Top tips for buyers - Taking the guesswork out of buying your home

Top tips for buyers - Taking the guesswork out of buying your home

For most of us, buying our home is the biggest investment we've ever made - yet too many of us go into the process uninformed, without a real sense of the risks (and hidden costs) involved. But, says MortgageSA, there's really no need to panic if you follow a few basic rules of thumb. Chief Executive Saul Geffen says these are some of the most important questions to ask:

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 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 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 loan. Says Geffen, "It is a good idea to try and put down 20% as a deposit, as the bank will typically grant you a higher rate of concession than if you invested only 10%. It's also worth noting that you are not always obliged to put down a deposit. Some banks are happy to cover 100% 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. Typically, advises MortgageSA, the buyer's mortgage repayments should not exceed 30% of their gross monthly salary.

For how long will I be paying off my bond?

A 20-year (240 month) repayment term for the 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."

By asking these simple questions, potential buyers can take a lot of the guesswork out of what is after all a major investment, requiring careful consideration. Online resources centres can also be a good source of support, and can help buyers assess the financial implications of buying a home. Amortization, transfer cost and affordability calculators, like the ones available on www.mortgagesa.com, 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.

For professional advice on considering the financial aspects of property investment, contact MortgageSA on 0860 0123 60