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Start on the property ladder

Most people who are shopping for a home have something specific in mind, but often what they can afford to buy doesn’t match the mental picture.


Your first house probably won't be your dream house, but it can be a good place to start working towards it.

Adrian Goslett, CEO of RE/MAX, says that when looking around for a home these days, buyers often have to make some kind of compromise between price and the home’s features. "We would all love to be able to buy our dream home, or even build it from scratch so that it suits our requirements perfectly. However, many are not in the financial position to do this."

According to one source there is a great opportunity for this in Houston Real Estate. Neighborhoods are growing, cost of living is reasonable, and it is a pretty safe area as well, all of which are contributing to this.

Therefore, Goslett advises that, bearing the current mortgage market conditions and affordability factors in mind, coupled with the fact that the interest rates are set to increase this year, possibly even sooner than many think, the best place to start is to buy small and then build up to your dream home.

"While now is a good time for buyers to get into the property market, they have to be realistic about what their money can buy. Although first-time buyers may not be able to start out in their dream home, they can still enjoy the benefits of homeownership in a more affordable starter home," he says.





Accommodation requirements change over time, and therefore, Goslett says, young couples or up-and-coming executives or any first-time buyer for that matter should not be afraid to start off with a modest home or apartment that will serve their needs well for a few years as well as fit into their budget.

"The best place to start paring down the must-have features is to make a list of all the features you would want in your dream home like a home theatre, swimming pool or large entertainment area, for example. Keep that list to work towards in the future and make a separate list of all the features you feel you could not live without like a certain number of bedrooms, security etc," he says.

"While the features you cannot live without may not be conducive to a space that is, for example, ideal for large-scale entertaining, remember that a starter home or apartment will come at a much smaller price tag. Added to this, after a few years, you will have acquired some equity in the home, making it easier for you to move up to a bigger, more accommodating space when you sell," says Goslett. "In addition, the less money a buyer spends on a home now, the smaller the deposit that will be required for payment upfront."

While buyers may need to be negotiable on certain features of a property in order to accommodate their budget, Goslett provides some pointers that can minimise the discrepancy between dream home and starter home and help buyers fast-track their dream home purchase:

1. Start saving for the deposit before you start shopping for a home
The more you have saved up as a deposit, the better your chances of getting a good finance deal

2. First buy a small house with a lower bond
Your first house probably won't be your dream house, but it can be a good place to start working towards it.

3. Save extra money for other home expenses
Buyers would be wise to have a little savings to draw on to help them pay for items such as new paint, additional furniture and any maintenance or repair work that needs to be done. Ideally buyers should have approximately 5% of the value of the house saved for these costs.

4. Be ready for the worst case scenario
Prepare yourself financially for any worst case scenario. For example, with interest rates set to increase, budget for around 2% increase over the next couple of years and build your financial plan around that number. If things turn out better, you'll be ahead of the game.

5. Pay off your bond as quickly as possible
It would be ideal for buyers to budget for larger repayments than the minimum required on their bond each month or to pay in lump sums as and when they receive bonuses and the like. Paying off your bond faster can reduce the amount of interest you pay, and if you hit hard times, you will have paid in enough to be able to negotiate terms with your financial institution.

"In the current market, buyer affordability is all about working smartly with your money and building up your resources to enable you to afford that dream home," says Goslett.