10 Important Things to Consider Before Buying a Property
Buying a property is a big decision, no matter if it’s one for you to live in or an investment property. Here are 10 important things to consider before you buy any property.
There’s an old saying that ‘the three most factors when choosing a property to buy are location, location and location’. Although it’s a cliché, it highlights the undeniable importance of a property’s location.
When you buy in a good location, your property will be more likely to increase in value over time. You’ll also be more likely to rent it to good tenants so that you can generate income.
Highly desirable locations for both owner-occupied and investment properties tend to have the following characteristics:
- a good public perception,
- close to good schools,
- good shopping and public transport facilities, and
- plenty of things to do on the weekend (restaurants, cafés, entertainment venues, parks etc.).
Property prices in Australia have a long-term growth trend, especially in good locations in Australia’s major capital cities, even if there are short-term periods where values stagnate or even decline.
2. How much you can afford to pay
Getting your finance pre-approved by a lender will let you know how much you can afford to pay before you even start looking at properties. Knowing how much you can afford to pay before you enter the market can save you a lot of time and effort. It can also help you to negotiate the best deal with a seller.
Different lenders will have different lending criteria, and some will be prepared to lend you more than others. For example, some may be prepared to lend you money for a home with low (or no) deposit. However, it’s important to understand that those lenders will charge you a higher interest rate.
3. Additional buying costs
You’ll be up for additional costs beyond the property’s purchase price when you buy. Those additional costs include:
A conveyancer facilitating the transfer of your purchase funds to the seller and the legal transfer of the property’s title to you. This amount is usually between $1,000 and $1,500.
- disbursement expenses
There may be additional expenses that a conveyancer needs to pay to third parties on your behalf on the property’s settlement date, such as your portion of any property rates or body corporate fees.
- finance fees
For example, loan application fees.
- building and pest inspection expenses
You should make any property purchase conditional on a satisfactory building and pest inspection. This will typically cost you around $500, but it will give you the peace of mind that there aren’t any property issues that will require you to spend a lot of money for repairs. If any issues are identified, you can either walk away or negotiate a lower selling price.
- transfer (stamp) duty
transfer duty (also known as stamp duty) is a State or Territory government tax on the purchase price of a property. The amounts vary across Australia. In New South Wales, current transfer duty rates are as follows:
|Property value||Transfer duty|
|$304,001 to $1,013,000||$9,112 plus $4.50 for every $100 over $304,000|
|$1,013,001 to $3,040,000||$41,017 plus $5.50 for every $100 over $1,013,000|
|Over $3,040,000||$152,502 plus $7.00 for every $100 over $3,040,000|
- lenders’ mortgage insurance (LMI)
Most lenders will also charge you LMI if you can’t provide a 20% deposit on the value of your home. The cost of LMI depends on the value of the loan and how much deposit you can provide. As a guide, it could cost more than $10,000 on a $500,000 home loan if you have a $50,000 (10%) deposit. The cost of LMI is usually added to your loan, meaning that you’ll pay interest on it.
However, if you’re a first homeowner, you may be able to avoid the need for LMI by taking advantage of the First Home Owner Grant and/or the First Home Loan Deposit Scheme.
4. Whether you’re eligible for the First Home Owner Grant (FHOG)
The First Home Owner Grant (FHOG) is available to eligible first homeowners in most Australian States and Territories. The amounts available and the eligibility requirements in each State and Territory vary. In New South Wales, the FHOG is $10,000 for first home buyers who:
- are building or buying a brand-new home that’s valued at under $750,000,
- are Australian citizens (or permanent residents) over the age of 18, and
- intend to move into the property within 12 months after buying it and/or construction is completed.
5. Interest rates
It’s important to understand that lenders typically quote two interest rates on their home loan products: the nominal rate and the comparison rate. The nominal rate is always lower because it doesn’t include any associated loan fees and charges. The comparison rate, on the other hand, includes the cost of all loan fees and charge. It, therefore, reflects the true overall cost of the loan.
Always use the comparison rate when comparing the home loan products offered by different lenders. Lenders in Australia are legally required to provide you with this information before you take out a loan.
Interest is the single biggest cost associated with any property loan. Interest rates in Australia are currently at record lows but it’s important to consider that home or investment property loans are typically long-term commitments. There’s no guarantee that rates will remain low.
It’s possible to take out a home or investment property loans with a fixed interest rate for periods up to 5 years as an alternative to taking out a variable rate loan (where rates move up and down based on market conditions). If you take out a fixed-rate loan and rates increase, your repayments won’t increase. However, if rates decrease, your repayments won’t decrease either.
Unfortunately, no one has a crystal ball to be able to predict future interest rate movements, especially over the long term. One way to ‘hedge your bets’ is to take out a split loan. This is where a fixed interest rate is applied to part of your loan balance and a variable rate to the remainder.
6. Loan features
It’s worthwhile considering if you should include any additional home loan features when you take out a mortgage, like offset accounts or redraw facilities.
An offset account allows you to offset the amount you have in your deposit account against the amount you own on your home loan so that you’re charged less interest.
A redraw facility allows you to withdraw funds against the equity (ownership) that you build up in your home over time if you need to.
It’s important to understand that additional loan features like these may come at a cost. You should do a cost-benefit analysis to determine if they’re worthwhile for your specific needs and circumstances.
7. Your needs and goals
Understanding your short, medium and long-term needs and goals before you buy a property will help you to make the right purchase decision. For example, if you’re buying a home to live in and you plan on having children in the future, you need to find a home that will be large enough to accommodate your family.
8. The price of comparable properties in the area
It’s crucial to thoroughly research the property market before you buy. These days, it’s easier than ever to research online via sites like realestate.com.au and domain.com.au.
You need to research the recent selling prices of comparable properties in the area where you’re looking to buy, so that you know market values. Knowing that information will help you narrow down which properties are within your budget. It will also help you to make the right offer to buy a property, rather than paying too much.
9. Supply and demand in the area
It’s important to understand the basics of supply and demand when buying a property. If there are a lot of comparable properties available for sale in the area where you’re looking to buy, it’s what’s known as a buyer’s market. You should be able to negotiate a good selling price in that situation. There’s an old saying that ‘you don’t get what you deserve, you get what you negotiate.’ It certainly applies to buying property.
On the other hand, if there are a limited number of comparable properties for sale in the area that you’re keen to buy in, it’s a seller’s market. It will be less likely that you’ll be able to negotiate much (or any) discount off the property’s listing price.
10. Does the property have renovation potential?
Buying a property that has renovation potential can allow you to make capital improvements to increase its value. However, it’s important to fully understand the scope and potential cost of any renovation work before you decide to buy a property for this purpose. It’s also important not to overcapitalise (i.e. spend more renovation money than you’ll be able to recoup if/when the property is sold in the future).
How we can help
At Qi Wealth, our experienced, expert team of home loan specialists can help you to secure the best possible finance deal for your property. We’ll take the time to understand your individual circumstances so that we can provide you with the best possible advice. We develop long-term, trusted relationships with our clients.
Contact us today to find out how we can help you!