Smart Home Buying Secrets for Doctors - Part 1

“Luck is what happens when preparation meets opportunity” —Seneca

Here are three secrets to save you time, money, stress and regrets when looking to purchase a home:

1. Be ready! Preparing yourself for success
2. Smart home hunting. Finding the right property for you
3. Crunch time! The negotiation and contract process

Competitive Rates for Doctors

Do you know how much you could purchase a home for? The two limiting factors are typically:
1. The maximum loan amount a lender thinks you can service, based on: your income, debts, dependents, expenses, etc.
2. Deposit

Most Australians need a 20% deposit to avoid paying lender’s mortgage insurance (LMI) which can be expensive and is preferably avoided. The good news as a Doctor is that there are lenders that are prepared to offer home loans with just a 5-10% deposit required with no LMI payable and at their most competitive rates. This can be a big advantage as a Doctor, enabling you to:
• Purchase a home sooner
• Keep aside money for furnishing your new home, renovations and/or an emergency cash buffer
• Possibly save on tax if your home ever becomes an investment property
• Maintain greater financial flexibility, by having the extra cash you would have paid as a deposit, immediately available to you if required

If you set up your loan the right way (see below), there is also no financial disadvantage versus paying a bigger deposit than 5-10%.You may hear of lenders offering 0% deposit home loans for Doctors, but the catch of these at least a portion of the loan is typically at a much higher interest rate.

Understanding the Costs of Buying a Home

Do you know what the estimated purchase costs will be? You want to be confident in your home hunting, so it’s important to understand these so there are no surprises. Here is a list of purchase costs you will likely incur:
• You need to come up with a 5-10% deposit to secure a home loan as Doctor and avoid paying LMI
• Stamp duty - the amount of stamp duty tax payable, depends on the state you purchase your home in and the purchase price. This can be a significant cost that is sometimes forgotten
• Legal and conveyancing fees - depending on the amount of legal work required for conveyancing and other legal checks, you should budget for $1,000-$3,000.
• Building and pest inspections - make sure you have a structurally sound home that is free of pests like termites. Inspection costs average $500-$800 and this is a relatively minimal cost to find out if there are any issues before proceeding.
• Moving costs - are you aware of what the estimated ongoing costs will be?

The perfect home won’t be much consolation if you can’t cover your mortgage payments and living costs, because you didn’t establish beforehand if you could afford it. Here is a list of ongoing costs to factor in:
• Mortgage repayments
• Utility bills
• Council rates
• Home and contents insurance
• Repairs and maintenance to your home

Have you considered the “what ifs”? Reducing stress so you can sleep well at night is especially important practicing medicine, where you need to be high-functioning and focused. Here are some important questions to ask yourself – or your trusted experts:
• What if interest rates rise?
• What if I become ill or injured and unable to work?
• What if a patient sues me?
• What if I might need to move for work in future years?
• What if I don’t plan for this to be my ‘forever’ home?

Ensuring you have thought about these and ways to mitigate and manage them, will empower you with confidence and peace of mind for your home purchasing.

Investigating Mortgages and Interest Rates

Another secret is that smart Doctors buying homes don’t just go to whomever they bank with to request a home loan, and accept whatever loan and advice is offered from whomever is available at the bank at the time.

There are several possible disadvantages to this approach:
• You are likely to just get whatever standard interest rate that lender offers
• The loan is often set up incorrectly for you
• Many employees at lenders are often not aware of any special lending offers available for Doctors
• If they don’t understand Doctors and how your remuneration works, it can make the process harder and more time-consuming than it should be
• Advice is often provided by some one who doesn’t know or understand you, as well as how Doctors differ from average Australians and what is best suited for them. This can mean the loan is not set up the optimal way for you as a Doctor.

Here is a list of some of the key considerations for the right home loan for you:
• Interest rate. You want a competitive rate, but you may actually be worse off if your rate is slightly lower, but your loan doesn’t have features that help you save money in other ways
• Term of the loan (usually 25-30 years)
• Whether you have access to any excess mortgage repayments made?
• Can you make additional repayments? If you do, are there conditions on this?
• Will you be able to make use of extra cash savings to save on mortgage interest costs?
• Can you set up your loan to use your cashflow to save you on mortgage interest?
• Is your lender capable of facilitating tax planning strategies?
• What level of banking, service and support will be available to you once your mortgage is set up?
• Should you choose a fixed or variable rate?
• Will you be eligible to take advantage of reward programs, if these are of interest to you?

Understanding how to set your home loan up optimally as a Doctor – and for your personal situation and preferences – is where expert advice can be invaluable.

Arranging a Home Loan Pre-Approval

If you’re serious about getting ready to buy a home, you should get a loan pre-approval organised as soon as possible. That way you’re ready to make an offer when you find your dream home, can negotiate harder as you know you can get finance and the minimum finance clause you can offer – and not risk missing out to competing buyers.It also should save you stress if you know what your limits are and you have done a lot of the paperwork initially, rather than have to do this in a rush if the contract on your new home is accepted.

Choosing Experts to Help You

If you are going to spend $100,000’s or even millions on purchasing a home, seeking help from experts you trust should save you a lot of money, time, stress and regret. Best of all, you’ll have that network for your next property move – whether it’s buying an investment property, renting out or selling your home, or renovations. So prepare yourself for success for buying your home by being ready!

In part 2 of this Secrets series, we will consider the next important aspect: smart home hunting – finding the right property for you. Please feel free to contact us if you would like to explore mortgage broking features such as 5% deposit (no LMI), expert loan structuring advice, borrowing assessments and wealth and tax strategy support.