Buying your first home is as stressful as it is an exciting milestone in your life. As with all big purchases, a significant amount of research can really help with making the process a whole lot easier. Everything also differs from state to state. What happens in the ACT doesn’t necessarily happen in NSW.
A lot of it can seem self-explanatory, but there’s a lot of reading between the lines. As someone who has just bought their first home, I wish there was an easy step-by-step guide to follow, but there isn’t. Here’s a few handy tips we learnt along the way, that will hopefully make the process easier for you!
Get yourself a good Broker
We started out initially by just going to a bank on our own, then we were recommended a Broker and I’m so glad we used him.
I cannot stress this enough – a broker is there to make your life so much easier. The liaise with the bank for you, look after all the fine details and explain things to you in plain english! You also don’t need to pay a Broker, as once you secure a loan, the bank pays them commission.
We started out by having an initial conversation, explaining our financial history, personal background and what kind of house we were looking for, how much we were willing to spend etc. Be prepared, as the initial phone call can involve a deep dive into your financial and spending history so it’s good to have as many solid or rough estimate numbers as possible.
After this phone call, he laid out our pathways in such plain english, it was amazing! We figured out which one was the best way forward for us and he sorted out the rest and let us know what he needed from us along the way.
Your Broker is there to take your questions, no matter how small or silly they may seem, be your spokesperson to the bank and real estate agent and do all of the legwork to ensure you secure your loan. AKA your new bestie – get ready for them to be your most called person for the next few weeks!
Figure out how much deposit you need
Just because it’s common knowledge that you need a 20% deposit, doesn’t mean you actually have to save that much – it can be a pretty daunting prospect to think you need to save $100,000 just to buy a home.
Obviously, if you can sort out a 20% deposit, that is ideal but if you have less than 20%, e.g. 10 or 15% you’ll have what’s called Lenders Mortagage Insurance (LMI) rolled into the total value of your loan. This protects the credit provider in case you can no longer pay. Just be careful with this route, as the lender can sometimes charge you a higher interest rate.
Another route you can go down if you don’t have a full 20% deposit and to avoid the LMI is to have someone act as guarantor on the loan, e.g. your parents putting their house up as equity/collateral against your loan.
Check out what first home government schemes are available
In following the above, most states in Australia have what’s called the First Home Loan Deposit Scheme (FHLDS). The amount varies from state to state, particularly those with definable central and regional areas, but take the ACT for instance, under this scheme you can purchase a property up to the value of $500,000 and you only need a 5% deposit, as the Government acts as guarantor on the remaining 15%.
Meaning, you only need to save $25,000 for a house, which is a less scary thought than 20%. There are some criteria that you do need to meet to qualify for the FHLDS but your Broker can help you figure out whether you qualify or don’t.
There’s a bunch of other grants and incentives the Government has available for first home buyers too, including the fact that in the ACT, first home buyers no longer need to pay Stamp Duty on their first purchase. It’s well worth your time to do your research and see what Government incentives and grants are available in your state to see what else you could be eligible for.
Banks will loan you a scary amount of money
Having not spoken to a Broker before we went to a bank in our early phases, it was pretty clear some institutions were willing to throw money at us, some up to $1 million which would have led to some seriously unrealistic repayments.It can be really easy to fall into that trap where you borrow too much to buy your dream home, and then need to default on the loan because you can’t meet your repayments.
This is why it’s super important to work out exactly how much you’re willing to spend on a property and what you expect your repayments to be.
There’s a number of great mortgage calculators out there where you can input the total spending amount, your expected loan term (usually 25 to 30 years) and what the interest rate is from the institutions you’re looking at. This will calculate these variables and give you an estimated monthly repayment you can expect. We used Nectar Financial and found it to be pretty accurate!
Save as much and as hard as you can outside of the deposit
Outside of the deposit, nobody really talks about how much else you need to pay when you purchase a home. Again, this varies from state to state and your Broker can tell you exactly what you need, but there’s a range of costs including transfer fees, government fees, charges for the building and pest report, conveyancing and solicitor’s fees, building insurance and Stamp Duty.
In the ACT, the building and pest report is roughly around the $1,300 mark, and you can get a good solicitor from $1,200-$1,600 (you really shouldn’t need to pay much more than that!). Once you reach your settlement, your bank will provide you with a breakdown of exactly what you need to pay and where it goes.
There’s also the added cost of additional bills you don’t pay when you’re renting, which is full council rates, body corporate or community title fees and the entire water bill (not just the usage part!). You should be able to find out from the real estate how much to estimate for these costs each quarter so you can figure out how much extra a year you’ll be paying.
Plus there’s also the fact that unless you’re building from scratch or buying something totally brand new, there’s probably going to be some work you’ll want to do to the house, so work out what you want to do as soon as you move in, and what you want to do over the long term.
There’s an entirely different set of rules for Auction
Unlike a purchase through a regular listing, where you have a small cooling off period to change your mind without incurring some significant costs, you need to be 100% certain of your financial position and desire for the property at auction.
As soon as you’ve won that bid, that’s it, your purchase is final. There’s also the chance that people could play the game and make you overpay for a property, so doing some market research beforehand is useful to identify what the property value is actually worth.
If the fast pace of auctions is your thing, it’ll be handy to just go and observe a few to get a feel for what the process is like before you get into a bidding war. Remember an Auction is all about emotions, and when emotions are high and your’e picture BBQ’s on the deck – its very easy to bid a little more than you originally intended. Go in with a maximum budget so you don’t get too excited.
Honestly, just do your research
If you’ve found a few places you like and you’re ready to make an offer, check out recent sales reports from the suburb and similar sized houses. All the typical real estate websites like All Homes and Zango will have reports on past sales. The last thing you want to do is end up significantly overpaying for a property.
Have a look at similar properties in the area that have sold over the last couple of years and see if what they’re asking for is fair and how much more you’d be willing to go. Just because in the ACT you can get $500,000 on a Government scheme, doesn’t mean you need to take the full amount.
It’s also a good idea to research what suburb you want to set up in and what type of dwelling you want to live in. Is it an investment property that you’ll only live in for a few years or is this going to be your forever home?
Make a good impression on the real estate agent
While a Real Estate agents job is to get the best outcome for the owner, making a good impression is still important. Let them know what you are after or if you are interested in the property to ensure you don’t miss out. They may have the “perfect” home coming up in a couple of weeks – you won’t know unless you ask. Real Estate is all about relationships and if they are a good agent this could be the difference between selling your home in the future.
The agents job is also to recommend to the seller what offer would be the best for them to take. This may not always be the highest price, but could be a shorter settlement period or a buyer who is already pre-approved. Letting your agent know these elements can be the thing that helps you in getting your dream home.
It’s a fairly long and stressful process and can feel like a lot of waiting. Just do your part and let your Broker, bank, solicitor and real estate agent fill in all the gaps for you and just provide what you need. Call your Broker for any advice and questions along the way – it’s what they’re there for. The only other piece of advice I have is to just take it as it comes, the feeling you’ll have once you get the keys will be unlike any other and well worth all the stress you felt!