Buying your first house
Welcome to our page 14, buying your first house
When you buy your first house, is does not have to be the biggest or the best, but it has got to be the house that you can afford.
Buying your first house
The decision of buying your own house is one of the hardest things to decide. So we would like to help you. Therefore, here we are trying to tell you to buy your own house; because there are advantages, as you will be able to see by the time you read this entire article.
You see, this could be your life best advice that you receive for free; we invite you to read this article in the hope that it will encourage you to buy your own house, because everybody deserves a house to live in, we all know that we could live in a rented house, but in a rented house you don’t have as much control as when you own the house and you have also to pay rent, whenever the rent is due. So here we are encouraging you to buy your own house, but there are a few things that one needs to know or learn how to become an owner of a house, or unit or whatever accommodation we can afford. So here under we are going to discuss some of the most important things that I had to go through myself, when I bought my first house, I wish that I had come across something like this article before I bought it, but I just took my chances and bout it because we needed a house. Anyhow this article is here so that you can learn the most important things that one needs to know before you decide to buy your house; we are also inviting you to read our articles about building and maintaining your property, in our DIY brickwork and other building articles that we have published and continue to publish in Hub Pages.
I suppose that we all would like to live if possible own the best house available, perhaps just like the one in the photo shown here above, but to be able to buy that house one needs to have lots of money and this is not the case for the first home buyers, but it is a dream that any of us can dream and if we work hard to achieve that, maybe one day we would be able to own even a house like that, but let us first of all dream about it, but at the same time let us work out how to start to own just a plain house that we would be able to afford; and then by working hard we should be able to climb up the ladder of the real estate one step at a time.
In order to do that first of all we should learn how to organize ourselves to save enough money, and at the same time we should learn about organizing and understanding finance, because to buy a house it is important to know about finance. Our dream home might be something like the picture above; but really these houses shown in this link below might be good enough and if they are not, then let us use them to climb up the ladder of real estate, even if we have to start with a small house, or just a one bedroom unit.
Organizing and understanding finance
We have already mentioned in our last hub, Houses for sale or rent that we need money to buy a house, but, what we have not said is that this money should be your money that you have saved for a while for any worthwhile purpose, so first of all it is necessary that we have a good knowledge of how to organize and understand financial matters, so organizing and understanding finance is very important, if you want really to buy your own house, of course finance is different in different countries and it also keeps changing in any country all the time, so one has got to learn all what is needed to learn, at the time when you are going to buy, but first of all remember that you need to save money, or have a large amount of money from another source to buy a house.
But, here might be a problem with the present generation, because I am afraid that this younger generation of today are not thinking to save money at all, and this is the greatest problem that they will encounter when they are going to buy a house. In my younger days we were good at saving money, because we all had seen lean times and we had to save money just to feel that we were safe in case something happened; one of these saving reasons we have mentioned in one of our articles already, here is the link if you want to check it out, Australian housing industry, it is in the third subtitle in this hub, “Working and saving money”. But the present generation don’t feel that way at all and they spend their money before they earn it, because the greedy money lenders have invented the credit card and the credit card allows people to buy things with their borrowed money, of course you have to give it back to them, but while you are doing that the money lenders charge very high interest for the small amount of money that you have borrowed from them.
So the very first thing that you have to learn if you want to buy a house is that you have to save money, and that you are not borrowing money unless it is really necessary for any large items like buying a car or a house, everything else you have to buy with your own money, so that the money lenders don’t charge you high interest for the money they lent you. Therefore, if you have no money to spend don’t buy anything, unless those things are strictly necessary, if you do that you will find that every now and then you can save some money, once you have done that a few times, you are on the way of saving enough money to buy your own things without being charged interest, and one day you might even buy your own dream home.
Let me explain here how this money business works; so let us describe a couple of examples that with time they might make you reach in one case, or they would make you broke for the rest of your life.
So let us assume that there are two people that earn the same amount of money, and they are about the same in every other way except the way they are using their own money. We will call these two people, X1, and, X2.
So, let us talk first about X1; You see X1 usually spends just a bit more than X2, let us say about 10% more than X2, this might not seem very much, but with time it becomes a great deal, sometimes X1 uses his credit card to buy things before he gets paid, just because he cannot resist the urge, and when the time comes to pay back what he has borrowed, he has to pay just a few dollars interest to his money lender, so he ends up that he can never save any money, and when he does, he soon find something that he wants to buy and buys it, even if he could have done without it just the same, so he ends up always owing money to the money lenders.
Now let us talk about X2: Okay, X2 is different from X1 because he has made up his mind to save as much money as he can, because he really wants to buy a house. So, X2 every week saves two hundred dollars and deposit it in a saving deposit book that also pays him some interest if he has money in it. He has worked it out that in one year he can at least save $10400 plus the interest that he can earn from the bank. So he reckons that in a few years he will be able to have enough money for a deposit to buy his house. Okay, it will take a few years because to buy your house safely you need a big deposit, but so what that is what most of us need to own in our life.
This is what is needed from you young people that want to get ahead; first and foremost have the will to save money, because that is the only way to build up equity and equity makes more equity, that is how the financial world is being run today; I hope you understand that it is up to you to make the effort, because that is the only way if you want to be financially independent enough to be able to buy your own house, and then even a second house, because as we have said money makes money if you know how to use it properly. Therefore, you need to stop dreaming about money coming your way the easy way and start saving money whenever you can, I hope that I have explained myself clear enough for you to understand what is needed. I suppose that by now you are asking yourself, but how much money is needed to buy your first house and stop paying rent, since paying rent seems money down the drain and you want to avoid it, this is what we are going to talk about next.
How much money we need to buy a house?
We have discussed several things already about buying a house, but what we have not discussed yet is how much of our own money we need; you see this is the crucial point that any buyer should really try to know before they buy a house or whatever piece of real estate they are trying to buy. The first thing you have to assume is that you need a good deposit to buy a house, if you have been able to save enough money and have a large sum of money for a deposit, then it is easy to buy and you will not get in financial troubles later on, but if you try to buy with a small deposit you might run the risk to lose the property that you have bought, because you might not be able to repay your loan. So, let us look at a few examples and try to compare them to see what is involved.
Today here in Australia and I believe in most of the western world that runs financial matters like we do here in Australia, to buy a house you can find help in the banks and other financial societies that specialize in giving loans to people to buy houses or any other sort of Real Estate, and even the first home buyer is welcome to use them, but there are rules that you have to follow to qualify for the loan and what does it involve. You see banks and financial societies need security, in other words they want to feel sure that you are able to pay them back their capital and also the interest that they will be charging on the loan.
Therefore for a first home buyer to have a large enough deposit is necessary, it would also be helpful that this money you have saved to buy your house, you have deposited in the bank or the financial society that you are using to apply for the home loan; you see if you have done that they already have the record of how much money you are able to save in a certain amount of time. Let us now try to put forward a few examples:
Let me start with the first loan that we used when we bought the first house. In those times the banks had very strict rules to follow; for the first home buyer they required that you had a deposit of about 25% of the cost of the house you were buying, and that the repayment were about ¼ of your wage that you took home, so in those times people usually were able to pay their loans, just because the banks had this strict rules to follow. But today they are willing to loan money more easily, so it is also up to you the buyers to work out if you can afford the loan repayments easily.
Therefore, because the lenders have relaxed a bit the lending rules, it is easier for the buyers to borrow a larger sum of money that they could have borrowed in the past, but this is not always helpful, because you can borrow more than what you would be able to pay the monthly mortgage when it becomes due; so buyers beware and don’t rely on the lenders judgment completely, because after all the lender are there to lend you money, so that they can make more money for themselves, in some cases this could be unlawful practice to lend money, if the lender know in advance that the loan cannot be repaid, but really the responsibly remains with those people that borrow money; therefore it is important that you should work it out yourself several time before you get involved to borrow a large some of money, because the banks have their own ways how to get their money back, as we will explain later on. Therefore, what should we be looking for if we want to borrow a loan that we can afford to pay back? We will explain a bit more here-under.
Working and reworking what is safe to borrow
So, let us see now, how much money would be safe to borrow and what we should know and keep in mind when we work it out what we can borrow safely. As I have already mentioned above, when the banks were really strict you had to have about ¼ of the cost of the house, and you should have been able to pay the monthly payments by using one quarter of your wages that you took home. This formula is what you have to take as a bench mark to check how safe is to borrow money, but even then sometimes something might go wrong, because you never know what could happen next.
But today some of the lenders are happy if you have 10% deposit of the total cost of the house, therefore the buyers that borrow money should really work it out if they can afford to pay back what they are borrowing; we know that most of the lender will not loan you money if you have no chance at all of paying it back, but at the same time they are not extra careful as they used to be and they take their own chances, hoping for the best outcome.
So, buyers beware if you haven’t a large enough deposit, because you are going to need a bigger loan to buy your house, and therefore a bigger monthly repayment. Now if you have a very good job and you earn enough money to repay the loan, it might still work out well, but at the same time you have to remember that this is also going to cost you a lot more to repay the loan in full; and also remember it is worth to play it safe, so do your maths before you buy, work and rework out what you can afford. In order to help you the buyer, we are going to write here a few examples about what the loan might cost you, so that we would be able to compare the outcome.
So let us assume that Mr. X is borrowing $300,000 dollars to buy a house. The Banks or lending society will loan this money on a 6% interest, this is a bit more of what the actual bank is charging, but we work on this 6% just to cover also the hidden costs that are not shown at first sight.
Just let us make it very simple to understand to the people that are borrowing money for the first time and let us use just round figure. For $300,000 loan at 6% the interest for the first year will be about $18,000, now you have to pay a bit more than that for you to start repaying the capital to the bank, so, let us say another $5,000 or there about. So it is obvious that you need at least $23,000 per year to pay back the bank the first year; which will be very close to $1,920 per month, here the question arise can Mr. X afford that?
Mr X must make sure that he can afford it and has also to keep in mind that when you own a house there are other expenses, like: insurance, the local authority taxes, water supply, power and other services that are needed over the time you are living in your house. There is also maintenance to budget about, you see soon or later you are going to do something to maintain the house in good conditions and there are many other things to consider. So make sure that it can be done, or at least believe that you can afford it, if he does then let him buy the property, because in the long run there are unseen advantages.
Now let us run through another example quickly, where the money lender charge 5%, here Mr X is again borrowing $300,000 loan on this loan the first year would be about $15,000.00 if you still add another $5000.00 to pay back the lender capital, he would need to pay $20,00.00 per year, which will be about $1667.00. The figure above is only a rough estimate, but it gives you an idea how to work things out. The money lender will give you an exact amount on any amount of money you borrow, so you need to ask them about this, when you are going to borrow the money.
The unseen advantages to own a property
Now let us discuss what you could gain by buying your own house, you see there are real gains to make if you make an effort to buy your house; first of all you become more independent as you don’t have a landlord to answer to if you want to do something out of the ordinary; but that is not the main advantage, the main advantage is financial gains and independence and also you would feel proud of owning a property, because you have achieved something worthwhile in your life, but how does it work you may ask?
Here above we have written about a few things that you need to know, before you go out to buy your own house or whatever property you can afford, we have also discussed how much it could cost you, what we have not mentioned is that repaying your loan becomes easier with the passing of time, and this is one of the main gains that property owner would achieve with the passing of time. You see the loan repayment do not go up like the rent does every now and then; so because the loan repayment would remain the same until the full loan is repaid, at least this is what should generally happen.
So, with the passing of time everything goes up, but your loan repayment remain the same, therefore it become easier and easier to repay the loan, because your earning goes up at least as much as the inflation, this is the first thing that a new owner notices with the passing of time, but there are more advantages than just this issue.
Now, because you earn more money, you could afford to repay your loan sooner, but first of all make sure that you have everything else that you need to buy before you do that, because the home loan is the cheapest money you can get in terms of charging interest, once you have done that, go ahead and pay your home loan as soon as you can.
Another one of the advantages that most of us don’t note is the increase in the price of the property, this increase is a very positive advantage for the property owners, if you talk to any real estate agent in Australia, they will tell you that in this part of the world, properties double in price in about seven years, so in seven years time you would have gained at least on paper all the increase in price that has gone up, in some cases it could indeed be twice as much, even though it is the same property that you bought seven years ago, I hope you see what I mean here.
Now, let me explain what I believe and what one should do if you are able to save some money, first of all try to buy your own house and pay it off; and then if one day after you have paid your house, you are able to save more money, it might be worth to invest in real estate again, because price in real estate will continue to go up.
This is all for the time being, I will come back to edit this hub, if I think I have to add more information or something else.
Today we have found something in the Internet that should be interesting to would be home buyers, so we would like to past the link here, for you to check it out; Things You Should Check Before Buying A Home, we hope it works for you.
See you soon in another building article