Purchasing your first home is a big step to a brighter future. Whether you’re looking to buy a place to live or an investment for your future, it can be a daunting experience when you’re starting out. We’re here to help you. Our first home buyer advice isn’t universal, but you might find something that helps uncomplicate the process. We hope to get first home buyers like you prepared, confident and ready to enter the property market.
#1 Plan early
The first step to buying a house is planning. We know it’s an exciting time and you want to move into your new home as soon as you can, but takin the time to learn a few things about the real estate market in Australia is key to making an informed buying decision. Buying a house is arguably the biggest purchase you’ll ever make so you should know what you’re getting into to avoid any regrets down the road.
Do you understand the market?
Understanding the real estate market for the area you’re interested in, growth trends in your state and mortgage market conditions is critical for first home buyers. Make sure you stay updated on the average property prices for homes or units in the suburb(s) you’re interested in, any local developments that could affect property prices, current interest rates and lending criteria. This will help you recognise opportunities sooner , and ensure that if you find the perfect place, you’re in a position to get the finance required to secure the deal.
What’s your reason for buying?
Some people want to buy a house because it seems like a thing adults do, but clearly understanding your wants and needs will help you narrow your priorities and find the best property for you.
If this is an investment, then growth rates, tax-benefits and occupancy levels matter far more than the colour of the brickwork. Whereas if this is your new home to live in, which is normally the case for first-time buyers, you should be focusing on the interior layout, renovations versus move-in ready, potentially schools and amenities in the area – things that directly improve your standard of living. Looking into future developments is also important. While high rise developments are important in the grand scheme of things, if there’s one going up next door that’s going to impact your privacy, comfort of living, traffic conditions and potential resale value.
Think about your purpose and reason for buying, then write down your must-have features and requirements, versus your nice-to-haves before you start hunting.
Consider all aspects – from the suburb, to location in the street, the type of block and the actual situation of the house (does it get the sun in the morning or the afternoon), the price, any potential issues packaged with it, including how quickly it can be turned over by the current owner.
Who to talk to about buying a house?
Talk to the managing real estate agent to understand the finer details of a particular property, beyond some nice pictures and the number of bedrooms. Remember that the real estate agent is working for the seller, so it’s their goal to get the highest price for the property. A buyers agent on the other hand works for you. They’ll help you get the lowest price and can find you properties before they’re listed publicly.
When it comes to finance, a good mortgage broker will give you insight into the lending market, including any roadblocks you may face in obtaining a mortgage, and amounts you’re likely to be approved to borrow. This can be particularly helpful when you’ve never done it before. Lots of people speak to the bank where they have their everyday accounts, but in today’s market that’s not always the best choice.
You’ll also need to think about hiring a conveyancer to help with the contract of sale and a pest and building inspector to make sure you’re not going to get any nasty surprises.
#2 Prepare your financial situation
Knowing what to do when buying a house is just as important as the property itself. Getting your finances in order will put you on sound footing, help you gives lenders confidence in your situation and help you buy your dream home. Buying a house is not solely about the maximum you can afford to pay. In fact, borrowing your maximum amount is a great way to put yourself on the fast-train to Regretsville after a couple of interest rate rises. While the bank already prices in some potential for interest rates to go up, you want to maintain a comfortable buffer rather than find yourself in a pinch to make your monthly repayments one, five or even 10 years from now.
Save up for the deposit
Start saving for the home deposit as soon as you can by putting aside a portion of your income. If you save 20% of the total house price that you have to pay upfront you can avoid paying for Lenders Mortgage Insurance (LMI) and the banks will generally treat you more favourably. You don’t have to stop there though, the more you save, the less you have to finance, and the lower your repayments.
There are grants available that allow exemption of LMI as long as you’re eligible, but remember that borrowing up to your maximum will increase your repayments. If you can save up a deposit of $200,000, that could be 20% of a $1m property, 25% of an $800k property or 33% of a $600k property. In these cases, you’d be left with $800,000, $600,000 or $400,000 left to pay. Your first home doesn’t have to be your forever home, so think about whether you want to splash out now or be more conservative and really pay down your mortgage quickly.
It’s also good practice to set some money aside for extra costs like loan service fees, settlement and drawing fees, building and pest inspections, insurances, even a few mortgage repayments so you’re ahead from the very beginning.
There are plenty of free resources online to create a budget and track your expenses, like our budget planning calculator, and it’s worth taking the time to set them up. Increasing your savings and cutting unnecessary expenses will help you to look good to the banks and lenders, increasing your chances of your mortgage application being approved.
While we’re talking about the budget – take the time to review your utilities like electricity, gas, insurance, internet and mobile phone bills. You’ll be surprised how much you can save by being willing to switch to a better deal with another provider.
Improve your credit score
Before lenders will approve your home loan application, they’ll check your credit score to see if you pay your bills and spend money responsibly. If they’re going to trust you with hundreds of thousands of their dollars, they want to know a bit about you.
You can increase your credit score over time by always paying your bills, rent, credit cards and loans on time, month after month. Set up direct-debit on any bills that allow it so you don’t need to think about it and lessen the chance of forgetting to pay something before the due date. A lot of credit reporting agencies offer free access to your credit score, so you can keep track and ensure it is in top shape. Being declined for a home loan decreases your score too by the way, so make sure you’re ready before you apply.
Avoiding payday loans and limiting the number of applications you make for loans or credit cards also help to keep your credit score high.
If your score is not where it should be because of some past mistakes, consider seeking advice from a credit-repair service to see if there’s some quick wins you can do, like having an old judgement debt removed (once you’ve paid the debt of course).
Stay within your borrowing capacity
Let’s say that again: Stay within your borrowing capacity.
One of the most common tips for buying your first home that you’ll keeping seeing is to stay within your means. It’s such an exciting time and all too easy to stretch yourself beyond your means and what will be comfortable to repay. Remember, just because a lender is prepared to offer you a certain amount doesn’t mean you have to buy to the limit. Sure, it’s possible to repay a certain amount, but will you be comfortable to pay that month after month, year after year? If not, reduce your budget a little bit for peace of mind.
This will prevent you from incurring debt you can’t pay, and will make your house shopping much more enjoyable, with no nasty surprises.
Check available incentives for first home buyers
You’re pretty special, did you know that? As a first home buyer, there are multiple grant schemes just for first home buyers that you could be eligible for. Understand the tax benefits too – buying a newer home may be more advantageous than an older home, for example.
Here’s a couple of schemes to check out and note that you can apply for more than one, if you are eligible:
First Home Buyer Assistance Scheme
Eligible first home buyers can pay less or even eliminate stamp duty fees depending on the value of the purchase, and applies to both new and existing properties, and land purchases.
Eligible first home buyers can purchase their property under this scheme with a deposit as little as 5% without having to pay the Lenders Mortgage Insurance (LMI). It’s like having LMI without paying the premium; saving between $7000 to $30,000+ and resulting in a faster home purchasing process.
Family Home Guarantee Scheme – Single Parents
Single parents with at least one dependent child can buy their home sooner with just 2% deposit, without paying the Lenders Mortgage Insurance, allowing for thousands of dollars in savings just like the above example.
The FHSS scheme allows you to use your super fund to save for your deposit and can provide additional tax benefits. Apply to use up to $15,000 of voluntary contributions per year, to a total of $50,000 across multiple years of saving. The ATO has more information about this one.
Regional First Home Buyer Guarantee Scheme
This government initiative supports first time home buyers to purchase a home in select regional areas with a 5% deposit but without paying the LMI.
If you’re struggling to meet the strict lending criteria for home loan approval, the bank may consider a guarantor signing the loan with you. That’s someone who is capable of paying the loan in the event you’re unable to. It reduces the bank’s risk, but also means your guarantor is legally liable for the loan if you don’t pay. Parents often consider going guarantor for their children, but it’s important that all parties understand their obligations if going down this path.
Search for the best interest rate & loan terms
A mortgage is a long term debt, so even the smallest difference in interest rate will save you a lot in the long run. We highly recommend comparing rates from multiple lenders. Take time to understand the differences between fixed rates versus variable rates work. As experienced mortgage brokers, we’re here help you save thousands of dollars over the life of the loan and ensure you find the perfect solution to suit your needs. Best of all, it doesn’t cost you a cent.
Get pre-approved for a home loan
We’re getting closer to the action now. Obtain a pre-approval from your target lender before you start actively searching for properties. This will help focus your budget with a clear dollar amount to stick to, and avoid the disappointment (and sometimes additional fees) that come with making an offer without the cash to back it up. It also shows the seller you’re serious about purchasing the unit or house they are selling because you have the money ready to go.
If you start making offers without having a pre-approval sorted, you run the risk of being pipped to the post by someone who’s already done that step. In the worst case scenario, if you put down a deposit on the property you could lose that entirely.
#3 What to do when buying a house
Ready to find the perfect home to call your own? Remember not to rush this stage – there are a lot of properties out there.
To make sure you stick to your budget, focus on ticking your list of must-have features first before adding on the nice-to-haves. Limit the financial information you share with the real estate agents like your maximum budget because they’re working for the seller, not for you. If they know you’re pre-approve for $50k over the asking price, they’ll do their best to eke that out of you.
If you choose to engage a buyers agent, then do the opposite. They’re on your side and trying to get you the best home at the best price possible.
Search online
Start by searching online listings and filtering for location and budget ranges. Talk to real estate agents, buyers agents, attend a few open houses and auctions to see how it all works. Don’t forget the research you did in step 1 so you know the median price of units and houses because it’s easy to forget the budget when emotions are running high.
One of the most annoying things for buyers is when properties are listed without a price. You’ll see plenty of ‘new to market’, ‘contact agent for price’ and ‘auction’ without any sort of indication of a price or price range. Here’s a tip for buying a house in Australia: all agents add a price when they upload a property to either Domain or Real Estate, and it’s not as secret as you may think.
To get a better idea of the price an agent’s looking for, open up the property in question, right click on the page and click ‘View source’ (or press ctrl+U). This will show you the backend of the site, but you don’t need to understand the code. Search the page (ctrl+F) and search for “exactPriceV2” on Domain or “marketing_price_range” on Real Estate and you’ll see the figures the real estate agent has added. Knowledge is power and now you can find out if the property is in your budget or not.
Visit the property
Once you’ve found the house you want to buy, say online or via the real estate agency, it’s time to visit. Most properties have an open house at the weekend when anyone can walk in, but you can also arrange private viewings just for you. Open houses give you a good idea of the competition you may face to buy the property (more viewers likely means more bids which means a higher price). Remember that you’re not just assessing the property, but the local area. Walk up and down the street to get an idea for the area as well as the house in question.
It can be a good idea to visit properties you’re not 100% sure of. Some places look better in real life, while others display the creative skills of the photographer who shot the advertising material. Generally though, the more homes you see, the better idea you get of what to look out for.
Building and pest inspection
You can see most of the house during your visit, but the stuff you can’t see is important too. What we’re referring to are things like a pest inspection (are there hungry little termites eating away at your investment?) and a building inspection to ensure structural integrity. You can arrange to have the house professionally assessed for any issues regarding possible structural, electrical, safety, termite or other pests and estimate the cost of repairs or maintenance necessary. Alternatively, find a building and pest inspector with a good rating via Google, your conveyancer or a friend who has bought recently and be sure to check their reviews.
You might not be familiar with all this, but the effort is worth it to find an inspector who is independent from the seller and their real estate agent. Do this for your peace of mind, and if any issues are identified, use those findings to negotiate the price, or walk away entirely before you purchase one big headache.
#4 Make the right offer
Ok we’ve found our dream home, now it’s time to make an offer. Not just any offer, and certainly not the ‘sticker price’ just because that’s the price on the listing. This is where a little negotiation will go a long way.
As much as you’re excited and you really want to buy the place, don’t forget the seller also wants to sell it, so remain calm, and negotiate fairly based on your research of similar properties in the area. Most sellers will negotiate too, because selling a house is almost as hard as buying one!
Negotiate with the seller
If you are buying via an auction where you and other buyers are actively bidding, remain calm. Don’t go overboard, don’t get into competition with someone else because it looks cool on TV. If you do, you’re guaranteed to pay too much. Don’t let your fear of missing out set in. Just hold your horses and follow the budget you set before the auction started. Give yourself a top price, and if you get to that point without winning the auction – walk away.
If it’s through a private treaty, you’ve got the time to negotiate a reasonable yet affordable price with the seller and emotion is less likely to get the better of you. Take into account the median price you got from your research, plus the results of the building and pest inspections done on the property. Ask about the home’s history of repairs and renovations and anything else that you think will affect the value and the price you’re willing to pay. In most cases, the real estate agent will come back to you with a counter offer as they try to prove their worth to the seller. Be prepared to haggle on these too. Go back and forth until you’re comfortable with the price.
For people who don’t enjoy confrontation or high pressure sales tactics, hiring a buyers agent can help you get the outcome you want without the stress of dealing with the negotiations.
Don’t rush
Understand it might make a while before you and the seller come to a price acceptable to both of you. Maintain good communication and remain respectful with them, even if their offer seems a little cheeky or you feel like they’re pressuring you for an answer. They want the best price for the sale, just as you want the best price for your purchase. But if the seller won’t agree to a reasonable price, consider walking away rather than overpaying. There are many, many other properties out there. You could even find the seller accepting your last offer rather than let the opportunity pass them by, but in order to find out, you have to be willing to risk walking away.
#5 Work with experienced professionals
It’s easy to feel overwhelmed with the complexity of buying your first home. There’s a lot of information to work through, but the good news is you don’t have to do it alone. That’s why we recommend engaging licensed experts who have proven experience in the first home buying process. They can provide guidance and advice to educate you and help ensure your first house purchase is smooth and successful. Take a buyers agent for example – they’re your version of the real estate agent for the seller. Their experience and negotiating skills may help you strike a better offer, saving you money up front.
When it comes to finance, a mortgage broker will do all the comparisons between lenders for you, discuss what it takes to get approved, different loan types and why they are better suited to some people over others, and even provide you with loan options you wouldn’t otherwise be aware of.
That was a lot of information we went through there. But, we figured in giving you our top five tips for first home buyers, it was better to give you the real gold than some 30-second reading list that only skims the surface. We hope you learned something (or a few things) that will help you through the process and leave you feeling ready for action.
[Bonus video] First Home Buyers 101: Your Step-by-Step Guide to Homeownership
In this episode of Talk Property To Me, Brad East and Aaron Downie guide first home buyers through the essential steps of purchasing property.
