James PuahBuying your first home is not easy and there is plenty to think about both before and after you apply for a home loan or start looking at houses.
The media are saying that the cooling property market is making it easier for first-home buyers but it is still not easy.
There are some major hurdles and as mortgage brokers we wanted to look at the three biggest challenges for first-home buyers.
Three Things First Home Buyers Need To Think About
Of course, any first-home buyer will have a whole list of challenges and they will vary from person to person; however, as leading New Zealand mortgage brokers, we look at the three biggest challenges for first-home buyers in the current economic environment and property market.
These three challenges are in no particular order;
The Deposit – is probably the biggest challenge for first-home buyers. Most people believe that you need a 20% deposit for your first home; however, mortgage brokers have a range of options (including bank home loans) that offer low-deposit home loans.
Often a first-home buyer can buy a home with just a 10% deposit but the banks do charge you more with low equity margins so while you can buy a home with a low deposit, a larger deposit is preferable.
Some people can get help from family, which makes things easier, but you need to be careful with how this is set up. Plenty of families have issues when there is money involved things can get quite problematic.
Household Income – first home buyers are often younger and therefore have not reached their earning potential.
Lower incomes make borrowing more difficult, but the banks place a lot of importance on stable and regular income, so even some higher-income buyers will find lending for a first house quite difficult as the income may be unpredictable.
There are ways to increase household incomes, but you need to consider what is possible and sustainable.
Other Payments – many young people will have some debts or other regular payments that need to be paid.
Credit is easy to get for things like vehicles, furniture, and even holidays and because of this many first-home buyers will have some debts that need to be paid. Even though you may consider those debt repayments as manageable and even interest-free, they are still debts that need to be paid.
Other payments that can limit the amount that some people can borrow are childcare or child maintenance costs and student loan repayments.
If you are saving for your first home, you would be advised to speak to a mortgage broker early to help you plan, and also it’s a good idea to set up a budget to help you manage your household budget. There is some very good online software to help with budgeting and it’s been created by Kiwi’s too; Pocketsmith.
So these are the three biggest challenges that we see; however, there are several others that we also see.
The Elephant In The Room
We have looked at the three biggest challenges for first-home buyers, but after being a “buyer” you become a home owner, which presents new challenges.
The biggest of those is the big debt that you now have – your mortgage.
For most people, the mortgage on your home will be the biggest financial commitment that you will ever have, and when you first buy a home it can seem rather overwhelming.
A home loan is a debt that you will be paying off for years and it can become quite a burden.
Once you have purchased your first home you will want to ensure that you have a strategy to pay off your home loan faster. By paying off your home loan more quickly you will save a lot of money but also you will have choices to help you deal with life’s changes.
So you should look at the mortgage reduction system, “eat my mortgage” which shows you how to pay your mortgage off faster and helps create good habits for debt management.
