Buying a house can be a nerve-wracking process as for most people it's
the biggest investment they'll ever make. However, as Saul Geffen of
MortgageSA says, there's no need to panic if you ask yourself these
six simple questions first.
Is the location of the home right?
It's often said that there are only three things to consider when buying
property location, location and location. The old adage still
holds true, says Geffen.
"Your property should be an investment which will continue to
grow in value in the years to come. So buyers should always look at
the surrounding areas what sort of infrastructure is there, where
are the nearest schools, how good or bad is the security? You must consider
all of these factors before putting in an offer, as they will be considered
when assessing the value and the potential return on investment when
you eventually sell your home."
How big a deposit do I have to put down?
Buyers should also consider the loan-to-value ratio in other
words, how big a percentage of the home's value they have available
to put down as a deposit. This deposit is the equity one is willing
to invest in the property, offset against the total amount of the home
Geffen suggests that "It is a good idea to try and put down 20
percent as a deposit, as the bank will typically grant you a higher
rate of concession than if you invested only 10 percent. It's also worth
noting that you are not always obliged to put down a deposit. Some banks
are happy to cover 100 percent of a bond plus costs however,
this will impact on your interest rate discount."
How do the repayments compare to my salary?
It's also important to consider the repayment-to-income ratio to determine
whether you can really afford to keep up your loan repayments and aren't
setting yourself up to default. Geffen says that MortgageSA typically
advises that the buyer's mortgage repayments should not exceed 30 percent
of their gross monthly salary.
What are the transfer costs?
You should also ensure that you have made provision for transfer costs
forgetting these can be a costly error for any home-buyer as
they are an important factor in determining whether you can really afford
the home. Typically, transfer costs will equate to eight percent of
the total mortgage value a sum that needs to be taken into account
when calculating your initial investment in the property.
For how long will I be paying off my bond?
A 20-year (240 month) repayment term for a mortgage is fairly standard
amongst most lenders. Buyers should be aware that they can negotiate
for longer or shorter terms. "But," cautions Geffen, "this
can affect the total cost of the mortgage in terms of interest paid
over the long term. It should also be noted that some lenders will not
grant bonds to buyers who may not be economically viable for the full
20 years in other words, those who are close to retirement age."
Will I have to take out insurance?
Lenders will always require that their liability is protected, and will
insist that you take out homeowners' insurance. In those considered
more high-risk cases they may also insist that you take out life cover
as a condition for granting the mortgage. These obligatory costs must
be factored into your monthly repayments when you calculate whether
or not you can afford the investment.
Online resources centres can also be a good source of support, and
can help buyers assess the financial implications of buying a home.
Amortisation, transfer cost and affordability calculators, have been
designed specifically to help buyers identify the various scenarios
they may face, and work out how much flexibility they have should any
of these factors change. These are available on banks websites
and on the MortgageSA homepage.