5 Tips Every First Home Buyer Needs To Know

A home to call our own is a big part of the Great Australian Dream. But in today’s real estate climate, getting a foot in the door can seem out of reach. Aside from escalating house prices, the process itself can be confusing too. Approvals processes, first home owners grant applications, understanding your financial situation and getting to know the local market all require careful research and planning. These five key points will help to demystify the process, and help you ask the right questions when buying your first home.

1. Learn your ballpark

Even with a sizeable deposit, your earning potential will limit how much banks will be willing to lend you. After all, it is a big risk on their behalf, with the majority of loans constituting 80% or more of the purchase amount.

Lenders will assess how much you can realistically afford to pay back each month, and this will inform what price bracket you can explore. Recent payslips, your latest tax return, and proof of ongoing income are all standard in order to prove that you are a safe bet.

Of course, the monthly repayments will vary depending on the length and interest rate of your loan. This is where it pays to shop around and explore your options with lenders.

2. Save a realistic deposit

The deposit is the biggest barrier to buying your first home. While there is no shortage of 10% or even 5% deposit offers, the smaller your deposit, the greater your risk of future financial struggle. Should the market suddenly plummet, you may risk owing more than your home is worth.

A deposit of 20% or more will often waive Lenders Mortgage Insurance (LMI), an additional fee that lenders charge in order to balance out their increased risk. While LMI can be paid upfront, it can be $10,000 or more, and so many first home buyers decide to add it onto their loan (and pay the required interest).

Of course, that LMI may be worth the risk to you, especially if the costs of renting for another few years dramatically outweigh the fee. There is no hard and fast rule for deposit amounts, only several factors which can inform an individual decision for each buyer.

3. Understand the fees

While most first home buyers are focused on pinching their pennies to scrape together a deposit, it’s worth being aware that there are a number of other costs involved in buying a home.

Stamp duty varies between states, but can be up to another 5% of the purchase price in states such as South Australia. For new and established first homes under $600,000 in Victoria, where the buyer will be an owner-occupier, stamp duty is exempt. While not nearly so costly, added extras such as inspection fees, transfer fees, mortgage registration fees, home insurance and legal fees can all be unexpected surprises for first home buyers.

4. Get to know your grants

There are a range of incentives which aim to help first home buyers overcome their tough position and start climbing the property ladder. The First Home Owners Grant (FHOG) again varies between states. For Victoria, new homes under $750,000 that are either built or bought, may be eligible for a $10,000 grant. It’s worth noting that this sum doubles for rural property purchases.

You can learn more about eligibility requirements here.

This grant should be applied for at the same time as your home loan. Lodge it through your lender for a speedier approval process. In most cases, it will be processed by settlement, or for those building a new home, by the first construction loan payment.

5. Start the search

Now that all the boxes are ticked and the processes are in place, you can get onto the fun part of buying your first home—open inspections!

The best advice here is to be aware of your emotional biases. Heading into an inspection with a list of your must-haves and nice-to-haves will help you to make a more rational decision. It’s easy to get carried away by a pool or gimmicky features, but you have to constantly ask yourself how much value do they add to your lifestyle, and to the cost of the house itself?

Many buyers quickly become disillusioned with what’s on offer in their price range. Consider adjacent suburbs, as it is often the case that a property in a similar area but without the designer suburb name might attract a more reasonable price. Delve into market data and come to terms with how different areas become popular. Hitting onto an up and coming suburb which hasn’t made headlines yet could see you net a tidy profit in a few short years.

Don’t forget to take a list of questions to ask when buying your first home. Things like the condition of the house, the possibilities of expansion, or heritage listing status can often get swept under the rug.

And finally, remember that a home is much more than the bricks and mortar of the property. The location—including transport, facilities and proximity to schools—is something that can’t be easily adjusted. A home renovation however is something that can be easily done to ensure you home grows as you do.