Buying a home is a significant milestone for many people. Whether you’re purchasing your first property or upgrading to a new home, it presents an exciting opportunity to build your future while also bringing responsibilities and potential risks.
If you’re entering the property market, it’s essential to equip yourself with the right knowledge. With a solid understanding of your financial situation, mortgage options, and key property considerations, you can make informed decisions.
Assessing your financial health
Before you start house hunting, the first step is to assess how financially viable a home purchase will be for you. If you’re planning to apply for a mortgage, the bank will look at your credit score - typically a three-digit number that reflects how well you’ve historically managed debt and credit.
You can check your credit score for free using platforms like ClearScore.
Another key step is calculating your income against your expenses to determine how much you spend per month and how much you can allocate toward a mortgage. Take the time to consider your lifestyle and decide how much you are willing (and able) to adjust, if necessary, to accommodate homeownership.
Get pre-approval and engage professionals
Obtaining pre-approval from a lender is crucial before making an offer on a property. Pre-approval gives you a clear understanding of your borrowing capacity and strengthens your position as a buyer.
Additionally, having a team of professionals such as a lawyer and a mortgage adviser, ready to assist you can streamline the process. These experts can guide you through legal documentation and financial strategies, ensuring you are well-prepared for the purchase.
Deciding on property Once you’ve assessed your financial situation, you’ll have a clearer idea of which homes you can invest in. Location plays a significant role in a property’s value, but it’s equally important to consider factors like the property’s suitability for your long-term plans. When considering a property, think about:
- Future needs: Is the house suitable for 5-10 years? Does it offer the potential to add another bedroom or enough space to accommodate growth?
- Schools: How close is this property to a school? What school zone is it in, and how popular are these schools? Even if school zones aren’t relevant to your plans, they still factor into the value of a property (and are subject to change).
- Community and convenience: What’s the area’s overall vibe? Consider commute times, access to public transport, shops, and local activities.
- Future Development: What is the future of this suburb? Is there planned housing, commercial, or public infrastructure projects? How will this affect the property’s value?
There are many factors to consider - this guide by OneRoof sheds some light on determining a property’s value.
Understanding your options
Fixed vs. floating interest rates
Mortgages can vary in many ways, with one of the key differences being how interest is repaid. One of the first decisions you’ll need to make is whether to choose a fixed or floating interest rate.
In brief, a fixed interest rate remains the same over a set period, while a floating interest rate typically changes in line with adjustments to the Official Cash Rate (OCR). Each option has its pros and cons – in NZ, fixed interest rates are generally lower and more predictable but less flexible, while floating rates allow for more adaptability but can be subject to fluctuations.
This is an important choice, so take the time to fully understand both options.
Loan structures and repayment strategies
Loans can be structured in several ways, each offering different features such as repayment terms or a credit limits. Borrowers often have the flexibility to select a loan structure that suits their needs. If you’re unsure about how to structure your loan, a financial adviser can help provide clarity. When managing your loan, it’s important to have a clear repayment strategy. For instance, increasing your repayment amounts or making additional lump sum payments can reduce the time it takes to pay off your mortgage. Using a mortgage calculator can assist in visualising your repayment plan and making informed decisions.
Keep yourself informed
The property market can move quickly - keeping up-to-date on the latest trends and changes can help you make a well-informed decision. There are many great online resources, with NZHerald, Stuff, and OneRoof hosting sections dedicated to property market news. You can also check property listings and prices on Trade Me Property and Realestate.co.nz.
LifeDirect Mortgages is here to help you navigate the complexities of buying a home. Our mortgage advisers can provide valuable support by helping you compare rates, determine an appropriate loan structure for your needs, and guide you through the application process. Get in touch with our friendly team here or call us on 0800 562 665. We’re here help you find the right mortgage solution for your new home.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
