Basic rules for buying a house!

Hi slynkey girls,

I'm guessing more than a few of you are thinking of buying a house - home ownership is a biggie for us Kiwis. But and it's a big but, you should not overstretch yourself financially to do this. Why?

Over the last 12 months you now know house prices do fall as many home owners have found out. They own homes which are worth less than they paid for them. I don't want slynkey girls to have this experience so some old fashioned and conservative guidelines follow. I urge you to consider these most carefully:

Basic Rule No. 1
Start with a deposit of at least 20% of the purchase price, not only will this give you less of a chance of owing more than your home is worth; you will save thousands of dollars in interest.
Once you do take on a mortgage the major part of the loan should be on a fixed rate - you need to be sure of the level of mortgage repayments - but wait there is more - mortgage repayments should not equal more than 33% of your Pre Tax Income.

Basic Rule No. 2
Consider your income - if you are in your 20's and 30's you do have a reasonable chance of your income increasing - if so you can consider stretching for a first home (yes I know that contradicts the preceding rule). Those of us who are more mature don't have the luxury of seeing our income grow as quickly.

Basic Rule No.3
If you are going to have children you may not want to go back to work immediately just to pay your mortgage. Factor this possibility into your calculations.

Basic Rule No.4
Consider carefully the ancillary costs relating to home ownership. The plants for the garden, the paint to do up that room you hate, the worn carpet you want to replace, the appliances you need, the furniture and so on. And there are rates, insurances and of course Murphy's Law. Just as your shift in to your dream home the hot water cylinder dies or the roof develops leaks - you need to allow for this.

Basic Rule No.5
Buy the best (see Rule no 2) or the cheapest. The cheapest will enable you to pay off your mortgage quickly; you may then be in a position to buy exactly what you want.

Basic Rule No.6
Try to stay in the same home as long as possible - avoid the transaction costs associated with buying, selling and moving - not to mention renovating of your next home.

Final basic Rule aka The First Basic Rule
Make sure you are able to sleep at night without worrying about mortgage repayments.

By Sheryl Sutherland - B.A (Otago), Dip.F.A.C (Otago), DipPFinPlan (Waikato)