Property is never as simple as we’d like it to be whether we are seeking a new home to purchase or improving our current residence. This especially applies for financing these projects as there is a lot to consider in both cases. With poor planning, it’s easy to go over budget too quickly or to find yourself compromising on aspects you really didn't want to change to reduce your costs. This guide will go over a few simple financial tips to help you purchase or renovate your home in a safe, confident manner.
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Essential Advice for Home Buyers
If you’re thinking about purchasing some residential real estate, you’ll need to plan your finances carefully before and during this process. After all, you’ll be borrowing and spending a significant sum of money! Doing this isn't too difficult though, as long as you stick to these important steps:
- Pay off all debts and clear your credit history before applying for a loan. Taking out a mortgage involves heavy repayments so you should free up as much of your cash as possible.
- Calculate how much you can afford when buying a new home. A general rule is that the ideal house price is two and a half times your annual salary. The actual numbers will depend on your regular expenses, income and other loan obligations however.
- Always compare a number of lenders and do research on the available options. For instance, if you can’t put down the usual 20% deposit, you may find lenders offering low interest mortgages that ask for less.
- Negotiate the conditions of the loan beforehand. The most important choice here is paying additional points (i.e. the portion of the interest paid at closing) in exchange for a lower interest rate for the term of the loan.
- Get pre-approved for your mortgage. In this way, you’ll know exactly how much you can afford, saving you time when it comes to house hunting and giving you extra leverage when making an offer.
Life-saving Tips for Home Renovations
On the other hand, you might be more interested in borrowing money in order to improve your current residence. In this case, you’ll need to focus on the following important matters when seeking out the right type of finance in the future.
- Form some solid goals about how you want to redo your home and ask for a quote from several residential builders. This will give you a clear idea of how much you’ll need to borrow.
- Try to fit the renovations in with the other houses in your area. In this way, you can sell your home more easily when you move out in the future.
- If you wish to sell straight after you’ve finished renovating, aim for projects such as repainting, laying down floors, or replacing windows which improve the home but which don’t cost much.
- While completely renovating kitchens and bathrooms can be quite expensive, these home improvements also add a fair amount of value to the property. This means they are worth the extra cash you have to borrow to cover all expenses.
- To get an idea about how much a renovation can add to your home, look at any nearby houses for sale and compare the difference in values. Pay special attention to those with newly renovated kitchens or bathrooms as well.
- When it comes to the total cost of the refurbishments, the following rules of thumb are a great guide: kitchens (5% of property value), bathrooms (2% of property value) & garden landscaping (3% of property value).
You now know how to go about financing your next residential project. Whether you are buying a new home or renovating your household interiors, this financially savvy advice should certainly come in handy!
About the Author:
Westpac is one of the trusted banking institutions in New Zealand. They have served the country for more that 150 years with their excellent financial solutions and dedicated team. To know more about their home loan rates, visit their website.
