As a proud Australian and a homeowner, I know firsthand that navigating the property market for the first time can be overwhelming, even daunting. You’re not just buying a house but you’re investing in your future, and that’s a huge step! The process can seem complex, full of unfamiliar terms and hidden expenses. However, becoming well-versed in the fundamentals of buying a home can take much of the anxiety out of the process.
As someone who has been in your shoes, I’ve put together a list of 10 key things that every Australian first home buyer should know. This is the knowledge I wish I had had at my fingertips when I was embarking on my own home-owning journey.
1. Get a Mortgage Broker
Mortgage brokers may be incredibly helpful for first home buyers, and I am not just saying that because we are a Mortgage Broking company. They have access to a range of loan products from a variety of lenders, including banks, credit unions, and other financial institutions. This means they can help you find a loan that suits your specific needs and circumstances.
Using a mortgage broker could potentially save you time and effort as they will handle the loan application process for you. They also understand the ins and outs of home loan products and can negotiate on your behalf. With them now having to follow the Best Interest Duty, you’ll know that you’re getting professional advice tailored to your needs.
2. Familiarize Yourself with Transfer/Stamp Duty
Transfer duty, also known as Stamp Duty outside of Queensland is a tax levied by Australian states and territories on property purchases. It’s often the largest expense a home buyer will face, outside the purchase price. The exact amount varies greatly depending on where you live, the value of your property, and whether it’s your primary residence.
There are often concessions and exemptions for first home buyers which can significantly reduce the amount of stamp duty payable. These vary by state, so it’s crucial to understand the specifics for the location you are purchasing in.
Speak to a mortgage broker or conveyancer to understand what your stamp duty obligations could be and what options you have available to you.
3. Grants
The First Home Owners Grant (FHOG) is a national scheme funded by the states and territories of Australia designed to help first home buyers. The grant varies from state to state and has specific eligibility criteria such as, but not limited to, the property value, whether the property is new or existing, and whether the buyer is an Australian citizen or permanent resident.
Application for the grant is generally made during the home loan application process, but it can also be completed post-settlement. It is important to take note that receiving the FHOG does not rule out stamp duty costs. In certain states, concessions or exemptions from stamp duty may apply for first home buyers, but these are separate to the FHOG.
If you want to find out what Grants are available, check out this article I wrote called Who is a First Home Buyer.
The rules can change, and the specifics can differ greatly between states, so be sure to do your research before relying on this scheme. Talk to your mortgage broker or look up the grants available to you from the correct government sources to get the most accurate and up-to-date information.
4. Learn about Loan-to-Value Ratios
The loan-to-value ratio (LVR) is a critical concept for any first home buyer to understand. Essentially, it’s a percentage that reflects the amount of your home loan compared to the value of the property. An old saying I hear a lot is that you require a LVR of 80% to buy a home, which means you’ll need a 20% deposit. This is not always true, read on to see why.
If you can’t save a 20% deposit, you may still be able to get a home loan. You’ll likely need to pay Lenders Mortgage Insurance (LMI) though, depending on the requirements of the lender. LMI protects the lender in case you default on your loan and can be a significant extra expense.
While a high LVR might enable you to buy a home sooner, it can also increase your financial risk if property values fall. Make sure to assess your financial situation carefully and consult with mortgage broker to understand your LVR options and LMI obligations.
5. Research the Market Thoroughly
As a first home buyer, it’s essential to research the property market extensively. Keep an eye on property prices in your desired area, inspect as many properties as possible, and monitor market trends. Understanding the local property market can give you an edge when negotiating a purchase price.
Attending open homes and auctions is a good way to familiarize yourself with the buying process. You’ll also start to understand what you can realistically afford and what type of properties you like.
Additionally, consider seeking advice from professionals. Real estate agents, mortgage brokers, buyers agents and financial advisers can provide invaluable insights and advice based on their industry knowledge and experience.
6. Get Pre-Approval for Your Home Loan
Before starting your property search, it’s wise to get a pre-approval for your home loan if that option best suits your needs. Pre-approval gives you an idea of how much a lender is willing to loan you, allowing you to focus your property search on homes within your budget.
It’s important to remember that pre-approval isn’t a guarantee that a lender will give you a loan, but it’s a strong indication of the amount they’d be willing to lend. It also demonstrates to real estate agents and sellers that you are serious about purchasing.
Pre-approval typically lasts for 3-6 months, so ensure that you’re ready to start looking for a property once you get pre-approval. If you haven’t found a property within the pre-approval period, you’ll likely need to apply again or get an extension if the lender offers it.
7. Beware of Extra Costs
When budgeting for your first home, it’s crucial to factor in additional costs beyond the purchase price. These can include building and pest inspections, conveyancing fees, moving costs, home and contents insurance, council rates, and utilities. I’ve written an entire article on it called First Home Buyer – Extra Costs to Consider.
Many of these costs arise before moving in, so you’ll need to have funds available to cover them. Understanding these costs early can help you budget appropriately and avoid any nasty surprises down the track.
It’s always recommended to have an emergency fund in case of unexpected costs. Property ownership can come with unexpected expenses, such as urgent repairs, so being prepared can give you peace of mind.
8. Understand the Contract of Sale
The contract of sale is a legally binding agreement between you and the seller. It outlines the terms and conditions of the sale, including the purchase price, settlement date, and any conditions such as building inspections or finance approval.
Before signing a contract of sale, have it reviewed by a solicitor or conveyancer. They will ensure you understand all the terms and conditions before you commit. If you’re buying at auction, this needs to happen before the auction day as a sale at auction is unconditional.
It’s also vital to understand cooling-off periods. A cooling-off period allows you to withdraw from the sale after signing the contract, but rules vary from state to state. Make sure you’re clear on your rights before signing anything.
9. Inspect the Property Thoroughly
Before purchasing a property, it’s vital to conduct thorough inspections. This usually includes a building inspection and a pest inspection, which can identify any potential structural issues or pest infestations.
You may also want to consider a strata report if you’re buying an apartment or townhouse. This report provides details about the financial health of the strata scheme and any potential major expenditures.
These inspections may save you from costly repairs down the line. While they might seem like an unnecessary expense when you’re already spending so much, they’re well worth the peace of mind.
10. Don’t Rush Your Decision
Finally, remember that buying your first home is a major decision and it shouldn’t be rushed. Take your time to research, inspect properties, and understand the financial implications of your purchase.
The property market can be unpredictable and sometimes stressful. Don’t be pressured into buying a property that isn’t right for you or exceeds your budget. Remember, it’s better to miss out on a property than to rush into a decision you might regret later.
Always be patient and keep an eye on the market. Your dream home is out there, and careful preparation will help you find it.
Conclusion
Buying your first home is a significant milestone, an exciting journey filled with potential and promise. It is also a journey laden with complexities that, if unprepared, can turn the experience from exhilarating to exasperating. As someone who has navigated this path, my advice is to arm yourself with as much knowledge as possible.
The more informed you are, the better decisions you’ll make and the more rewarding the experience will be. By understanding the Australian home buying landscape – from the First Home Owners Grant to hidden costs and thorough inspections – you’re setting yourself up for a successful and fulfilling home purchase. Be patient, be diligent, and don’t forget to enjoy the process. After all, there’s no place like your first home.
