If you’re getting ready to buy your first home – CONGRATULATIONS! It’s a hugely exciting step, and we want help make it the joyful experience it should be.

That’s why we’ve created this handy guide, to tell you everything you need to know before you start. Our goal is to help you understand what to expect, and make the process of buying your first home as smooth and straightforward as possible.

In the next 5 chapters we outline and dive into the detail for buying your first home. From finance to conveyancing, we have you covered.

Planning

Creating your budget

First home buyers grant

Saving for a deposit

Financing

Why get pre-approval?

Which lender?

Broker or no broker?

What type of loan?

Applying for a home loan

Finding your property

Creating your property checklist

Viewings and negotiations

Viewings and negotiations

Overview

Auctions

Conveyancing

Pre-contract

Post-contract

Settlement

Planning

Great property purchases start with smart planning.

Finding the ‘perfect’ first home means finding the property that’s just right for YOU. And that means taking the time to crunch some numbers, check out your options and think about your future.

Creating your budget

The first step is to set a budget, to figure out how much you can afford to pay for a property, and how much you’ll need to save before you can start applying for finance.

For an excellent guide to creating a detailed household budget, check out the ASIC’s MoneySmart website. Once you have a clear picture of what you earn and spend each month, you’ll be able to see how much you:

  • Can realistically afford in mortgage repayments
  • Can afford to save each month towards your deposit and purchase costs.

The hidden costs of buying a house

Unfortunately, it’s not just a deposit that you’ll need to have on hand when you buy your first home. You’ll also need to budget for a range of other costs, which will vary depending on your State or Territory, the value of the property, and the service providers you choose for your conveyancing, finance etc. These can include:

Many of these costs will have to be paid up-front, so you’ll need to have cash available – or borrow more to cover them, if your lender will allow it.

First home buyer’s grant

As a first-time home buyer, you may be eligible for concessions to help make your purchase more affordable. The grants vary considerably by State and Territory, from lump sums to a sliding scale of stamp duty exemptions – check out the details here.

Saving for a deposit

Typically, you’ll need 20% of the purchase price in order to secure a mortgage. A higher percentage is better if you can manage it ­– the lower the risk you present to the lender, the cheaper your finance is likely to be.

If 20% is completely out of reach, you may be able to borrow up to 95% of the purchase price, providing that you take out lenders mortgage insurance (LMI) to protect your lender if something goes wrong. LMI is paid as a one-off premium and can be expensive, but you may be able to add it to your mortgage (which means you’ll pay interest on it).

When calculating how much you need to save, bear in mind that you’ll need some spare cash around after you buy your home, to cover any unexpected costs.

If you’re not sure how to go about saving for your deposit, ASIC’s MoneySmart site has some more valuable guidance to offer. Here’s a summary:

  • It’s easy to spend money without noticing, so use a system like TrackMySPEND to keep careful track of where your money is going
  • Identify and cut back on extras and luxuries – $5 coffees quickly add up
  • Set up a separate, high-interest savings account and divert a portion of your income to it each month
  • If you can, consider moving back into your family home for a while to save on rent.

It’s a good idea to speak to financial advisor at this stage, and get some guidance on how best to structure your finances in preparation for buying your first home.

Financing

Once you’ve saved your deposit, it’s time to consider options for financing your home. Although you’re dying to get out there and start looking at properties, it’s smart to tackle this step first.

Why get pre-approval?

Until you actually apply for a loan, there’s no guarantee you’ll be able to borrow the amount you expect. Financial institutions have internal policies about who they’ll take on and how much they’re willing to lend – and those policies change all the time.

What’s more, the application and approval process can take days or even weeks, depending on the lender and your financial circumstances. A delay like that could cost you your dream property.

By getting pre-approval, you show sellers and agents that you’re a serious buyer, ready to go. That can give you leverage when it comes to negotiating price, or give you an edge over rival buyers who don’t yet have finance in place.

Although pre-approval gives you confidence that finance is available, be aware that your loan will be conditional until the lender specifically approves the purchase of your chosen property.

Which lender?

Approaching your existing bank for a home loan may seem the obvious choice. But the cost, criteria, terms and conditions of mortgages vary enormously. It’s important to find a home loan that suits your specific goals and circumstances ­– or you could end up paying more than you have to, or locked into financing that doesn’t meet your needs.

Unfortunately, there’s a lot more to finding the right mortgage than simply picking the product with the lowest interest rate. Lenders have different appetites for different types of business – some are more likely to offer competitive rates to first home buyers, or to consider your application if your circumstances are unusual (e.g. if you’re self-employed).

There’s a booming home loan market in Australia, including a large number of online lenders. While this means you have plenty of options besides the big banks and building societies, be sure to research the company behind the loan and take a careful look at their terms, conditions and costs before making any decisions.

Broker or no broker?

If you’re overwhelmed by all the options, getting some guidance from a reliable, independent mortgage broker can have lots of benefits.

Make sure you check out their credentials to find a broker with solid qualifications, training and experience, up-to-date knowledge of all the mortgage products on offer, and a good track record of helping first home buyers in your area.

A broker can help you:

  • Make sense of all the options
  • Compare products and features
  • Find a home lender who will support your long-term goals
  • Prepare and submit your application

Many brokers have preferential relationships with certain lenders – which can mean that they have access to lower rates or can fast-track your application.

What type of loan?

Whether you engage a broker or go it alone, you’ll need to make decisions about the type of loan you apply for, depending on your goals and financial circumstances. Here are some of the key issues:

Fixed or variable interest?

With a variable rate loan, the amount you pay in interest, and therefore your monthly repayments, will fluctuate roughly in line with the rate set by the Reserve Bank of Australia. So when national interest rates fall, the amount of interest you pay goes down too – but if they go up, you could end up paying much more.

That makes a variable mortgage a higher-risk proposition. However, variable mortgages often offer far more flexibility than fixed rate options – such as the ability to make extra payments, redraw funds and repay the entire mortgage early without penalty.

With a fixed mortgage you may have the option to fix your rates for up to five years, which gives you certainty in your budgeting. But if interest rates fall during the fixed period you’ll still have to pay the higher rate – and you probably won’t be able to make extra payments during that time, either.

A middle ground option offered by some lenders is the ‘combination’ mortgage, where you can fix a portion of your loan and leave the remainder variable – giving you some exposure to rises or falls in interest rates, and some flexibility. However, fees on combination loans are often higher, and you’ll still be locked in on the fixed portion.

Portability

If you’re hoping to make a swift move up the property ladder, you may be able to save on the up-front costs of financing your new home by choosing a portable mortgage that will move with you if you change properties. The new property will have to meet the lender’s criteria, which could restrict your options, but a portable loan could save you a lot of time and money if you’re planning to move within a few years.

Other features to consider include:

  • A mortgage offset account, where the interest you earn on any savings in your account is offset against the interest you owe on your mortgage, allowing you to minimise your interest and have cash available when you need it
  • Interest-only loans, where you only make interest payments for a fixed period. Despite lower payments during the interest-only period, these loans are much more expensive in the long-run, because as you’ll pay interest on the entire loan amount for much longer. They are generally used by people who hope to renovate properties and sell them at a profit within a short period.

Applying for a home loan

The mortgage application process and the supporting documents you’ll need to provide will vary depending on the lender, but you can expect to be asked for detailed information and evidence about your financial position, employment status and any existing borrowings.

If you are using a mortgage broker, they can help you put your application together. Otherwise you’ll need to get guidance from your chosen lender about their requirements and processes.

Finding your property

So the planning’s behind you, your deposit is saved and your finance is secured. Hurrah! It’s time to get out and find your dream home.

Before you hit the property listings you’ll need a personal property checklist, to help you get exactly what you want.

Creating your property checklist

Your property checklist is a list of everything you’ll be looking for in your new home. It’s important to separate it into ‘essential’ and ‘desirable’ features, so you’ll be absolutely clear on where you are and are not prepared to compromise.

Remember that the one thing you can never change about a property is its location, so start your planning there.

Step 1: Location

Begin by asking yourself these questions:

Why are you buying?

Do you expect to live in your home for a long time? Or is your objective to get on the property ladder and then trade up? If you’re expecting to sell in a few years, you’ll probably be more interested in high potential for capital growth than whether you’re in the catchment area for a great school.

What amenities do you need nearby?

Do you have your own wheels, or is good public transport a must? Do you have children or elderly relatives in your family, who may need to be close to schools or doctors? What other facilities are important to you?

What do you expect to need in future?

If you’re a young couple just starting out, having a playground nearby may be the last thing on your mind. But a few years down the tack, everything could look very different. Of course no one knows what the future will bring, but planning ahead now for your long-term goals could save you all the cost and hassle of having to uproot your family later on.

Where do you want to live?

Do you want to be close to family and friends? Do you mind a long commute or is it vital that you’re close to work? Would you trade size or convenience for an ocean view?

Choosing specific suburbs or streets will of course depend on your budget, so you’ll need to spend some time looking at recent sales and property listings to see which areas are affordable. If properties in your favourite area are out of your price range, can you identify other, more affordable suburbs within a reasonable distance?

What’s happening to property prices?

If your new property is to be your long-term home, you may not be all that concerned about price trends. But even so, it’s never wise to buy in an area that’s in decline ­– if property prices are falling or static in one suburb compared to those around it, make sure you find out the reason. Are large numbers of people moving out of the area? Businesses and facilities closing down?

Low or zero price growth may make the property more affordable for you right now, but could also make it very hard to sell if you need to in the future.

All this can help you identify target suburbs for your property search, so you can concentrate your time and energy on looking at properties where you want to live – and can afford to buy.

Essential ü Desirable ü
e.g. Walking distance to station e.g. < 20-minute drive to beach

Step 2: Property features

The next step is to figure out what type of property you want to buy.

House or unit?

Units are usually more affordable and easier to maintain than a house, and may offer access to communal facilities like pools or gardens. But strata costs can be high, there may be restrictions on things like owning pets, and parking may be limited or unavailable.

Again, think carefully about your lifestyle now and your plans for the future. Do you have the time to maintain a garden? Do you crave privacy, or are you happy to live in close proximity with others? Are you planning to raise a family?

How do you feel about renovations?

Transforming a rundown property can be a great way to build capital. But renovations can end up costing far more than you expect – not to mention the stress and inconvenience of living in building site for months on ends while you do it.

If you’re keen, be sure to get a thorough building inspection and some professional advice on what needs to be done before you make an offer, so you’ll know exactly what you’re in for – and most importantly, if it’s within your budget.

How many rooms?

If you’re planning to live in your new home long-term, the number of bedrooms and the layout of the property may be extremely important to you. Once again, you’ll need to decide what’s optional and what you can’t live without, to help you stay focused during your property search.

If your first home is an investment, you’ll need to look for a property that’s likely to appeal to the majority of people looking for homes in that area, so that it will be easier to sell when the time comes.

Yes, or no to a spa or pool?

A pool may be a must-have for you – but if not, remember they can be very expensive to maintain – and may make the home harder to sell, if that’s your goal.

Essential ü Desirable ü
e.g. 2 bedrooms Separate laundry

Armed with your property checklist, you’re all set and ready for the exciting part: open houses, viewings and auctions.

Viewings and negotiations

Overview

In the early stages of your property hunt it can be a good idea to look at all the properties on offer in your target areas, even those that don’t meet your criteria, to get a good feel for value and the state of the market.

  • If only a few people are showing up to open houses or bidding at auctions, you may have more negotiating power when you find a home you want to buy.
  • If the market is running hot, you could consider talking to real estate agents about properties just coming onto the market, to see if you can make a quick offer and avoid a bidding war.

Once you find a property that meets your essential criteria (and hopefully lots of your desirables) the negotiation phase begins.

Be aware that agents are hired by the seller, and their objective is to get the highest possible price for the property. If negotiations aren’t your strong suit, you might find these tips useful.

  • Know the market well
  • Decide your upper limit in advance and stick to it
  • Act calmly, professionally and with confidence
  • Communicate clearly and openly via the seller’s agent.

A word on auctions

If you’re considering buying a property at auction, there are some pitfalls to watch out for:

  • It’s easy to get caught up in the emotion and bid over your limit – but contracts are usually signed immediately after an auction. There’s no cooling off period and contracts are not ‘subject to finance’, so it’s crucial not to exceed your budget.
  • When you buy a property at auction you’re buying it ‘as is’ – there’s no backing out if a building inspection turns up something nasty. It can be a risky strategy, so be sure to leave a buffer to cover any unexpected repair costs.

If you’re pressed for time or don’t trust your negotiation skills, you could engage a buyer’s agent to find a home for you. They can spare you all the time and hassle of finding a property, and could even save you money on the purchase price – but their services come at a cost.

Conveyancing

Overview

Once you make an offer and a vendor accepts it, the legal process begins to transfer the property to you. If you don’t already have a lawyer or conveyancer lined up, you’ll need to contact one immediately to manage this process for you.

You’ll also need to inform your mortgage lender that you’ve made an offer on a property, so they can conduct a valuation and convert your conditional pre-approval to an unconditional loan. This can take a week or more.

From this point your conveyancer will deal direct with the real estate agent, the vendor’s conveyancer and your lender, to arrange all the financial and legal aspects of the sale.

The conveyancing process generally goes through three stages – although there are variations between the requirements and processes in each State and Territory, so check with your conveyancer for details of what to expect.

Pre-contract

Unless you’re buying at auction, there may be a period of a few days or weeks before you exchange contracts on the property. During this period, you run the risk of being ‘gazumped’ by another buyer offering a higher sale price – and unfortunately this is perfectly legal. You may be asked by the agent to put down a holding deposit to show you’re a serious buyer, but this does not mean that the property is secured or taken off the market.

During this period your conveyancer will inspect the sale contract, agree a settlement date and arrange for pest and building inspections and other important searches to take place, so that you can check everything is in order before you exchange contracts.

  • A building inspection, or ‘standard property report’ is a written report of the condition of the property conducted by a licensed builder, a surveyor or an architect. Its purpose is to identify any structural issues or defects with the property that could cause you problems or be expensive to repair.
  • A pest inspection is used to spot any current or past evidence of timber pests like termites, and assess the risk of undetected pests in parts of the property that can’t be seen.

Post-contract

When you’re ready to exchange contracts, you’ll need to pay a deposit of up to 10% to the seller. In most States and Territories you’ll have a ‘cooling-off’ period of up to five working days – during which you have the right to cancel the contract in exchange for a percentage of the sale price.

There is no cooling off period for properties bought at auction.

The standard period between exchange of contracts and settlement also varies by State and Territory – from 30 days to six weeks. You are free to negotiate a different settlement period with the vendor, provided your conveyancer and lender can complete their processes in time.

Settlement

On the agreed settlement date, your conveyancer will:

  • Ensure the remainder of the purchase price is transferred from your lender to the seller
  • Arrange for stamp duty to be paid
  • Exchange the final legal documents with the seller’s lawyers. These will then be sent to the titles office, where you’ll be registered as the new owner of the property.

Once everything is in order, you’ll get the call you’ve been waiting for: “It’s time to come and collect your keys!”

YOU’RE NOW THE PROUD OWNER OF YOUR FIRST HOME. CONGRATULATIONS!