Buying your first home is confusing, stressful, and a huge financial decision – and nobody knows that better than those who have actually done it. Here's our advice, gleaned from sometimes brutal first-hand experience.
Buying a home is intimidating. Buying your first home can be terrifying. Once the adrenaline rush from bidding at the auction subsides revealing the burden of 30 years of debt, that exciting moment of owning your first home can leave you feeling like Atlas, a drafty four bedroom villa with renovation potential metaphorically sitting on your shoulders.
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To help relieve some of that weight, The Spinoff has put together some tips from our personal experiences of buying your first home. This short guide provides some expert insight on who to talk to, what to look for, and what to do, to help you navigate this big moment.
Don't take the max contract
When my wife and I first asked the bank to lend us money we were shocked at how much they were willing to give us. It was a huge amount. The hypothetical interest payments felt far beyond what we'd be able to cover, let alone making a dent in the principal. While the bank had effectively endorsed us to look for homes that were worth over a million dollars, the idea of being burdened with that amount of debt was overwhelming.
So as we explored potential options for our first home we rigidly set a budget well below what we could have borrowed. We weren't comfortable degrading our current, still relatively modest lifestyle for the benefit of the future financial certainty of owning a home.
When we eventually found our little home in the Titirangi bush it was hundreds of thousands of dollars cheaper than what we what we had permission to borrow. But as soon as we moved from renting to paying a mortgage we felt it. Paying back the bank for our new home was nearly double the weekly payment for our crumbling yet charming flat on Auckland's historic Franklin Rd.
We had to make big budgeting changes to ensure we were could make our mortgage payments, prepare for potential rises in interest rates, and save some money for home maintenance. While we've managed to maintain a lifestyle we enjoy, it's also required a lot more care and attention and fewer rounds of shots at 3am (which is relatively easy when you don't live around the corner from Snatch (RIP) any more). But had I borrowed much more from the bank my ability to enjoy my life now would have been so thoroughly eroded I don't think I could have enjoyed my home, despite its long term benefits.
My advice is don't borrow the max. The stress of being leveraged to the hilt isn't worth it. It will steal the joy of owning your own home, especially when you can't afford to fix the leaky toilet.
Bonus open home tip: Always test the shower pressure. No matter how beautiful the home, a weak shower is not worth any discount.
– Simon Day
Gamify your mortgage
So you've shackled yourself to a bank for 30 years – here's one small trick that will make it marginally more entertaining. I split my mortgage into four pieces, each one running on a different length fixed term. Having them rotating that way had multiple upsides. Firstly, it meant that I could take advantage of what was broadly a descending market for mortgage rates over the last 10 years by fixing more regularly. Secondly, if I came into some random chunk of money as a freelancer, I never had to wait long for a part of the mortgage to float, and thus be able to pay off a chunk without any penalty payments. The third part was the most fun (assuming you share my perverse definition of the word): browbeating your broker/banker.
Because we have a relatively diverse banking sector now, and one which is increasingly competitive in the mortgage sector, there was often some doorbuster rate being advertised. I remember when rates got below 6 percent, then 5 percent, now they're below a shocking 4 percent. Each time you could use that rate as a stick to beat down the rate you'd pay.
Banks always have non-advertised rates they can use on a discretionary basis to keep customers from getting antsy – or looking too hard at a competitor. A few minutes on the phone a few times a year often produced savings of hundreds if not thousands of dollars. Calculating it in advance and making a game of it is one way of passing the time.
– Duncan Greive
Do the mahi
The number one thing I would recommend to anyone looking to purchase their first home is to do your own research. And by that I mainly mean around house prices in the area you're looking to purchase.
I found myself at open homes asking the real estate agent how much money they think we'd need to be in running for a particular house, and was often given a number around 10-15 percent lower than it ended up going for. And the reason for that is to drive more traffic to auction night when people, especially first home buyers, get a bit excited and start bidding well above their means. Trust me, I did it, and I'm so thankful some else in the room was sillier than me.
If you request recent home sales in an area, real estate agents can provide that. So get it and use it. Look at what similar houses have recently sold for recently around the corner and benchmark the home you want against these numbers. They are, after all, cold hard facts.
The only thing that dictates what a house is worth is the market. So look at the market and trust this information more than anything or anyone else.
– Mark Kelliher
Get close to an expert
Befriend a real estate agent and ask them all of your dumb questions. I was lucky enough to have a stepdad in the game and his knowledge of the whole process – what's a LIM? What do I need lawyers for? How conditional is conditional? – was crazy helpful during a time when you're getting yourself into huge amounts of debt and navigating a process that's very foreign and somewhat terrifying. And if you don't know someone in the game settled.govt.nz is a great, independent place to start when you're trying to figure out what it all means.
– Kerryanne Nelson
Live the European lifestyle – buy an apartment
Apartments are a good option for first homeowners for a couple of reasons: they're (usually) a bit cheaper and you don't have all that pesky grown-up maintenance to deal with.
I wouldn't jump into buying an apartment without having lived in one as a renter first – you want to make sure the lifestyle suits you. It might be stating the obvious, but if you need a sprawling backyard and are easily irritated by neighbour noise, it's probably not for you.
The hunt can feel a little overwhelming at first, especially if you're in Auckland where there seem to be endless apartments to choose from. After looking at a few duds you'll soon realise what you're after, however, and be able to separate the wheat from the chaff when you're trawling through TradeMe.
So, things to remember: when checking out an apartment, use the compass on your phone to work out where the sun will be at each time of the day. Sun is really important, especially in the late afternoon. Don't rely on what the real estate agent says – they're working for the vendor, not for you.
Don't get panicked into making an offer. Always get a building report or inspection done first, even if it's just someone you know who has building knowledge. You don't want to end up buying a leaky home, and one of the checks they do is moisture levels in walls and ceilings. Before you put in your offer, get a lawyer to have a look at the offer documents, or at the very least, insist on a clause that says 'subject to lawyer's advice or approval'.
Obviously, you'll need to know if you can afford the property you're looking at. Check out mortgage interest rates and when you do your sums, add a couple of percentage points to the current rate to see if you'd be able to afford that.
You'll also have to factor in rates, of course, and with apartments, there's the added cost of body corp fees, which cover insuring the building, maintaining the common areas, yada yada. So it's important to factor those in when you're looking. The more bells and whistles the building has – everything from lifts to gardens to pools and gyms – the more you'll pay. Before you buy, it's worth getting hold of the body corp minutes and find out what's in the maintenance fund. Might there be a big maintenance bill looming?
– Alice Neville
The Spinoff
