Can you afford to buy a home?
Fri Nov. 22nd 2019
So you've done the maths, scraped every last dollar together and have all the money you need for any house buying costs. Or have you? You don't just pick a house, pay for it and move in. Home ownership brings with it a raft of setting-up and ongoing expenses you may not have even considered as a renter.
So you've done the maths, scraped every last dollar together and have all the money you need for any house buying costs. Or have you?
It's true that the deposit and ongoing mortgage payments are the biggest lumps of money you'll need to buy a house, but they're not the only costs. We've made a list of what you'll probably face – from house-hunting to living in your home day to day. You don't just pick a house, pay for it and move in. Home ownership brings with it a raft of setting-up and ongoing expenses you may not have even considered as a renter.
Costs involved in the purchase
Mortgage and deposit
You already know these are your biggest costs, and maybe you've scrimped and saved until you feel you have a reasonable deposit in hand. Of course, what you've saved will determine what you can afford, as your deposit needs to be a set percentage of that.
Most people need to borrow the rest and it's important to remember your mortgage payments are linked to interest rates, which don't stand still. They're low right now, but they're predicted to rise sometime in the future, so it's a good idea to work out what you can afford right now and what you might have to pay later. Go to https://sorted.org.nz/tools/mortgage-calculator to test some worst-case-scenarios so you're not faced with any nasty surprises.
A building report
Before handing over your deposit, make sure the house you're considering is sound. The only way to be sure (unless you yourself are a builder) is to have it inspected by a qualified person. It's recommended by the Real Estate Agents Authority (REAA) and will cost extra, but a building report is your saviour against buying a lemon. Perfectly sound cladding can hide a leaky home, and innocent-looking additions or alterations can be structurally unsound.
Ideally, your property inspector should have indemnity insurance, and work according to the New Zealand Property Inspection Standards. Organise an inspector, and an engineer too, before you start house-hunting. That way, they're ready to go when you find a house you want to buy. Find a property inspector at buildingsurveyors.co.nz or boinz.org.nz, and engineers at ipenz.nz.
A LIM report
At the local council you can find a Land Information Memorandum (LIM) for the property you're considering. The LIM includes information about rates and building consents, and risks such as leaks, erosion, contamination, landslips or flooding. If a house has additions or alterations that don't appear on the LIM, you can be sure they're illegal, and will need close inspection.
You can view a LIM at the council if you're on a tight budget, the estate agent may provide one, or you can order your own copy for a fee. The Real Estate Agents Authority advises that you check the date on the LIM to make sure it's current, and will stand up in court.
Lawyer fees Sometimes mortgage lenders will pay the lawyers' fees, but it's a good idea to find your own legal representative. That way you get an educated eye over contracts, mortgage agreements and property titles, and your conveyancing (handing-over) managed when you've bought a property.
Real estate agents work for the vendor, and make their money through a percentage of the sale price. It's in their interest to sell the house for as high a price as the buyer will pay, regardless of what it's actually worth. If you want an unbiased indication of what the property you're considering is worth, pay for an independent valuation.
Lenders mortgage insurance (LMI)
You might not have quite enough for the 20% deposit. In that case, you may still be able to access a mortgage, but with LMI premiums added to the loan.
Repairs that need doing right away
A 'do-up' might be solid structurally, but may need urgent work before you can live in it with comfort and safety. That could be a new roof, insulation, or re-piling, and the cost of the work should be included in your purchase budget.
Costs involved in moving in
You've gone through all the previous steps, paid over the money and taken possession of your new home. Hurrah! But wait, there are more costs:
Furniture and appliances
If you're expanding your living space, you may need more furniture. How will you heat your new place? If you don't own basics like a washing machine, fridge, heater or microwave, try buying second hand. That way you get some breathing space to live in your house for a bit, and consider what you really want – and what you can afford.
Utility connection fees
Before you move in, you'll need power, internet and sometimes water and gas connected, and each usually comes with a fee.
No matter how much you're able to do yourself, you'll face moving costs. A moving company will do it all for you for a per-cubic-metre fee. If you hire a van or truck, you pay for the hire and insurance. Even if you own a ute, and you have plenty of strong friends for the heavy lifting, shifting still incurs petrol costs, which will need to be considered.
The house warming party!
This is nice to have, but it's another expense. Depending on how many people are coming, and what you serve them, a party will require at least some food and drink. If you have party animals for friends (or family) you could end up with damage to deal with afterward – wine on new carpet, blocked loo, broken glass – that will be expensive to repair.
Costs of owning a house on-going
Comparing your mortgage payments to what you used to shell out in rent is just the start of what it costs to own a house. In this section we highlight the most common expenses homeowners face on top of your mortgage repayments.
Local body and regional rates
You don't get water piped into your home and the sewage flushed away for free – that and other services, like rubbish collection and recycling, are paid for in your local body rates. You also pay an annual fee to the regional council for environmental costs. On settlement, you may need to pay a portion of the rates already paid.
House and contents insurance
It's important to contact your insurance company and set these insurances up, so they're ready to go on the day you take possession. They will include earthquake insurance, and you may need to pay the first premium before you move in. If you don't already have an insurance company, shop for a company that offers package deal discounts that include car insurance. You might feel you need (or be required to) take out mortgage protection insurance, to cover your repayments if an accident or illness means you have to stop working.
Body Corporate Levy
Blocks of apartments or units often charge this levy, which pays for the upkeep of shared areas – lifts, stairwells, courtyards, gardens, driveways and other features. Along with the Body Corporate Levy comes a specific set of rules that every resident must follow. If your new dwelling is in one of these complexes, you need to factor the levy into your ongoing expenses.
Repairs and maintenance
It's your home, so whatever goes wrong, it's up to you to either fix it or pay an expert. It's a good idea to put money aside in your budget for ongoing maintenance – start with 10% of your mortgage payment. And just as regular servicing of your car helps to hold its value and extend its life, so does regular repair and upkeep of your home. With care and attention, you'll live in comfort and even add value to your property.
We've already mentioned the connection costs of utilities. If you used to share these costs or lived in a much smaller rental, you'll find your bills will be higher in your new place.
On the other hand, your new home may have a solar panel heating your water, more efficient heat pumps, gas lines to the house, or double glazing that keeps your home at a stable temperature. Your internet provider may have a fibre connection in your new area, but if you're living out in a rural retreat, your IT connection is likely to be less reliable and more expensive.
Buying your first home? Do your homework
There's a lot of cost detail in purchasing a house, and the asking price is only the beginning. On top of your deposit and mortgage, you'll need to think about LIM and builder's reports, lawyer's and agent's fees, and any immediate repairs that need doing before you move in. When you get over that hurdle and actually take possession, you'll be facing another raft of expenses, including moving, setting up insurance, connecting your utilities, and maybe some extra furniture.
You might think you can relax now you're not paying rent, but homeowners don't just have to meet mortgage and utility payments. There are also those ongoing costs your landlord took care of – rates, repairs, maintenance – that are now your responsibility. Still, if you do your homework, owning your first home is well worth it!
Thinking about buying your first home? Give us a call to explore your options.
Need our help?
We're here to answer your questions.Get in touch with us today
Michael is an expert in his field and really goes the extra mile to ensure a professional, thorough and enjoyable experience when looking for Insurance cover or trusted Financial advice. Highly recommended.
Coronoavirus: Should I be changing my Investments?
As the Coronavirus epidemic enters it's eighth week, Investors around the world continue to assess the long-term economic effects of the epidemic, with mixed verdicts.
The Myth of 2020 Vision
Jim Parker, Vice President of Dimensional Fund Advisors, looks at how this years political and economic events could shape the financial markets, however he advises to err on the edge of caution if your usual investment behaviour is determined by what you read in the press.
7 Reasons You Need an Emergency Fund
Being financially prepared for the unexpected with a healthy emergency fund is a cornerstone of managing your finances. And here's the inconvenient thing about emergencies - they don't discriminate. You might have a stable job and enough income today, but those factors won’t protect you completely from financial catastrophe tomorrow.