When you are considering buying real estate, the first question you ask yourself is likely to be, “When should I buy?”. Answering this question requires you to take several things into account.
First off, knowing your numbers as well as your future life plans. In most circumstances, buying a property is a long-term commitment, and you need to ensure you make the best decisions upfront.
At Atria, we have been helping clients find their dream property for over twenty years and in this blog, we share what you need to know about the buying process.
1.When should I buy real estate? Start by knowing your numbers
A comprehensive understanding of your personal financial situation is essential when determining the right timing for buying real estate. If you need a mortgage, steady income plus a proportionate expense ratio is key, both now and in the future.
Tip 1. Use the 43% debt-to-income (DTI) ratio to determine if you have adequate cash flow. Most banks use this ratio to determine what monthly repayments you can afford.
A 43% DTI means that your total monthly debt payments, including home-related expenses, shouldn’t be more than 43% of your monthly gross income. For example,
- Monthly earnings = $5,000
- Multiply by 0.43
- Equals $2,150 cash required to cover debts
So in this example, $2,150 is the likely total cash required each month to cover all debt payments, including mortgage repayments.
Tip 2. Consider how much you can afford for a deposit and the initial costs of opening a mortgage. Most banks will ask you for a deposit of 20% of the total property cost. Remember you need to add:
- stamp duty costs
- mortgage registration fee
- legal and conveyance fees
- mortgage application fees.
Once you’ve calculated your current and future cash flow, and it looks stable, then buying may be a good option. Talk to your bank or mortgage broker for a full evaluation of your costs and financial situation.
2. Consider your lifestyle and future needs
When buying a property to live in, most real estate experts agree that you should live in that property for at least 5 years.
So before you buy, consider your lifestyle and make some plans because your life and personal circumstances will influence what you buy and when.
If, for example, you are planning to have children, it’s recommended to start looking for a bigger place at least 12-18 months before the newborn arrives.
While, if you are older and your kids have moved out then maybe you are looking to downsize. In this case, you may need to consider timing for potential renovations before you sell an existing property, as well as the time to find a new place.
So both the numbers and your personal life play a big role in deciding when you should buy real estate. But what about the market? Well, it is not as important as you may think. Let’s find out why.
3. Don’t focus too much on the market!
Real estate markets are cyclical and change over time so it can feel like a guessing game to know when you should buy real estate. Market fluctuations will always be there, but property always gains value over time. A soft market like the one we are witnessing now, will eventually turn into a hot market. Just give it time.
The key is, if all the conditions for buying are right for you, right now, then don’t delay! Buy. If you have your finances sorted and found your ideal property then buy it!!
Call us at 03 8680 9421 to find out more about if it is the right time for you to buy real estate.
