Am I ready to buy a property?

Am I ready to buy a property?

How do you know. When is it the right time? Maybe you just turned 30 or 40 or another milestone and are feeling like you have missed the boat. Perhaps you’ve saved up a good amount of money, or perhaps you have family looking to gift you money to help get you in to the market. But is it the right time?

Your first step is to reach out to a mortgage broker for a borrowing capacity assessment. Id suggest not going directly to a bank. More than 70% of the market use a broker for many reasons. What one lender will lend you is not the same as what another lender will and rates can vary significantly across the lenders. For your first property- now is not the time to go directly to a bank. You need the guidance of a broker that will help you navigate your way through the whole process.

Better yet it’s a free service.

 

Your broker will provide you with your maximum borrowing capacity based on your income and deposit. Now that you have this- then what?  

 

• Ask yourself where do you want to live? Now and for the next 5 years. What is the range of purchase prices to buy into this area. Does your borrowing capacity allow this? If not- then perhaps consider changing areas.

 

• Does your current deposit allow you to buy a property for this price? If not, how long will it take you to save this money to be able to afford it. Is mortgage insurance an option to you to help you get into this area.

 

• If the answer is yes to both of these questions then you are in a fortunate position. But its important you don’t just assume what the banks will lend you is what you should borrow.

 

• Ask for the repayments on current repayments and also at a higher rate. Up to 6.50% is a prudent figure at the moment. The lenders will likely use a figure close to 9.00% at present.

 

• Based on the higher amount- can your current budget afford it? How much are you paying in rent and saving. Is this close to the forecast loan repayments? If yes, is this an amount that you can continue to sustain or having you been sacrificing literally everything to be able to save this deposit. If so will you be happy to continue to live like this to have your dream property? Or are you expecting payrises or a change in circumstances.

 

• Have you factored in a buffer for rainy day items or changes in circumstances like having a child and being on one income.

 

• Now is the time to really delve into that budget allowing for everything that you spend money on, and want to spend money on. Chances are you wont be able to have everything and there may be some sacrifices but the important thing is to assess if there is a large enough element of discretionary spending in your budget to allow for you to have a choice to scale back on these in the event rates rise or circumstances change.

 

• After you have performed this exercise, its time to really ask yourself if you can afford it and WANT to afford it. If not, it may be enough to consider buying an investment property instead. This gives you an income to help pay the mortgage, and the ability to move around depending on your life circumstances whilst being in the property market.