Fact: A vast majority of folks consider their home their most expensive asset.
And if you’re like most people, you’re probably well aware that securing the entire house-hunting process can be quite tedious.
From dealing with agents to securing permits and contracts, there are a lot of confusing moving parts when buying a house for the first time.
But perhaps the biggest dilemma for the average prospecting homeowner is getting to save enough money for a house in the first place.
In Australia alone, the median price of a house is closing in on the 7-digit mark, making it all the more challenging for unhoused individuals to get a place they can call their own.
With that said, there are several ways you can effectively budget your way into buying a home as a first-time homebuyer.
Here are seven of these strategies in more depth.
1. Look for a house within your budget
There’s an undeniable shortage of affordable housing units in most major cities worldwide, from Sydney to New York. Considering the average price of a standard home, buyer competition for cheap homes is bound to be cutthroat and fierce.
However, this shouldn’t force you to push your budget beyond reasonable constraints,
It's vital to prioritize your financial well-being before making a purchasing decision for your new home. Having a house near big cities may seem convenient, but the mortgage can be far too costly to pay off in your lifetime.
It may also seem tempting to get a home with a modern kitchen or a stately chandelier, but ask yourself this: are these extra frills truly worth the price?
The best way to go about house hunting is to set a maximum price and stick to it. A rule of thumb that’s often touted by experts is the 28/36 rule.
This rule states that your housing costs, primarily your mortgage and its fees, should be no more than 28% of your monthly income. It also states that recurring debt should be no more than 36% of your monthly income.
By picking a house that serves your family and works within a reasonable budget, you can save thousands of dollars on recurring costs over the home’s mortgage plan.
2. Know your non-negotiables and can-do-without(s)
Since it’s your first time buying a home, it can be hard to immediately know what’s necessary and what are simply optional add-ons.
Most families only need the essentials: an appropriate number of bedrooms, a bathroom, a kitchen, a dining room, and a living room.
The number of bedrooms and bathrooms may depend on the household, but if you want to save money, fewer rooms or connected room designs may be best.
There are also things you can forgo to cut down on costs. If you have a driveway or easy access to public transportation, a garage may be unnecessary.
Live a minimalist lifestyle? Then you likely don’t need an attic or a basement. Not a fan of tending green spaces? You can settle for a small lawn.
Be sure to discuss and be in agreement over the criteria when purchasing a home with your family or housemates. This way, you’ll have no financial regrets and qualms when you settle into the place.
3. Use savings for the down payment
The downpayment for a house is 20% of its market value, give or take. Sellers typically require buyers to pay this money upfront.
If you still lack enough capital to pay for a downpayment, it’s best that you just wait and accumulate. Avoid taking out a loan, as this would only increase the total cost of a house over the length of the term thanks to the interest rate.
Furthermore, showing sellers that you can pay a downpayment in full exudes a strong buyer profile. This can give you an upper hand when the seller has to decide on who’s best suited for the house among all their prospecting visitors.
4. Pick the right lender
Dealing with lenders can be a pain at times, but they’re our partners at the end of the day. They provide financial aid that can spell the difference between having a house and not having one.
That said, there are and will be lenders that will throw unfavorable rates your way. It can be hard for first-time home buyers to know what’s a good deal or not, so you may not immediately notice it.
This is why it’s a good idea to vet and choose your lenders wisely. Research on possible lending options within your community; your banks, online lenders, and local credit unions are a good start.
Once you’ve gathered a list of potential candidates, evaluate each one of their offerings. Check and scrutinize their mortgage rates, fees, and terms. Then compare it with your financial situation and see which one saves you the most money over the term.
Furthermore, be sure to read up on reviews. Not all lenders uphold their end of the bargain, so be sure to get a good idea of who you’re partnering with before signing any contracts. After all, you’ll be dealing with them for years, if not decades.
5. Review and cut your monthly expenditures
Another saving strategy is a fairly simple one: cut down on monthly costs.
Many people and their dependents buy things without understanding the financial repercussions of it.
While buying stuff can definitely boost your happiness receptors, it’s important to curb impulsive purchases as it can greatly affect your financial health.
And you don’t have to start with anything too drastic either. You can cut down on snacks and random mall visits, for instance. You can also look at your monthly subscriptions and cancel the ones that you’re not using.
By making these minute changes, you can improve your financial health slowly but surely. You can click here to see the savings by age.
6. Avoid lifestyle inflation
If you’ve recently been promoted and received an increase in income, you may be tempted to splurge the funds immediately.
You may feel like you deserve a little self-indulgence, like a luxury bag or a holiday out of town. While they are certainly nice, if you want a house at a cheap price, it’s best to hold off on any costly activities for now.
The most responsible thing to do is to continue living the way you’ve been living. This means keeping your expenses the same, while using the extra money to boost your savings.
7. Take advantage of government grants
Australians who are about to purchase a home have one trick up their sleeve to save a few thousand bucks: a government grant.
Australian citizens can apply for a First Home Owner Grant (FHOG) grant to reduce the GST expense related to home ownership.
This one-time payment is, of course, only applicable to first-time homebuyers. It’s typically marked at $10,000, but it can differ based on state and your profile.
Other grants and opportunities are also available, like getting a free home upgrade, for qualified owners. Be sure to check in with your local government and see what’s available.
