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Author: Toni Davis

Should you rent or buy your first home?

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We’ve all had that one friend who changed overnight after they bought a house. They suddenly walked with that certain swagger, and you might have even got the feeling they pitied you a little, as if they’d been through some cultural rite-of-passage, leaving you sitting at the kids table. Sound familiar?

You may be right to question their choice. As we all now, housing affordability, especially for first home buyers in major cities and regional centres is at an all-time low. So, if it’s tougher to get into the property market than ever, why aren’t more of us choosing to rent homes and put off buying for a while, if not for good? (First home-owners grants aren’t what they once were, either, btw…)

Well, while the market has changed, buying a home is still an important financial goal, allowing you to build wealth over time, but that doesn’t mean you need to feel pressure to do it right away. There are a number of things you may want to consider before deciding to rent or buy your first home.

Are you ready to put down roots?

One of the major reasons we hear from our customers as a motivation to become a first home buyer is that they’re tired of paying rent, which they see as ‘dead money’. The fact is, more and more young Aussies are beginning nomadic careers, or leading lifestyles which don’t lock them down in one location – we’re travelling more than ever. In these cases, renting provides the flexibility that just doesn’t come with a 25-30 year mortgage.

If you can’t see yourself being in the one spot for at least the next three years, renting may be a smarter choice. Yes, the cost of renting may rise during this time, but so will taxes and the annual costs of home ownership. Plus, it can take up to three years for a purchased property to appreciate in value enough to cover the costs associated with buying.

How familiar are you with your tool-belt?

Sure, owning lets you make a house your own, but this freedom is a double-edged sword. If your plumbing gives out, or your wiring starts showing its age, you don’t have the safety-net of a landlord to call to fund these repairs. Depending on how old your property is, the cost of repairs can be quite a shock to the uninitiated. Will you be in a financial position to handle the unexpected?

Saving for your deposit

Many first home buyers are vastly uneducated when it comes to the actual cost involved in buying. The old 20% deposit figure seems hard to shake, with many young people assuming this is all they’ll need to get in the market. The reality is, this number is flexible.

If you aren’t able to save the 20% deposit, there are options available, like a family pledge, or guarantor loan, or you can opt to use Lender’s Mortgage Insurance. What’s important to remember is that even if you’re able to save the full 20% deposit, there will still be additional buying costs you’ll need to budget for, like stamp duty and legal fees.

With multiple deposit options available, you simply need to get as much information as you can about buying for the first time, figure out which route is right for you, and ask yourself if saving such large amounts is realistic for you given your current financial circumstances. If not, it’s not the end of the world to re-adjust your home-buying timeline.

Know what you can afford

If you’re dead-set on buying, it’s important to consider how buying will affect your wallet after settlement day. A good rule of thumb is to try to keep your total monthly housing costs (including mortgage, rates, insurance, etc) under 30% of your monthly gross income. If you’re looking at properties in a price range that stretch this figure, you might want to think about holding off on buying, exploring more affordable options, or scouting a cheaper location to buy.

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