Buy your own house
This old house in Brisbane Australia
This could be your free life best advice
Welcome to our article (48) buy your own house
Dear readers, the decision of buying your own house is one of the hardest things to decide, because it is a big investment and requires a lot of money. But as things are today, it can turn out to be the best thing you have ever done. You see, people that own houses, once they have paid it, they feel better financially, since they don’t have to pay rent; but they must pay for rates and other things, but these things are not as much as paying rent. Anyhow, here we want 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 see for yourself, if you read this entire article.
Anyhow, we hope that what we are writing here, is your life best advice that you receive for free. Here, we are inviting you to read this article, to encourage you to buy your own house, because everybody deserves a house to live in, we know that we can 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 house, but there are a few things that you need to know.
So, hereunder 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 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 you need 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 in Hub Pages, because they are helpful.
This is a designer dream home. Dreams can come true one day
Buying your own house
So, let us talk about owning a house, I suppose that we all want to live, in the best house available, perhaps just like the one in the photo shown here above, but to buy that house, you need 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 about, and if we work hard, one day we can own a house like that. Anyhow, let us start to plan how to own a house that we can afford; and then by working hard we can climb up the ladder of the real estate one step at a time.
In order to do that, 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 like the picture above; but these houses shown in this link below are 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 one bedroom unit.
Just a bank like any other bank
Organizing and understanding finance
We have said in our last article, Houses for sale or rent that we need money to buy houses, and this money must be your money, that you have saved for a while; so, it is necessary that we have a good knowledge of how to save money, and how to organize financial matters, because, organizing and understanding finance is very important, if you want to buy your own house. Now we need to say, that finance is different in different countries, and it also keeps changing in any country all the time. So, we must learn what we need to learn, at the time when we are buying our house. But above all, remember that you need to save money, or have a large amount of money from another source to buy a house.
Anyhow, I believe that today younger generation, they are not thinking of saving money, and this is the greatest problem that they will encounter, when they are going to buy a house. In my younger days we were good at saving money, because we had seen lean times, when we had to save money to feel safe, in case something happened suddenly, we could still feed ourselves; we have mentioned this in our article, Australian housing industry. 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 happens today. 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 high interest for the small amount of money that you have borrowed from them.
So, if you want to buy a house, you must learn how to save money, and that you are not borrowing money, unless it is necessary for large items, like buying a car or a house, everything else you must 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 can 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 can make you rich, or they can 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 spends a bit more than X2, let us say about 10% more than X2, this is not 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, because he cannot resist the urge, and when the time comes to pay back what he has borrowed, he has to pay a few dollars interest to his money lender, so, he ends up that he can never save 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, 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 wants to buy a house. So, X2 every week saves two hundred dollars and deposit it in a saving deposit book that pays him 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.
You see, if you want to get ahead, you must 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, for you 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.
I suppose that by now you are asking yourself, but how much money is needed to buy your first house and stop paying rent. This is what we are going to talk about next.
Let us talk about money we need
How much money we need to buy a house?
We have discussed several things 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 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, but if you try to buy with a small deposit you can run the risk to lose the property that you have bought, because you cannot repay your loan. So, let us look at a few examples.
Today 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 financial societies, which specialize in giving loans to people to buy houses, and 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 deposit is necessary, it is 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 can 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 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 up to you the buyers to work out if you can afford the loan repayments easily.
Therefore, because the lenders have relaxed the lending rules, it is easier for the buyers to borrow a larger sum of money, but this is not always helpful, because you can borrow more than what you can pay, when the monthly mortgage becomes due; so, buyers beware and don’t rely on the lenders judgment completely, because the lender are there to lend you money, so that they can make more money for themselves. Anyhow, it is important that you 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. Therefore, what should we be looking for, if we want to borrow a loan that we can afford to pay back?
Working and reworking what is safe to borrow
So, let us see, how much money is safe to borrow, and what we should keep in mind when we work out what we can borrow safely. As I have said above, when the banks were really strict you had to have about ¼ of the cost of the house, and you could 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 benchmark to check how safe is to borrow money, but even then, things went wrong, because you never know what can happen next.
So, buyer beware what you are doing, because, today the lenders are happy if you have 10% deposit of the total cost of the house, therefore, the buyers that borrow money must work out, if they can afford to pay back what they are borrowing.
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 can work out well, but at the same time, you must remember that this is going to cost you a lot more to repay the loan in full; and 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 a few examples about what the loan may cost you, so, we can 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 must 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. There is also maintenance to budget about, you see you need to maintain the house in good conditions. 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, 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.
The unseen advantages to own a property
Now let us discuss what you can gain by buying your own house, you see, there are real gains that you can 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.
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 receive 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 will remain the same until the full loan is repaid, at least this is what should 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.
Now, because you earn more money, you can 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 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 have gained at least on paper all the increase in price that has gone up, in some cases it can 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 we should do; if you can save money, first of all 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 is worth to invest in real estate again, because price in real estate will continue to go up.
Today we have found something in the Internet that can interest home buyers, so, we paste the link here, for you to check it out; Things You Should Check Before Buying A Home, we hope it works for you.
This is all for the time being,
See you soon, in another article.
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