First Home Buyer Guide (24 simple steps)
Buying your first house can be a daunting process, but with the right information, you'll be on your way to securing your first home with minimal stress.
To help you through this process we've outlined several key steps and considerations, to enable you to enter the market with confidence.
Firstly, is the timing right?
1. Identify the hidden costs that come with homeownership
Upfront costs could take up to 7% or potentially more of the property price and you could be looking at spending an extra few grand on government fees, building inspections, mortgage brokers, conveyancing lawyers and more.
2. Work out how much your repayments would be
Most banks will have an interactive mortgage calculator available on their website where you can input your deposit + property price + mortgage term (eg. 30 years) + interest rate, to find out what your weekly/monthly payments will be.
3. Create a long-term savings scheme
In order to save quicker, it can be a good idea to budget your weekly expenditure. Cancel disused subscriptions (streaming services, magazines etc.), bring your own lunch to work, cycle rather than take public transport, save buying food out for social occasions etc.
Some banking apps even categorise your spending so you can identify where your money is going.
4. Create a term deposit savings account
If you already have savings set aside for your house deposit, consider locking them away for a few months or even years in a term deposit. Shop around to see which bank will give you the best return on your investment.
Once you’ve decided that you’re ready to buy property, you need to:
5. Check whether you have enough for your deposit
The suggested deposit for a property in Australia is 20%, however, you may wish to pay more (if you've saved more), or less (special terms apply). If your deposit is less than 20%, you'll need to apply for Lenders Mortgage Insurance (LMI) which can be paid upfront or concurrently with your home loan. The rate of LMI is calculated after the bank undergoes a value assessment of the property to you wish to purchase and compares the loan to value ratio.
6. Make allowance for stamp duty, government and conveyancing fees
Stamp duty is paid when you purchase property in Australia, however, a first home buyer exemption resulting in a significantly reduced rate can apply if the buyer meets certain requirements.
For example, if you are buying in Victoria, the following will apply:
You enter into a contract of sale to buy your first home on or after 1 July 2017.
Your home has a dutiable value of $600,000 or less to receive the first home buyer duty exemption, $600,001 to $750,000 to receive the first home buyer duty concession.
All the purchasers of the property meet the First Home Owner Grant eligibility criteria, and at least one purchaser satisfies the residency requirement.
- State Revenue Office Victoria, First home buyer duty exemption, concession or reduction
Government fees can include: lease transfer, registrations, title searches etc.
Conveyancing fees apply when placing an offer, reading over legal documents and at the settlement stage of the process.
7. Find out whether you’re eligible for a First Home Owner Grant
You can find out whether you're eligible for the First Home Owner Grant via the State Revenue Office Victoria website here.
8. Decide on the purpose of your property purchase
Every buyer has a different reason for purchasing property – some for investment purposes, others might be looking for a small apartment close to work, while some would rather a lifestyle block in a family-friendly community. It is important to identify what you're looking for from the outset to ensure you don't spend time looking at places that don't meet your needs. That's not to say that you shouldn't look a little further afield than your preferential neighbourhoods (as sometimes areas which border popular suburbs can be significantly cheaper), but future planning is essential.
Beginning the search
9. Explore your options
Begin your engagement with a selection of agents, property search platforms and go out to viewings. Approach the agents with a shopping list of what you're after – eg. a new, one-bedroom, off-the-plan apartment in central Melbourne with plenty of outdoor space, under $450,000. This will hopefully give them a good understanding of what you're after so you can view properties better suited to your requirements.
10. Study suburb insights
Do thorough research of the area, by looking up new planning developments proposed for nearby sites. Consider if new buildings could potentially block your view, or whether a proposed entertainment centre could add significant value to your property. Think about the quality of education and amenities nearby and whether there are sufficient, public transport options and supermarkets.
11. Check the sales history and rental yield
Look up the address of the property online, and check the previous sales history of the area. Is the property you're looking at fairly priced compared to other properties in the area? Has there been an increase in value over the past few years?
It's also a good idea to ask the agent what the suggested rental yield of the property is (what they would rent it out for). If at some point you needed to rent out your property, would this weekly income cover the mortgage?
12. Ensure that an insurance company will cover the property you’re interested in
There have been issues in the past where owners of coastal properties found it challenging to acquire new insurance following concerns regarding sea levels rising. To avoid any issues down the track, approach an insurance company and find out whether they would cover the property you're interested in, and what the annual fee would be.
13. Check you can afford the annual rates
Annual council rates can work out to cost as little as $3.50 per day, however, this rate will fluctuate depending on the average valuation trends of an area. Your real estate agent should be able to tell you what the current annual rates would be for the property, which you can then factor into the annual fees of maintaining your new home.
14. Make sure you can visualise yourself living there
Property is one of the biggest purchases you'll ever make, so you will want to ensure the house you're buying ticks all the boxes. Keep looking until you find a place which meets your needs, fits within your budget and is located in an area you're happy to live in.
Placing an offer
15. Engage a conveyancer or solicitor to read over the offer agreement
Placing an offer is a legally binding process, so it's important to ensure you've read through all the paperwork carefully. By engaging a conveyancing lawyer, you can rest assured that if your offer is accepted, you are far less likely to be sprung with any financial issues or unforeseen terms in future.
16. Decide on your terms of sale and check you agree with the vendor's
Don't be afraid to make a cheeky offer, the worst that can happen is that the vendor might make you a counter-offer. Before signing any paperwork, make sure you feel 100% confident in your decision.
17. Go through the Title covenants with a fine-tooth comb
There are many unique covenants that are attached to certain properties, and different rules apply for apartments, off-the-plan new builds, detached dwellings, land and more. Everything from how tall your trees can be, to whether you can paint your front door should be outlined. Ensure you read this carefully as in some cases you can contest certain restrictions.
18. Submit your offer
Many first home buyers will make a 'conditional offer subject to finance' – which means they have raised the deposit but still need to secure a home loan. Speak with a financial advisor or mortgage broker about which option is right for you.
"[In Victoria] you can make your offer subject to multiple conditions and if the conditions are not met, you can back out of the sale without a penalty. This offers the purchaser a level of protection that can make a transaction go more smoothly and provide some stress relief."
- Tony Harrington, Licensed Estate Agent
*While this is the case in Victoria, some states incur a penalty fee which is a percentage of the deposit amount.
Settlement
19. Once your offer has been accepted, check again that you have clearly read, understand and agree with the terms of sale
When it comes to the paperwork required to secure your new home, there can be a lot of jargon. Employing a conveyancing lawyer to read through settlement documentation will give you the confidence that the vendor has provided you with realistic and fair terms of sale. Feel free to raise any questions or concerns you have with your lawyer as they will often have a wealth of experience to draw on from working with hundreds of clients in a similar situation.
20. Apply for your home loan
Firstly, choose between a fixed rate or variable rate.
Fixed rate: Interest rate stays the same for a certain period of time - providing you with certainty and routine payments.
Variable rate: As interest rates fluctuate, so does your repayment rate. Whilst more unpredictable, variable rates can give you the flexibility to pay off your loan sooner.
There are also three ways of paying your loan.
Interest offset account: A transaction account which is linked to your home loan. The money saved in this account can be used to offset interest paid on your mortgage.
Principle + interest loan: Paying both the property and interest at the same time. Repayment rates may seem high, but you'll pay off your mortgage a lot quicker.
Interest-only loan: Interest-only means less weekly payments but will draw your mortgage term out.
21. Cooling-off period
The 'cooling-off period' is approximately 2-5 business days after purchase in which the buyer may back out of the sale.* It gives a bit of leeway for the buyer to undergo further due diligence, and to decide whether they would like to complete the sale. If the buyer reneges on the sale, they will have to pay a small termination fee.
*Speak to your lawyer or real estate agent about whether the cooling-off period applies to your purchase.
22. Complete a final inspection of the property
Before you move in, ensure the property is exactly as described (if buying off-the-plan) – all chattels are included, no damage has been made to the property, any prior arrangements have been delivered (eg. if you requested a window to be fixed, check that this has been done).
23. Acquire home insurance
Sign up your home insurance as soon as your name is on the title. Shop around for the best deal.
24. Thank everyone who has helped you along the process
There are usually a lot of people that lend a hand during the house buying process – send them a thank you note to show your appreciation for their help.
