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This article can be also found at this Hub Pages link, Buy your first house.
Buying your own
house.
Welcome to our article,
Dear readers, during our life we must make many decisions, but the decision of buying your house is one of the hardest, because it is a big investment and requires a lot of money. But buying your house can be the best thing you have ever done. You see, people that own their house, they are financially better off, since they do not have to pay rent; but they must pay for rates and other things, but these things are not as much as paying rent, once you have paid your mortgage.
Anyhow, here we want to help you to make the right decision. So, we are telling you what happens when you buy a house, so, you can decide for yourself. So, we hope that what we are writing here, is your life best advice that you receive for free. Here, we want 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, when the rent is due.
So, hereunder we are going to discuss some of the most important
things that I had to go through, 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.
Buying your
first home.
So, let us talk about owning a house, I suppose that we all want to live, in the best house available, but this is not the case for the first home buyers, it is a dream that any of us can dream about, and if we work hard, one day we can own a house dream home. Anyhow, let us start to plan how to own a house that we can afford.
If we want to buy a house, we should learn how 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 one of these houses shown in this link below, (I hope it works) but anyhow, 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.
Cedar Homes: Timber Framed Homes Perth, WA Timber Homes
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Need to organize
and understand 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 to know how to save money, and how to organize financial
matters, because, organizing and understanding finance is important, if you
want to buy your own house. Anyhow, finance can be different at different
times. 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 have a problem,
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. But the present
generation do not feel that way at all, and they spend their money before they
earn it. This is made worse from what happens today, 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.
Anyhow, 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.
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How much money
we need to buy a house?
Now, we want to discuss, how much of our own money we need to
buy a house. This can vary a bit; but you have to assume 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.
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 must use 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 math's 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 simple to understand, for the people that are borrowing money
for the first time, we are writing this example in round figures. 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.
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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, 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.
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.
See you soon, in another article, Fire safety first of all.
To see more click on this link, Buy your first house.
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