – even the same street have been bought and sold for, and what the main attractions are in the area.

Where is work located?

There has been lots of studies done on the effect of commuting on the stress levels and overall quality of life of workers. The experts say it is best to live as close to work as possible, even if it means you need to buy a smaller house. First time home owners often do not think of the added cost of transport to and from work, nor the time it would take and the impact this will have on them actually enjoying where they live. Clearly, some people are willing to make the trade for extra space (further lying areas are often more spacious and cheaper) particularly if they wish to expand their families and want a more suburban environment. It is a fair consideration – as long as it is an active choice and not a default fact of life.

Skipping ever upwards from location to location

Some people consider themselves quite adventurous. They may not be able to buy the best properties in the area of their choice, but are willing, over time, to improve, to renovate and rebuild some portions of a house that may be described as a fixer upper. Whilst they may live in the house they are working on, the idea is that upon completion, it would be sold for a profit and another, better property will be bought as a next project.

This can be a great team building exercise for a young couple with a practical bent. It is worth assessing how much work would be required before buying though. Do your homework carefully here and do not get suckered into the romance of it all! Whereas some work can be done DIY style, it is important to know when to call in the professionals – even if it just for advice.

You may need to ask the advice of an architect or building inspector or electrician. It is also important to keep in mind what the general style of the neighbourhood is and what kinds of features are considered sought after in the area. Be aware that some renovations may run over budget, especially if structural problems arise that may have been covered up before. Renovating a house ‘too well’ may lead to the seller not being able to offset resources poured into the renovations.

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