How to buy a house in 2020

Couple deciding to buy a house together
Are you ready to make 2020 the year you buy or build a home?

Find out everything you need to know in order to buy a house this year.

Buying a new house is no small feat. It’s a major financial commitment and requires plenty of research and planning before you can walk through that door to home ownership. So, is 2020 the year — the year you buy a new home? 

Whether it’s your first home or your next, there are a few things to consider before buying a new property this year. 

What credit score do you need?

The stalwart indicator used by loan lenders the world over, the credit score remains an almighty force in securing a mortgage with the right terms and conditions. 

So, what credit score are lenders looking for in 2020? Well, as always, there’s no hard and fast number to guarantee your path to home ownership, but Equifax has provides the following as a guide:

  • 1200 to 833: You should easily be approved for a loan with multiple options
  • 832 to 726: You should be able to get approved with most lenders
  • 725 to 622: You have a good chance to be approved for a loan
  • 621 to 510: Lenders will look into your income and other factors to assess your suitability 
  • Below 509: If you are approved, interest rates will be very high.

If your credit is less than stellar, don’t worry, there are ways to boost your credit score. It will take some time to right the ship, but it’s worth it when it comes time to secure the right loan. 

What’s your budget?

It’s easy to get swept up in the possibilities of home ownership, setting your sights on your dream home straight out of the gate. Though it’s important to keep expectations realistic. Buying a property is a huge commitment and being too ambitious can be devastating when it comes to your financial stability. 

The first thing you should do is work out a realistic budget. That may very well mean sacrificing a few things, but keep in mind that your first home isn’t necessarily your forever home.

You should consider your lifestyle, and whether you’re ready to buy a home. Have you been employed full time for the past 12 months at least? How much outstanding debt do you have? What are your credit limits and can they be reduced? These are all things that lenders will consider when deciding whether you’re a suitable candidate for a home loan. 

If you’re in the early stages, there are plenty of mortgage calculators available online that will give you a rough estimate of your borrowing capacity. However, if you’re getting serious, you should sit down with a financial planner or accountant to discuss your options thoroughly. 

How much of a deposit do you need?

Saving for a deposit is often the first hurdle for many home buyers as it can be difficult to put away that substantial chunk of money. Particularly if you’re also paying for rent. While it can be a struggle, it’s well worth the effort. Saving up a deposit is a good demonstration to any lender that you’re a committed and responsible buyer. 

In terms of how much you should save … well, the more you can muster, the better. Ideally, you should have at least 20% of your total budget to use as a deposit. Lenders will look favourably on this, and it means you won’t have to take out mortgage lender’s insurance

If you can’t manage a 10 to 20% deposit, there are low deposit programs available to help you reach your goal of homeownership in 2020. 

Do you need pre-approval?

Getting pre-approved for a home loan is not essential, but it is becoming standard practice for many buyers because it can help speed things up.

Pre-approval is an agreement from a lender on how much you can borrow as long as you meet certain conditions. These conditions will depend on your particular circumstances, but can include things like the sale of another home or a valuation of the property. 

To get pre-approval, all you have to do is apply through your chosen lender. They will assess your application and financial capabilities before providing you with a written estimate of how much money you’re eligible to borrow. Keep in mind that pre-approvals generally only last for three to six months and they are not a guarantee that you will receive a loan.  

Should you inspect more than one home?

It may come as no surprise that the answer to this question is yes. You should definitely inspect more than one home. Even if you’re lucky enough to find your dream home upon your first inspection, it pays to keep looking around. 

It’s important to see what’s available. You may know what you want out of your first home, but you may change your mind once you start having a look. Explore homes in different suburbs to get an idea of what your money can buy. Look at different layouts and options such as apartments, townhouses and freestanding residences. Take your time so that you can be sure that you’ve found the right fit.

You’ll also want to get out to a few different inspections because the property market is competitive. Just because you’ve found the right home doesn’t mean you’ll get it. You’ll want to have a plan B and C, just in case. 

How do you make an offer?

Once you’ve found ‘the one’, you should make an offer. While it seems like a simple transaction, there are a few things to consider. To ensure you’re making a good offer, you should:

  • Research the value of other homes in the area to give you an idea of how much the home is worth.
  • Find out as much as you can from the agent (ie. is the seller considering other offers, are they in a hurry to sell, etc).
  • Remember the agent is working for the seller, not you.
  • Don’t go with your highest offer straight away unless you know the seller is seriously considering other offers. 

You can make one of two types of offer you can make:

Unconditional: You’re 100% happy with the property and inspections. You’re ready to buy. Once the seller has accepted your offer and contracts are exchanged, you are legally obliged to go through with the sale. 

Conditional: You’re mostly happy with the property and inspections. You’ll buy the home subject to certain conditions. Once the seller has accepted your offer and contracts are exchanged you are obliged to go through with the sale subject to the conditions being met. These conditions can include valuations, finance, building and pest inspections, repairs being carried out, etc.

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