Buying Your First Home: A Step-by-Step Guide

9 Sept

Purchasing your first home is a significant life milestone, but it can also feel overwhelming. In Australia, the property market can be competitive and complex, especially for first-time buyers. This guide will walk you through the key steps, helping you make informed decisions and understand the processes involved.

1. Assess Your Financial Situation

Before diving into the housing market, evaluate your finances. Take a close look at your savings, income, and debts to determine how much you can afford to spend on a property. Be mindful of the additional costs of homeownership, including stamp duty, legal fees, and ongoing maintenance.

Deposit Requirements: Generally, you'll need at least a 5-10% deposit of the property's value. The larger your deposit, the better your chances of securing a home loan with favourable terms. (This 5-10% deposit does not include stamp duty, which must also be accounted for unless you qualify for first home buyer stamp duty exemptions specific to your state.)
First Home Owner Grant (FHOG): Each state and territory offers grants to first-time buyers, provided you meet specific criteria. For instance, in most regions, the property must be newly built or significantly renovated.

2. Understand Your Borrowing Power

Once you've established your budget, consult with a mortgage broker to understand your borrowing capacity. During this step it is important to get pre-approved for a loan, this shows sellers you're a serious buyer.

Home Loans: The type of loan you choose (fixed-rate, variable, split loan etc.) will all depend on your individual situation and what your needs and objectives are. It’s important to talk to a mortgage broker that will find you the best mortgage deal that fits your financial situation.
Lenders Mortgage Insurance (LMI): If your deposit is less than 20%, you’ll likely need to pay LMI, which protects the lender in case you default on the loan. It’s a one-time cost, either paid upfront or included in the loan. We have discussed LMI and the best ways to avoid it in a previous blog. HERE
Family Guarantee: Some lenders offer family guarantees, where a family member, typically parents provide their property as additional security, allowing borrowers to secure a mortgage with a smaller or no deposit and avoid LMI.

3. Research the Market

Now this is the stage to scour realestate.com or Domain and set your parameters based on your pre-approval. Consider proximity to schools, public transport, work, and other amenities. It’s also important to keep an eye on property values, along with recent and similar sales.

Property Types: Different types of properties (apartments, houses, townhouses) come with their own advantages and drawbacks. Consider your lifestyle and future needs.

Auction vs. Private Sale: In Australia, properties can be sold through auctions or private sales. Auctions are often more competitive and may require quicker decisions, while private sales provide more room for negotiation.

4. Additional Costs to Consider

Beyond the deposit and home loan, there are several other costs to keep in mind:

Stamp Duty: A tax levied by state and territory governments on property transactions. First-time buyers may be eligible for exemptions or discounts, depending on the property's value and location.
Legal/Conveyancing Fees: A solicitor or conveyancer will handle the legal aspects of the property purchase. This service typically costs between $1,000 and $3,000.
Building and Pest Inspections: It’s highly recommended to have a professional inspect the property for structural issues or pest infestations before you buy. This can cost a few hundred dollars but may save you from unexpected repair bills.

5. Making an Offer or Bidding at Auction

Once you've found a property, it’s time to make an offer. If the property is being sold through a private sale, you’ll negotiate the price with the seller. For auctions, you'll need to register and bid on the day.

Cooling-Off Period: In private sales, a cooling-off period usually applies (varies by state) allowing you to back out of the deal if needed. However, this does not apply to properties bought at auction.
Contract of Sale: This is a legal document outlining the terms of the sale. Review it carefully with your solicitor or conveyancer before signing.

6. Finalising Your Home Loan

Once your offer is accepted, take the contract of sale to your broker and they will re-submit your pre-approval for a ‘Full approval’. Your chosen lender may carry out a valuation of the property to ensure it's worth what you’ve bought it for. Once all the remaining conditions have been met and the letter of offer and mortgage documents have been signed, settlement will be booked.

Settlement Period: Typically lasting between 30 to 90 days, this is when the final legal and financial arrangements are made. Your solicitor will handle the transfer of the property’s title and ensure all conditions of the contract are met.

7. Moving In and Maintaining Your Home

After settlement, you’ll officially own your home and can begin moving in! Owning a home comes with responsibilities, including maintaining the property, paying utility bills, council rates, and, if applicable, strata fees for apartments or townhouses.

Ongoing Costs: Be prepared for regular costs like property maintenance, insurance, and council rates. Budget for any potential renovations or updates that the property might require over time.

Tips for First-Time Home Buyers:

Be patient: The property market can be competitive, so don’t rush into a decision. Wait for the right property that fits your budget and needs.
Take advantage of government incentives: Use the First Home Owner Grant, stamp duty concessions, and any other state or federal programs to reduce costs.
Consult professionals: Mortgage brokers, solicitors, and conveyancers can guide you through the process, ensuring that you make informed decisions.

Buying your first home in Australia is an exciting journey filled with opportunity. With careful planning, research, and a solid understanding of your financial capacity, you’ll be in a great position to enter the property market. Make sure to seek advice from experts where needed and take your time to find the home that best suits your needs.

Godfrey Slattery