Home Buyers Information Guide

Preparing for your new Home

Prepared by:

Geoffrey Boyd. HOME BUYERS INFORMATION GUIDE e: [email protected] w: www.hobig.com.au

2014 Contents Secure PTY LTD, all rights reserved

Preparing for your new Home.

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Prepared by:Geoffrey Boyd Managing Director Home Buyers Information Guide a Division of Contents Secure Pty Ltd www.hobig.com.au

Disclaimer This document has been prepared as a guide only and is unlikely to contain all the information that prospective home buyers or builders may expect or require in order to make informed decisions on home buying or building choices. The data is to the best of the authors’ and publisher's knowledge accurate as at the date of publication but may vary from time to time and with location. Prospective buyers or builders should therefore rely on their own enquiries and obtain appropriate expert advice as part of their decision-making process.

Links provided in this book will take you to web sites other than www.hobig.com.au . These are provided for convenience only. We do not sponsor, endorse or otherwise approve of any information or statements appearing in those sites. Contents Secure Pty Ltd is not responsible for the availability of, or the content located on or through, any such external site. While every effort and care is taken in preparing the content of this site, Contents Secure Pty Ltd disclaims all warranties, express or implied, as to the accuracy of the information in any of the content. It also (to the extent permitted by law) shall not be liable for any losses or damages arising from the use of, or reliance on, the information on our website or this booklet. It is also not liable for any losses or damages arising from the use of, or reliance on sites linked to this site, or the internet generally.

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Table of Contents Disclaimer...................................................................................................................................2 Introduction.................................................................................................................................4 Location requirements............................................................................................................6 Property requirements............................................................................................................7 Loan Application Checklist....................................................................................................8 Preparing a Budget.................................................................................................................8 More about Budget Planning..................................................................................................8 Cost Analysis for Buyers......................................................................................................10 Cost Analysis for Home Builders.........................................................................................11 Summary of Financial Situation ..........................................................................................12 Assets & Liabilities..............................................................................................................12 Legal Representation............................................................................................................13 Organising Finance ..............................................................................................................14 Relocation Costs...................................................................................................................15 Finding a property................................................................................................................15 Overview to the Cost Analysis & Budget............................................................................16 The Cost Analysis ...........................................................................................................16 The Budget.......................................................................................................................17 Flexibility.........................................................................................................................19

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Introduction How many times have you heard these sayings when people are buying a property? • “I wish I had been told that before we started”. • “Buying a home is such a stressful experience”. • “We should have known our financial position in greater detail”. Geoffrey Boyd, a retired financial planner and insurance advisor with 22 years experience decided to look into these matters further to see how buyers could be better prepared.

Some problem areas uncovered included:• •

• • • •

The Buyer only goes through the process once or twice in a lifetime so they are unfamiliar with proceedings In today's society, time is such a precious commodity. To have to research, collate and analyse all the information required for a property on top of maintaining work and family commitments can be a very daunting task. There is little information available at the preparation stage. Detail is available on the internet, but is very fragmented. Trying to visualise the “what if's” in the planning process. Ie. Rising interest rates, reduced income, increase in family size etc. How will these impact on the future financial situation? Not knowing the total financial situation could lead to foreclosure down the track.

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Some of the secrets to a great move are:-Start the planning process as soon as there is a hint of relocation. -Understand the total process before making a commitment. -Make sure you have a complete understanding of your financial situation.

Never go backwards during the planning stages. Always be prepared for the next step. Lets elaborate on this:•

Don't look for houses until you have finance approved, understood the legal process, and checked that the location you have decided on, meets all your needs.

•

Don't sign a contract until you have had your legal obligations explained by a legal practitioner.

•

Don't apply for finance until you have all the following prepared:1. A list of Assets & Liabilities 2. A budget including all Income & Expenses 3. All the necessary paperwork required to go with a loan application

By following these steps you will save a lot of time in the planning process as you will be prepared for interviews with service providers instead of being told what is required at the first interview. Preparing a Plan From the research conducted, it became apparent that the better the client is prepared the better the outcome. Listed below are all the issues to be addressed in preparing a plan:• Where do you want to live? – List location needs • What type of property suits your needs? – List property requirements • How do you arrange finance? - Loan application checklist • How much you can afford? - Prepare a budget • What are the costs of buying verses building? - Prepare a cost analysis • How much you can borrow? - Prepare a list of Assets & Liabilities • Are the plans affordable? - Redo the budget with the revised repayment schedule • What is involved in the moving process? - Prepare a “to do list” In the business world today, most projects undertaken are managed with computer software. The good news is that there is now a “Software Package” available to assist home buyers.

Lets breakdown all the above issues and see the value in this “Software Package”.

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Location requirements When considering the location of your new property there are many factors to take into account to meet the needs of all the family. Some of these are :• Proximity & type of Schooling • Shopping facilities •

Types of Transport required

•

Medical & Hospital Support

•

Proximity to Work

•

Sporting Events

•

Social Events

When moving to a new location, consider the following issues:•

Will travel to work be increased both in time and cost. ( Assess traffic conditions at the time you will travel each day. )

•

Will extra travel time have an impact on the family lifestyle

•

Are you in the right catchment area for the school/s you require

Create a list of priorities that includes, Essentials, Preferred and Don't need. *Template available in Software Package

Benefits: •

Acts as a reference so that all factors are on hand when selecting a location.

•

Lists are invaluable when viewing houses in different suburbs on the same day. Make notes using the templates so nothing is forgotten at the end of the day.

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Property requirements As with location, there are many things to consider in the needs of the new property. Some of these are:• House, Villa, unit etc

• No. of Bedrooms

• Living areas

• Inside Entertainment

• Kitchen

• Eating areas

• Single or Double story

• Garages & Parking

• Outside entertainment

• Property Aspect

• Heating and/or Cooling

• No. of Bathrooms

• Swimming Pool

• Security System

• Building Maintenance

• Garden Maintenance

• Type of Internet Access

Create a list of priorities that includes, Essentials, Preferred and Don't need. This information will help a Real Estate Agent narrow down your search. *Template available in Software Package

Benefits: •

This information will assist with initial property searches on the internet.

•

Once you choose the area you wish to live in, this information will assist your chosen Real Estate Agent in finding a property.

•

The information will also act as a check list at any home inspection.

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Loan Application Checklist When applying for a loan, the lending institution will require a lot of personal information to process your application. Originals or certified copies of documentation required will need to be supplied. As each institution can request different information we have prepared a list of the most common requirements so that you can be prepared. Note: Some of these documents could take time to organise, so start early and be fully prepared when a property presents itself. To view a list of the main documents required, click on the link below:http://www.hobig.com.au/download/A2_Loan_Application_Information_Checklist.pdf

Benefits: •

Being fully prepared with the required documentation should cut down on second & third appointments.

•

This would be time saving and stress relieving.

Preparing a Budget A good Budget can be the key to the preparation stage. Knowing your own financial situation is imperative in making such a large capital outlay. Your financial situation is unique so why rely on benchmarks used by Institutions. When preparing a budget most information needed would be available from bank & credit card statements and store cards. Also a good budget calculator needs to:• Show income and expenditure on a monthly basis so that a surplus or deficit is readily seen for that month, • Must be on your own computer so that updates and changes can be made at any time without re-entering the basic data. ( Not available with most online calculators) • Available for financial planning of future needs after the home is purchased. More about Budget Planning

Defaulting on loan repayments and having your property repossessed would be a nightmare. . Here are some guidelines that could assist with prudent budgeting: • When compiling budget figures ensure all expenditure items are included. Remember to include incidental like your daily coffee which when annualised could add up to a tidy sum.

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• Try and envisage any financial changes that will occur in the future and build these into the budget. Some examples are: 1. Increase in family members. 2. Increase in interest rates 3. Higher education costs as children get older. 4. Proposed changes, alterations or additions to the new property • When calculating your monthly repayments use an interest rate of say 2% above the current variable rate. This will show that you can cope with some rate rises. • At the same time use the monthly repayments calculated from the higher rate. Combine this with a redraw facility on your loan and over time credit funds will accumulate in the home loan account. • This will provide a buffer against some unforseen circumstances at a future date. *Spreadsheet available in Software Package

Note: The “Budget” in the software package can be used at any time for your money management needs Determine what you can afford “Working

out what you can afford is one of the most important decisions within the purchasing process. “In calculating what you can afford to pay for a property it is important that you budget your ongoing living expenses so you have a comfortable level of repayments. “In budgeting such expenses you should make allowances for unforseen events such as loss of an income for a period of time or future increases in interest rates. “Do not over commit as you may encounter financial hardship in the future.” This is an Extract from: www.eyeon.com.au

Benefits. •

This information will be of assistance when applying for finance

•

It will give you an in depth understanding of your financial situation

•

Can be used for future funding needs

•

Once the average monthly expenditure is determined, it is recommended that this amount be deposited to a separate bank a/c each month.

•

This a/c will then be used only for items listed in the budget only.

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Cost Analysis for Buyers To ensure that sufficient funds are available to complete your project, a detailed Cost Analysis is a high priority. Depending on the property you purchase there are costs incurred from many different areas. A complete understanding of these costs should ensure that your project is completed within budget. Costs are incurred in the following areas for an existing property :•

Purchase Price

•

Fees & charges from the Lending Institution

•

Conveyancing Costs including Stamp Duty, Title Searches, Registrations, etc

•

Relocation Costs including removal and storage if required

•

New Furniture and White Goods if required

•

Pest Inspections & Property Reports

•

Independent Property valuations

•

Alteration or renovations required

As can be seen there are so many factors effecting the overall cost of the project that makes careful costing essential. To simplify this process we have designed a purpose built spreadsheet that allows you to compile and change a Cost Analysis with ease. *Spreadsheet available in Software Package

Benefits:•

Assists in calculating an accurate cost of the total project

•

All funds required should be known in the beginning

A sceen shot of part of the Cost Analysis Spreadsheet.

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Cost Analysis for Home Builders • When building a house it is the “norm” to obtain a “Tender” from a builder. This “Tender” will include the basic price plus extras. • Once a “Tender” is accepted, finance is arranged around this figure. • What is just as important is what is not included in the “Tender”. • These are the extras that you have to supply and fund to complete the project. Mostly they are not included in your costings as all attention has been on what's included. • This means you will have to increase the loan amount, if available, or fund these extras from cash flow which could effect your original budgeting. This in turn places extra pressure on the family. • Included in our “Software Package” is a checklist of most items needed outside a basic house Tender. Some of these items would be included in the builder's Tender and some not included. •

Take the checklist and ask your builder to cross off all items included in the tender. The remaining items will have to be costed and procured by yourself. These costings will need to be included in your application for finance to ensure your project can be completed within your budget constraints.

Extra costs incurred when building a property can include:•

Cost of the Land

•

Extras not included in the Builders Tender price. These can include:Light Fittings

Curtains & Blinds

Air Conditioning

Alarm Systems

Fencing

Retaining Walls

Landscaping

Driveways

Letter Box

Clothes line

Smoke Detectors

Natural Gas Connection

*Spreadsheet available in Software Package

Benefits:•

Assists in completing an accurate “cost analysis” for the total project.

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Summary of Financial Situation Once the Budget and Cost Analysis are complete and your financial institution has given you guidelines to interest rates and the proposed term of the loan in years the “Summary” can be used to determine the following:•

Monthly repayments at the current interest rates

•

Monthly repayments at an inflated interest rate ( Say 2% above quoted rate )

•

Comparison of monthly surplus's before and after completion to see if proposal is financially viable.

Other variables known as the “What if's” can be checked by going back to the Budget and altering some of the data to check if future changes would effect the viability. Some of these could be:•

Increase in income due to promotion or changes in employment

•

Reduction in income due to family changes

•

Increase in school fees with changes in education

•

Proposed alterations and additions at a future date

*Part of the Spreadsheet in the Software package

Benefits:•

Can view monthly repayments using various interest rates and loan time frames

•

Ability to see the “What if's” and understand there impact before commitment.

•

Have an overall understanding of the financial road ahead

Assets & Liabilities Any application for finance requires a list of Assets & Liabilities. To be prepared, the compiling of these lists should not be left till the last moment as some figures can be missed out. This could especially apply to superannuation monies. Once again start this process early so that it is not rushed. *Spreadsheet available to record data in Software Package

Benefit:•

All data is on hand when a Loan Application needs to be completed

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Most of the preparation has now been outlined for you. All that is missing is the software to complete the tasks. “Click here” to download your Software Package

Once your preparation is completed it is time to visit the various service providers to continue the process. These service providers are servicing clients like yourself every day. It is essential that nothing is assumed and guidelines need to be set on the expectations of both parties.

Legal Representation When buying a home or land you will have to sign a contract. The legal work involved in this process is called “Conveyancing”. To understand the Conveyancing process it is suggested you visit the following web site:http://www.fairtrading.nsw.gov;.au/Tenants_and_home_owners/Buying_property/Conveyanci ng.html This website sets out:•

Who can do conveyancing work

•

The conveyancing process and associated costs

On your first visit to a legal advisor, you need to determine or understand the following:•

Understand the legal process of buying a house. This should be carried out before signing any contract.

•

Understand the time frame required for the completion of the Conveyancing process

•

Determine if your legal advisor can assist you in organising building and pest reports.

•

Determine all cost associated with the legal representative. These costs can then be used to update your “Cost Analysis” spreadsheet.

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Organising Finance When organising finance the better you are prepared, the easier the process will be. Make sure you are on top of your own financial position. If you are new to organising finance it is a good idea to understand the total process. This can be achieved by visiting the web site below:http://www.fairtrading.nsw.gov.au/Tenants_and_home_owners/Buying_property/Getting_fina nce.html#Budgeting_for_a_loan

By now the following information should be at hand:•

A complete list of assets and liabilities

•

All documentation required to substantiate the application.

•

A completed budget that shows income & expenditure, and should show how much is available for mortgage repayments

•

The amount needed to borrow which is the total project cost ( Cost Analysis ) less funds available for a deposit.

The first goal in this process is to obtain a loan “Approval in Principle” so that you know how much you can borrow. This approval is subject to a property valuation. The first chore with a Financial Institution is to complete an “Application for Finance”. This should be fairly straight forward if you have completed the Budget, Cost Analysis & Assets and Liabilities. In the application there is one question that will require some very close attention. It is something like:•

Others expenses eg. general living,

or

•

Total Living Expenses ( Incl: Motor Vehicle, Rates, Electricity, Gas, Telephone, Food, Clothing, personal, Home Insurance and Education Expenses ) This is quite a hand full for one little box.

All these expenses can be extracted from your Budget. This is one area that should not be estimated as this figure can vary so much from household to household. A little extra effort now could save some embarrassment down the track if you had really underestimated this figure.

Action required at first interview •

determine all the costs associated with your Financial Institution and update your “Cost Analysis”

•

Determine what repayments are needed to service the proposed loan and place this amount in your “Budget” to check if there is still surplus income.

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Relocation Costs You will need to determine early on whether you will move yourself with the help of friends or engage a removalist. Some Removalists will give you an estimated cost over the phone. This could cover any of the following services:•

Supply of packaging material and cartons

•

Doing all the packing themselves

•

Transfer from old house to new.

When looking at these costings consider whether the move will be direct from the old property to new, or will there be some delay. If there is a delay, storage costs will need to be budgeted for, plus there could be 2 moving costs. Make sure this is discussed in detail with your removalist. Action required at first interview:•

Obtain testimonials from provider

•

Use cost estimates provided to update your “Cost Analysis”

Finding a property With all the planning now completed you have the following information which can assist you with finding the “dream” property. •

Geographic Location and Property details

•

Affordable Purchase price

Using the above information, the first search can be carried out on the internet. The 2 most used web sites for this search are Domain.com and Real Estate.com Once the location is known it is time to research the market in the following areas:•

Check out previous sales in the area. This is normally available on any Real Estate agents web site. Compare the houses similar to what you require.

•

Get to know the value of properties in the area, don't rely on others.

Check current listings and how long they have been on the market. Generally the longer a property has been on the market, the more over priced it is. Houses that are priced right don't remain on the market very long. Action required at first interview with a Real Estate Agent:•

•

Make sure you are comfortable with the agent.

•

Understand the values in the area.

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Overview to the Cost Analysis & Budget Everybodies financial situation is unique. This means that you must have to understand your situation and don't rely on others. This particularly applies when looking for finance. Be prepared when you are addressing the two most important issues when buying a house. 1. How much will it cost you? – You need to complete a thorough Cost Analysis 2. Can you afford it? - A complete Budget would prove very beneficial. Lets look at how the Financial Package section of our Software addresses these issues for you.

The Cost Analysis The Cost Analysis is designed to take into account all the costs incurred with your purchase. It is split into different segments to cover each part of the project. Each segment has its own costing box. The segments are:•

Lending Institution Costs

•

Conveyancing Costs

•

Relocation Costs

•

Furniture and Whitgoods

•

Miscellaneous

•

Grants & rebates

Each of these segments has a “Notes” Cell in the top left hand corner. ************* Check these for hints & tips

Conveyancing costs can be sources from your legal representative ************* All costs are placed in the right hand column and automatically totalled at the bottom Figure 1 This is a sample of the costing box

Figure 2

The total amount in each costing box is transferred to the “Summary of Costs” Box *************** Enter the purchase price of your property and you now have the total cost.

Any changes or updates can be easily entered into the spreadsheet. Just type over any figure you wish to change and the totals will be automatically recalculated.

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The Budget The budget is broken down into monthly segments so that each month's cash flow can be viewed. This allows you to plan ahead by seeing which months have a positive cash flow and which ones are negative. The graph at the bottom of the page also shows this.

Figure 3 Note: For illustration purposes all input fields are not shown in the expenses area The summary section below shows monthly totals for Expenditure and Income. It also shows your Average Monthly Expenditure.

Figure 4 This summary also shows your average monthly surplus or deficit with your current budget. This area is important when determining the affordability of your new home. We will come back to this later. You can view your Monthly Surplus or Deficit in graph form so you can see the results at a glance. This can be like don't spend this month's surplus as it could be required to fund next months deficit.

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Lets go back to the “Cost Analysis”

The total price in the Summary box is automatically transferred to the “Loan Details” box

Figure 5 What information can be derived from the “Loan Details” box? •

Insert your deposit in the required box in Loan 1

•

Insert the current interest rate and the required term of the loan.

•

This will give the monthly repayments.

If your required loan repayments are higher than you current payments ( or rental payments ) check that the difference is less than your “average monthly surplus” which was determined at the bottom of the budget in Figure 4. Loan 2 can be used to check out the following variations to Loan 1. At all times check to see if your extra repayments can be funded by your Average Monthly Surplus •

Use an interest rate of 2% higher than Loan 1 to see if you can cope with interest rate rises.

•

Use a shorter loan term to see if you can save on interest paid over the loan period. The interest savings will show up in Figure 5.

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Flexibility The software is very flexible and can be used to check many different scenarios. Lets look at some of these. How to correct a deficit. Reduce the purchase price Go to Figure 2 and reduce the price and then check the repayments Increase the term of the loan if possible

Change the “Loan Term” in Figure 5 and this will reduce the repayments

Increase Earned Income

Change income in Figure 3. This will reduce the deficit.

Note: A combination of any or all of these methods can be used at the same time. How to plan for future changes. Planning for future changes will give you piece of mind knowing that these things have been budgeted for, if or when they occur. Rises in Interest rates

Increase the interest rate in Figure 5

Renovations to new home

Include in Cost Analysis under Miscellaneous

Increase in Family

Make extra monthly expenditure allowances in your budget

Note: Always check your “Surplus / Deficit” in Figure 4 to see the outcomes As you can see the software is very flexible and allows you to create many different scenarios in the planning stages of your new home. Disclaimer: This information is of a general nature only. It does not take into account your individual objectives, financial situation, or needs. Please consult your Financial Planner or Legal representative before making any decision.

Most of the preparation has now been outlined for you. All that is missing is the software to complete the tasks. “Click here” to download your Software Package

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For further information visit our web site at:-

www.hobig.com.au