Buying your dream home can be a rewarding and fulfilling experience. But there's a lot to think about, and it can be difficult to know where to start — especially if this is your first time.
That's why we've put together this comprehensive guide for first-home buyers.
It will take you through all the steps involved in buying your Australian home — from saving for a deposit to finding the right loan and moving in. So let's get started!
Budget and determining borrowing capacity
Before you even start looking at homes, one of the first things you’ll need to do is do your own due diligence and figure out your home-buying budget. Understanding the minimum income required to qualify for specific loans is crucial, as it can affect your eligibility and the types of loans available to you.
Remember, there are a lot of hidden upfront costs associated with purchasing a home. So don’t only think about whether you can afford the deposit. Additional fees can add up to tens of thousands of dollars. Other transaction costs such as stamp duty and conveyancing fees should also be considered when evaluating your overall affordability.
When you calculate upfront costs, don’t forget to include:
- Stamp duty
- Legal and conveyancing fees
- Building inspections
- Mortgage registration or establishment fees
- Council Rates
- Home and contents Insurance
There are home loan buying power and stamp duty calculators that can give you an estimate of the costs associated with buying a home.
Next, don’t forget to think about your finances after you’ve bought a house as there will be ongoing costs. Will you be able to manage mortgage repayments, property taxes, insurance, and maintenance on top of your regular expenses? You’ll also want to account for any potential unexpected costs, such as repairs or replacements.
Once you have a good understanding of your financial situation, you can start to determine how much you can afford to borrow. You want to ensure that you can comfortably make your payments and still have money left over for other expenses.
Lastly, don’t forget to research whether it’s generally a good time to buy a home. One thing to do is check interest rates and compare them to recent historical averages. See if prices in your desired area are rising or falling. If they’re on the rise, you may want to wait to buy until they level off or start falling again.
If you’re planning on buying a home to live in for the long term (rather than as an investment property), these fluctuations might not be so important.
But it’s still helpful to know about the general property market so you can make the best decision about whether to buy now or wait.
Save for a deposit with low deposit home loans
Next, you’ll need to start saving up for a deposit. In Australia, the usual deposit is 20% of the purchase price. So if you’re looking at houses around the $500,000 mark, you’ll need to save up at least $100,000.
Bear in mind that if you are only able to put up a deposit that’s less than 20% of the property’s value, you may be required to pay lender's mortgage insurance (LMI).
LMI is insurance that protects the lender if you default on your home loan. It’s normally required if you are borrowing more than 80% of the property value. The premium for LMI is typically paid upfront, and it can add thousands of dollars to the cost of your home loan.
If saving up for a 20% deposit sounds daunting, there are many low deposit options and various government schemes you can consider. Many lenders offer low deposit home loans with high loan-to-value ratios, though these may come with higher interest rates and LMI costs.
With an OwnHome Deposit Boost Loan, you don't need to save a huge deposit upfront. So you can get into a house now.
You can see how long it will take you to save for your home with OwnHome or a 20% deposit using the time to save calculator and how much you need to save with the savings planner calculator.
Government Assistance and Grants
Government Schemes for First Home Buyers
The Australian government offers a range of schemes designed to help first-home buyers achieve their dream of homeownership. These initiatives aim to make the process more accessible and affordable by providing financial assistance and reducing some of the associated costs.
One of the most well-known schemes is the First Home Owner Grant (FHOG), which offers a one-off payment of up to $10,000 to eligible first-home buyers. This grant can significantly reduce the financial burden of purchasing your first home.
Another valuable scheme is the First Home Loan Deposit Scheme (FHLDS). This program allows eligible buyers to purchase a home with a deposit as low as 5% without the need to pay Lenders Mortgage Insurance (LMI). This can save you thousands of dollars and help you get onto the property ladder sooner.
The Home Guarantee Scheme is another initiative that provides a guarantee to lenders, enabling them to offer home loans to eligible borrowers with a deposit as low as 5%. This can make it easier to secure a home loan and move forward with your home-buying journey.
Additionally, the HomeBuilder program offers a grant of up to $25,000 to eligible individuals who are building or renovating a home. This can be a great way to boost your budget and create your dream home.
These government schemes can provide significant financial assistance, making it easier for first-home buyers to navigate the property market and achieve their goal of homeownership.
Find the right home loan and get pre-approval
Before you start house hunting officially, it can be helpful to research which type of loan is right for you.
It's important to have a clear idea of budget before you begin window shopping - and certainly before you put an offer in on any homes. Real estate agents prefer to deal with home buyers who have pre-approval at a minimum, as these are seen as more serious buyers.
This also gives you peace of mind when bidding at an auction or negotiating with a real estate agent, as you’ll know exactly how much money you have to spend.
What to consider for pre-approval
Home loan pre-approval means that a lender has done a preliminary assessment of your financial situation and agreed to lend you a certain amount of money, but it’s not officially approved yet.
Some things to consider when shopping for a home loan include interest rates (see their offers on fixed and variable rates), loan terms, loan features, and other fees.
In order to get pre-approval, you’ll need to fill out an application form and provide information about your financial status.
The lender will then assess your application and decide whether or not to offer you pre-approval. If you’re approved, you’ll be given a letter of offer that outlines the terms and conditions of the loan.
Once you have an idea of what your budget is like, you can start looking at the type of homes and neighbourhoods that you love.
Think about what kind of lifestyle you want and what sort of amenities are important to you. Once you’ve narrowed down your search area, start browsing homes online and visiting open homes.
Finding the right property
On average, you can expect to spend about six months purchasing property in Australia if you don't have the help of a buyer's agent.
This is because buying a property is quite a complicated process. You need to:
- Shortlist properties
- Inspect properties
- Diligence properties
- Appraise them for fair market value
- Negotiate with the real estate agent
- Win the auction or negotiation
- Manage the legal transaction
One of the trickiest parts of buying a home is knowing what to pay.
One of the best ways to assess whether a property is a good price is to look at previous sales in the area. This will give you an idea of how much the property is worth and whether the current asking price is in line with other similar properties. You can also look at trends in the local housing market to get an idea of where prices are headed.
While it’s not necessary, some people also consult a buyer’s agent to help them through the process. In contrast to real estate agents, buyer’s agents only have the buyer’s interest at heart and they can help you with negotiations and other areas of the process.
If you're looking to save time, money and stress as you purchase your home, OwnHome's expert team of Buyer’s Agents is available to help.
We know that purchasing a house can be full of anxiety, especially for first-home buyers. We support you through every step of the home buying journey, from house-hunting to conveyancing to settlement. Let us take care of all the little things so you can enjoy the process and find your dream home.
Apply for a home loan
The next step is to secure your home loan. If you've already obtained pre-approval, this should be straightforward.
Once you've found the right loan for you, the next step is to fill out an application. This will usually include some basic information about your finances and employment history.
You will need to gather all of the necessary documents, including your tax returns, savings account statements, pay slips, and credit card history.
Your mortgage provider will also conduct their own property valuation to determine how much to lend you.
The lender will then use all this information to determine whether or not you qualify for the loan.
Arrange inspections to assess property value
One of the most important things to do before buying a home is to have it inspected. This will help to ensure that there are no hidden problems that could end up costing you a lot of money down the road.
There are generally two types of inspections that you will want to have done: a general building inspection and a pest inspection. A general home inspection will assess the condition of the home's structural features including plumbing, walls, and roofing. On the other hand, a pest inspection will look for signs of termites and other pests.
It's important to hire a professional inspector for both types of inspections in order to get an accurate assessment.
Use an inspection checklist when you visit a home to ensure you're not missing anything important.
Make an offer
If you've found a property that you're interested in, it's time to make an offer! There are several ways to buy your property — through a private treaty (private sale) or auction.
A private treaty is when you and the seller agree on a price through negotiations, while an auction is when buyers compete against each other by bidding to purchase the property.
If you're going through a private treaty sale, you will negotiate the price with the seller. Remember to do your research about price ranges for the area before you begin negotiations.
After that, you will put in your official offer in writing.
Your real estate agent may ask you to make an initial deposit to show your interest in the property. This doesn't officially secure the property and is refundable if you change your mind because you haven't exchanged contracts with the seller yet.
Exchange contracts and consider stamp duty
When your loan is approved, and all other inspections have been completed, the next step is the exchange of contracts along with paying the agreed deposit amount. This is the legal process of transferring ownership of the property from the seller to the buyer and is also the start of the settlement period.
Note that in some states, the exchange of contracts may be done earlier but with a "subject to finance approval" clause. This allows the buyer to get formal home loan application approval after the exchange of contracts has taken place.
Depending on your state, there will also usually be a cooling-off period of about 5 days after you've exchanged contracts. During this time, the buyer can cancel the contract. If this happens, there may also still be some financial penalty (which is calculated as a portion of the purchase price).
If you went down the auction route, there will be no cooling-off period.
Final inspection
In the days leading up to the settlement date, you should do one last inspection of the property to make sure that everything is still in order.
Settlement day
Settlement is when ownership of the property officially changes hands from seller to buyer. This usually takes place about six weeks after signing the contract of sale but can be longer or shorter depending on individual circumstances.
This is also when the final payment for a property is due. This payment is typically made by the buyer's bank or mortgage lender, and it includes the balance of the purchase price as well as any other taxes and fees that are due.
Once the payment has been made, the buyer will receive the keys to the property and officially become its new owner.
In most cases, settlement takes place entirely behind the scenes, with buyers and sellers never even meeting in person. Your conveyancer and the real estate agent will be the ones who will guide you through this process and assist with the paperwork.
Property Value and Market Risks
Understanding Property Value and Market Risks
When purchasing a property, it’s crucial to understand the potential risks associated with property value and market fluctuations. Property values can change due to various factors, including economic conditions, interest rates, and local market dynamics.
One of the primary risks to consider is market volatility. Property values can fluctuate rapidly, and market conditions can shift unexpectedly. It’s essential to stay informed about the property market and be prepared for potential changes.
Interest rate changes are another critical factor. Fluctuations in interest rates can impact property values and your ability to afford monthly payments. Keeping an eye on interest rate trends can help you make informed decisions about when to buy.
Economic downturns can also affect property values. During economic slowdowns, property values may decrease, and demand for homes may drop. Understanding the broader economic context can help you anticipate and navigate these challenges.
Local market conditions, such as oversupply or undersupply, can significantly impact property values. Researching the local property market and understanding the supply and demand dynamics can help you make a more informed decision.
To mitigate these risks, conduct thorough research, seek professional advice, and consider factors such as the property’s location, condition, and potential for growth. By staying informed and prepared, you can make smarter decisions and protect your investment.
Home Ownership Costs and Fees
Understanding Home Ownership Costs and Fees
In addition to the purchase price of a property, there are various costs and fees associated with homeownership that you need to consider. These expenses can add up, so it’s essential to factor them into your budget to ensure you can afford the ongoing costs.
One of the significant costs is stamp duty, a tax paid on the purchase of a property. The amount varies depending on the property’s value and the state or territory in which it’s located.
Conveyancing fees are another expense to consider. These fees are paid to a solicitor or conveyancer for their services in transferring ownership of the property. It’s crucial to budget for these professional services to ensure a smooth transaction.
Building and pest inspection fees are also important. These inspections help identify any potential issues with the property, such as structural problems or pest infestations. Investing in these inspections can save you from costly repairs down the line.
When securing a home loan, you’ll encounter mortgage fees. These fees are paid to the lender for their services in providing the loan. Be sure to understand all the associated costs and factor them into your budget.
Finally, there are ongoing costs such as council rates, water rates, and maintenance costs. These expenses are part of homeownership and should be included in your financial planning.
By understanding and budgeting for these costs, you can ensure that you are financially prepared for the entire process of buying and owning a home. This preparation will help you enjoy the benefits of homeownership without unexpected financial stress.
Move in!
Now that everything is official, here comes the fun part — moving into your new home! Remember that you don't have to move in on settlement day itself. In fact, it might be wise to arrange for it a few days after settlement. This is just in case there are any issues with your funds being released or other paperwork.
Once your items are all in, you can start living your dream of being a homeowner.
Enjoy the home-buying process!
Homeownership is a dream for many people. And while the process of buying a home can sometimes be stressful, it can also be enjoyable as long as you take the time to prepare and get organised. Just remember to take things one step at a time and always seek professional advice when needed!
