Buying your
house
Welcome to our page 49, buy your own house
Unless you are rich, the first house you buy is a small house or unit,it is safer that way. After that you can upgrade, whenever you can afford that. Anyhow, this is my personal advise. You see, you don't need to take risks, specially when you don't know what is involved.
Buying your house
Dear readers, the decision of buying your own house is one of
the hardest things in life to decide, because it is a big investment and
requires a lot of money. But as things are today in Australia, it could turn
out to be the best thing you have ever done. You see, most people that own a
house, once they have paid it, they feel better financially, since they don’t
have to pay rent, even though they must pay for rates and other things, but
these things are not as much as paying rent. Anyhow, here we would like to help
you to make the right decision. So, we are going to describe a few things that
happen when you buy a house, because we believe that there are advantages, as
you will be able to see for yourself, by the time you read this entire article.
Anyhow, we hope that what we are writing here, could be your
life best advice that you receive for free. Here, we are inviting 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 yourself, and you have also to pay rent, whenever the rent is
due. So, we are encouraging you to buy your own house, but there are a few
things that one needs to know, or we need to 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 bought it
because we needed a house. Anyhow, we are writing this article 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, because
they could be helpful.
Buying your
first home
So, let us talk about owning a house, I suppose that we all
would like to live, and if it is possible to 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 article, 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 save money, and how to
organize and understand financial matters, because, organizing and
understanding finance is very important, if you want really to buy your own
house. Now we need to say, that finance could be 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
your house, or anything that requires a large sum of money, which you must
borrow. But above all, remember that you need to save money, or have a large
amount of money from another source to buy a house.
So, here we are talking about saving money, but, there might be
a problem with the present generation to do that, because I am afraid that this
younger generation of today, they are not thinking of saving money at all, and
this is the greatest problem that they will encounter, when they are going to
buy a house, or any other thing that requires a lot of money to buy. In my
younger days we were good at saving money, because we all had seen lean times,
when we had to save money just to feel that we were safe, in case something
happened suddenly, we could still feed ourselves; 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. This is made worse from what usually
happens today, it is the sign of the times. So, let us discuss what happens. You
see, 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 must 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, it 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, then 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 rich 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 the money they earn. 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 at the beginning, 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, if we want to improve
ourselves financially.
This is what is needed from you young people, if you 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 one day, 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,
as most people say, and you want to avoid it. This is what we are going to talk
about next.
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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, it 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 could be involved.
Today here in Australia, and I believe in most of the western
world that runs financial matters like we do in Australia, to buy a house you
can find help in the banks and other financial societies, which 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 can pay them back, their capital and 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, for buying
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 repayments 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 for, 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 sum 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.
So,
I should say here, buyer beware what you are doing, because, 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, for 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 you believe that
you can afford it, then you can 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.
Let
me add this, it would be wise to ask a few money lenders, just to compare what
they are going to charge for your loan, and other things as well. So, you can
make up your mind which one to pick, when you are ready to borrow.
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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 that you could 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, 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 remains
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 or real estate article.
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