The ABC's of buying, building and budgeting.

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Buy or Build: When purchasing your home make sure that your type of loan and the property itself meets all your current and future needs. Photo: Shutterstock.

Buy or Build: When purchasing your home make sure that your type of loan and the property itself meets all your current and future needs. Photo: Shutterstock.

One of the first considerations for anyone purchasing property, whether it is their first house or their dream home is the choice between buying or building.

Both alternatives have benefits depending what homes are available, your time frame and overall lifestyle needs, however the first step for anyone looking to purchase is to ensure that they have the right type of loan to suit their financial situation.

When looking at loans the main choices you make are between principal and interest or interest only loans, and fixed versus variable interest rates.

Fixed rates mean you know what your repayments will be, making budgeting easier. Most fixed loans only allow limited extra repayments, don’t have redraw facilities and may charge fees if you pay the loan out early.

Variable interest rates are generally lower than fixed but do fluctuate, so you while you can benefit from low interest rates they can also increase. While budgeting can be harder they generally provide redraw facilities and allow voluntary payments to get your loan paid off faster.

The most popular of the two types of loans available is a principal and interest home loan which requires you to pay off the principal loan amount and interest repayments and are designed to be repaid in full over the life of the loan.

Don't Forget

There are plenty of tips to help people but here are some things you should avoid.

  • Failing to do enough research - know exactly what you're buying and how you're going to finance the purchase.
  • Not getting a property inspection - a building and pest inspection is a must.
  • Misjudging the costs of the purchase - allow for all costs including insurance, legal and financing fees.
  • Not getting loan pre-approval - know how much you can borrow so you can purchase as soon as you are ready.
  • Don't let emotions win - a property may look great but it should fit your needs and budget.

An interest only home loan differs as you only have to make payments on the interest of the loan for a period of time and not repay the principal amount. Interest only loans normally have a maximum period of five years, after which the loan reverts to principal and interest repayments.

If you're unsure about what financial options would suit you and need advice, then you should consider using a broker as they have access to a wide variety of loans and have the experience to ask the right questions of lenders.

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Once you have your finances in order you can begin looking at some properties. Research and pre-planning is they key to a successful purchase. Take a look at areas where you would like to live and find homes within your budget. 

Purchasing an existing home can offer a much simpler solution, especially for first home buyers looking to break into the market given costs are comparatively lower, the purchase process can be simpler and most properties are ready to inhabit straight away.

Take into account your current and future needs, such as starting a family, inspect as many homes as possible to ensure you are happy with all aspects including size, layout and proximity to services such as transport, schools and shopping centres.

It can be hard to remember individual homes so don’t forget to take photos and notes during inspections, and compare your favourites. You can always renovate and make future changes to your home to give it your own personal touch and adjust as your needs vary.

Building your own home can be the best way to get exactly what you want and options range from buying off the plan to having your home architecturally designed. The average home takes between four to nine months to build, once the land is purchased and design locked in.

When building there a wide range of decisions and costs involved apart from purchasing land and building your home. Aside from choosing your design and location, you need to ensure you understand all contracts and are aware of costs associated with building.

These can include site preparation, variations to designs and extra features not normally included such as additional rooms, more expensive materials and possible delays.