Everything you need to know about buying your first home
Buying your first home is often a long time in the making, so educating yourself around the do’s and dont’s is critical to a smooth purchase.
What to consider before looking for a home
Settling on a budget
First things first — you need to know how much you can spend. Factor in your income, expenses and predicted income to get a ballpark around what you can afford in monthly loan repayments. Once you have a rough amount, you can use this to figure out the size of the home loan and what type of property you can afford. Once you know this figure — stick to it.
Make sure that you’ve paid off most of your existing debts before applying for your home loan. This will ensure your credit rating is as strong as possible, and help to secure a lower interest rate when it’s time to apply for a mortgage loan.
Saving for a deposit
The deposit is a vital step in buying your first house. A bigger deposit means you’ll have more leverage with your lender to secure a lower interest rate. Traditional home loans generally require more than a 10% deposit, although you could secure a home loan with as little as 5% through the First Home Loan Deposit Scheme.
However, there’s an added incentive for saving a 20% deposit as you can avoid paying Lenders Mortgage Insurance.
Understanding the other costs
There are a lot of other costs associated with a home loan that you may not know about. These costs are mostly mandatory, and they will lower your initial projected borrowing power.
- Stamp duty: This state tax will likely be your biggest expense aside from the actual property price. The good news is that as a first home buyer, you could be exempt from stamp duty or similarly entitled to a rebate or concession. Every state has different policies so be sure to check them out.
- Building and pest inspection: If you’re looking at buying an existing property, you want to make sure there’s no unseen structural damage and pests. This may seem like an avoidable expense, but these inspections could save you thousands down the track. Be sure that these are done before any contracts are signed.
- GST for new dwellings: Some states have laws around GST for new buildings, and require you to pay tax on valuation and inspection. Be sure to see if this is a cost for you.
- Legal fees: Whether it’s a transfer of title, contract reviews or a property and title search, there will be legal fees involved. Ask your solicitor for a quote before you get into signing any documents to avoid any nasty surprises down the track.
- Lenders Mortgage Insurance: If you are financing your home with less than a 20% deposit, banks add Lenders Mortgage Insurance to mitigate their risk.
- Land title fees: The Land Title Office will charge a registration fee whenever you submit any documentation related to your dwelling.
What to consider when it’s time to find a house
Look over the first home owner’s checklist
Buying your first house is a huge, long-term commitment so you want to make sure the house you choose suits your immediate and long-term needs. Ask yourself these questions to help direct your focus:
- Do you want to expand your family?
- Do you want to buy a finished product?
- Do you want something to renovate that will take many years of hard work?
- Do you want to build your dream home from scratch?
Having a clear picture of the kind of property you want to buy can help you budget for your initial deposit and direct you to finding the right home loan for your needs.
See if you’re eligible for a grant
A First Home Owner Grant (FHOG) is a one-off financial grant for eligible buyers to make it easier for them to enter the property market. The FHOG changes from state to state and eligibility is usually pegged to property value.
Aside from the FHOG, there are a number of other grants available to first home buyers. Be sure to check with the relevant authorities in your state to see what you could be eligible for.
Look into the different home loan types on offer
You don’t need to wait until you’ve found the right property to start the loan search. Many lenders allow you to get a loan pre-approval, which outlines the size of your loan limit and allows you to make offers on properties. While it’s not a necessity, a loan pre-approval does make the sales process a lot smoother and reduces your legwork between bank and seller.
What to consider when buying a house
How to make an offer
Making an offer is most likely going to be through an auction or private treaty with a real estate agent. It’s uncommon (although not unheard of) to purchase a property from a private sale.
When dealing with a private treaty, the first thing to know is making an offer doesn’t cost anything and most properties are sold below their asking price. It can sometimes pay off in the long-run to make a low first-offer to leave room to negotiate a better price. Also, the seller’s response to an offer, you perceive as too low, may surprise you (you’ve got to be in it to win it).
Auctions are a high-pressure environment and have a level of risk and uncertainty. It’s exactly those conditions that can see you snap up a great bargain or be pressured into paying above your previously established budget. The trick with auctions is to stick to your limit and not let yourself be drawn into a bidding war that leaves you out of pocket.
If you find yourself dealing with an individual instead of a real estate agent, try to handle negotiations and the sale process with some diplomacy. The owner is likely to be emotionally attached to the property and this can affect their approach to selling and negotiating.
What to do when exchanging contracts
This step comes in after you’ve agreed to a price with the seller and are preparing to settle on the house. It’s critical you have a solicitor or conveyancer look over the contracts. These documents are usually prepared by the seller and so it’s important you understand the contract and aren’t agreeing to any hidden conditions or issues.
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