Your Complete Guide to Buying at Auction 6 Buying a home at auction is a little different to buying a home by negotiation. For a start, auctions are unconditional, which means when the hammer falls, if yours is the winning bid, you’ll need to pay a deposit – usually 10% - to finalise the deal. You’ll also need to have your finances sorted out well ahead of auction day and get finance pre-approval from a lender before you bid at auction. Saving a deposit To buy a home in Australia, you’ll need to have a deposit. Most lenders require a minimum deposit of at least 20% of the property purchase price. That means if you’re buying a home worth $500,000, you’ll need a deposit of $100,000. There are still financing options available for home buyers with less than 20% and there are other sources of income that can bolster your deposit. For example, you may be eligible for a First Home Owner Grant, a national scheme funded by the states and territories that provides a one-off grant to first home buyers who meet all the eligibility criteria. Other options for home ownership include coownership (buying property with family or friends), or getting help from a guarantor who may be able to use some of the equity in their own home to help you secure a mortgage. Before entering this type of financial arrangement, it’s important to get sound SORTING OUT YOUR FINANCES financial advice to determine the financial risk and impact on your financial position should something go wrong. Creating a budget As part of your home loan application, lenders will require a comprehensive view of your income and expenses. It’s an important part of determining your financial standing and ability to repay a mortgage. Create a budget to determine what you can realistically afford to spend on mortgage repayments, including the provision of a buffer to ensure you are proactively minimising the risk of any mortgage stress. Calculate your income from all sources – including salary, wages, bonuses, commission – and work out your everyday expenses. Then factor in the extra costs of home ownership, things like insurance, rates, mortgage interest, body corporate charges and home maintenance costs, to see how your finances stack up. Before bidding at an auction, establish a clear financial plan to ensure you bid within your means. Set a realistic budget that considers not just the maximum property price you can afford, but also the additional costs like stamp duty, legal fees and moving costs.
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