16 Questions First Time Home Buyers Should Ask (Before the Grant Ends)

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We may be in the midst of the worst recession since the Great Depression, but as house prices have fallen along with interest rates, now is actually a great time to get on the property ladder. The following questions are applicable to first time home buyers thinking about getting on the ladder at any time, but are especially worthwhile considering as the window to apply for the grant runs out soon.

1. First Time Home Buyer Grants

Do you qualify for the government’s scheme? If so, have you decided if you buying a newly built house or an existing property because the amount you will receive is higher for new houses (AU$21,000) than existing dwellings (AU$14,000). Take a step back, remember that the grant system will still be there after 30th September 2009. So you will still can get a helping hand from the government to own your first home.

2. Housing Affordability

The affordability of houses in Australia has been low for years now. Make sure to work out what your repayments will be using a home loan repayment calculator (to get a estimated figure) in order to know if you can really afford to pay the loan off weekly, fortnightly, monthly or whatever payment cycle you choose. Remember, one of the reasons for the housing collapse in the United States was that home loans were being offered to people who could not reasonably be expected to pay off the home loan.

3. Is Your Job Secure?

Think about how secure your job is right now and what it could be a year or two down the track? Would you be able to still make enough money if there was another financial shakedown?

4. Do You Have Job Satisfaction?

If you took on a mortgage would you be satisfied staying in your current job? The last thing you want is to step into a mortgage trap, paying off a lender for years all the while trapped in a job you hate doing but are too scared to leave?

5. What Are Your Job Prospects Like?

Generally when a recession grips a country people in jobs usually feel less willing to switch workplaces and therefore more willing to stay put until the economy starts to move again. If for any reason you needed to change jobs would you be able to find one? or are you too specialised or not well qualified? Remember, paying off your massive debt will then be your main financial concern.

6. Interest Rate Shuffle

The interest rates are low right now, very low, in fact variable mortgage rates are the lowest since 1968. You might be able to afford a house and the repayments with interest rates locked in at a low rate for a few years, but could you still afford the repayments if and when the economy starts to show green sprouts and interest rates go back up?

7. Is the Property Actually Worth Buying?

Don’t get fixated on the grant money. Think about the house you are interested in buying – is it worth it? If you bought the house, could you sell it or would you be stuck with a bomb?

8. What About Negative Equity?

Will property investments depreciate? Long term, probably not, but certainly in the short and mid term there has been some speculation as to whether homes on the lower end of the market will drop immediately after the current grant finishes. In other words, there may be a property bubble on the cheapest houses in Australia.

9. Relationship Strain

Is your husband/wife happy about the idea? You and those who are entering into the home loan need to be in agreement. Seriously, do you value owning a home over and above the relationships that you have close to home?

11. Can You Afford the Associated Costs?

Huh, there’s more than just the home loan to pay out? Unfortunately, between stamp duty, taking days off work to inspect properties, moving house, paying for bank set up fees, paying for a pest control inspection, conveyance fees, building inspection reports and other personal finance emergencies that can crop up from day to day there are many other ‘hidden’ expenses involved.

12. How Big is Your Deposit?

Currently, Rams Home Loans will over first timers a 95% loan. On an average property of, let’s say, $300,000 that will require a deposit of about $15,000. If you can save a deposit of 20% or more you won’t have to pay mortgage insurance to the bank giving you more money at your disposal – and if you’re wise you’ll pay off the house faster.

13. Are You Debt Free?

If you can show that you have been able to pay off personal loans and credit cards you will be more likely to get a bigger mortgage as opposed to going to the bank laden with unsecured debts. It is always a good idea to go into a home loan with a lean and healthy personal finance situation.

14. How Healthy is Your Credit Score?

If all of these factors have been considered and you are serious about buying a home then before applying for any home loan find out what state your credit score is like and take steps to repair anything untowards.

15. How Big is Your Credit Card Limit?

This is an easy one to fix. Most home loan repayment models will show that a lower spending limit on your credit card will help to lower your repayments.

16. Do you Have Savings as Backup?

Financial experts such as Alvin Hall and Dave Ramsey recommend that you should have an emergency fund of a minimum of 3 months in savings and better still, 6-9 months of your monthly wage before making a major investment. That way, if something goes badly wrong you will have money stored away ready to use solely for the purpose of emergencies. A great place to store these savings are in online savings accounts that offer a decent interest rate but can also be accessed at anytime. Ask yourself, have you got that kind of security?

So, lets say you can answer these questions with a yes then its possibly a good time for you to make the jump, take advantage of the FHBG and buy a house.