What feels like a lifetime ago – but is really just under a year ago – I went into the bank and got pre-approved to buy my first home.
Little did I know the extent of the journey I was about to start. After many, many months of searching, open homes, auction rooms and tears, I have finally found my first home and, as I write this, am days away from settling into my humble abode.
Here’s some of what I learned along the way to buying a house in Auckland.
Start a finance workout routine
When lenders decide whether to give you pre-approval for a home loan, they will take into account your financial shape. So, the lead-up to approaching a lender for pre-approval, is the time to trim the financial fat. Consider whether you can reduce your credit card limit. Banks will often take the limit into account – not just the balance – because the limit is essentially debt you could get into in the future.
Also, are you making your credit card payments in time? Make sure you are paying more than the minimum on your credit card – not just because it will help you avoid paying more in interest than you have to – but also because it shows good financial discipline to lenders.
Another debt to keep in mind is your student loan. A student loan is interest-free while you are living In New Zealand, but the lender will still consider this debt when they are deciding whether you would be able to manage mortgage repayments.
Put aside money for the extra costs of buying a house
Saving for the home deposit is the key component of your first home buyer savings. But, unfortunately, it is not the only cost associated with buying a house. While you’re getting your finances together, make sure you also keep aside some money for the extra costs along the way. This includes paying for the solicitor for conveyancing, paying for Land Information Memorandum (LIM) reports, home and contents insurance and rates.
Preparation is key – know what is happening in the market with rates
Before you go back to the bank to talk about home loan rates (once you have found a property) make sure you have checked what is going on in the market. How will you know if you are being offered a good deal, if you don’t know what the current rates are? Before the meeting with the bank to discuss rates, I had a thorough look at the Canstar home loans database, so I had a negotiating start point. Case in point, there is a 0.7% difference between the minimum (4.29%) and maximum (4.99%) one-year fixed rate, as at 15 June, according to Canstar’s database. And don’t forget, you don’t have to accept the carded rate. Depending on the strength of your application, you may be able to negotiate an even lower rate!
Find a home loan type that works for you
Take the extra time to understand what the different loan types are, how they work and what works for you. That might mean putting in a bit of extra effort to study up – but it could really benefit you in the long run. If certainty of repayment amounts is the most important factor for you, then maybe fixing the loan may be the most suitable. But, you may want more flexibility to make extra repayments, if and when you can.
Talk to your lender about your money personality and what is important for you in a home loan. That way, you have a better chance of locking in a home loan type that best suits you. And what you settle on could look very different from how your friend structured their home loan. And that’s totally fine. You might even try splitting the home loan, between fixed and floating, for example. Whichever way you structure your home loan, just do yourself a favour, take the extra time to research your options.
Sometimes the process feels never-ending – but stick with it!
You’re allowed to be scared, frustrated, upset, or all of the above. Buying a home is a daunting process. Just remember, there is light at the end of the tunnel, even if it seems pitch black right now. Good luck on your first home journey.
A fellow first home buyer.
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