Buying a property isn’t just a matter of opening realestate.com.au on your phone and scrolling. You need to put lots of thought into it before you even get to that stage.
1. Where to start if you want to buy a house
The most obvious place to start is to determine whether you can afford a mortgage. Before you even start looking for that dream home, sit down and carefully work through your finances to see just how much you can potentially spare to service a mortgage.
Think about your lifestyle preferences and keep in mind your personal circumstances, as well as others outside of your control, like current interest rates and property prices, which will change over time. Check out our buying guides for more in-depth tips.
2. What is on your property wish list?
The ‘perfect’ property is a very rare find, so chances are you’ll have to make some compromises. A helpful exercise to do before you start looking is to work out exactly what you must have in your new home and what you’re prepared to do without, if need be.
Some important considerations might be access to public transport and schools, parks and open spaces, proximity to your workplace and recreational activities. Maybe you want access to certain restaurants or entertainment districts. Or is a backyard or well-established garden a must for you? Have these clear in your mind to make the house-hunting process a simpler one.
A buying ‘must have’ is something you’re not willing to compromise on. It might be the number of bedrooms, to accommodate children, or a yard, if you have animals. It’s only truly a ‘must have’ if it’s a deal breaker.
Everyone would love a pool, right? But unless you’re an Olympic hopeful, it would rarely be a must-have for a first-time buyer. Your list of ‘nice to haves’ is exactly that: things it would be great to have in a home but aren’t vital.
Unless you have a bottomless pit of money, you’ll most likely have to compromise when you’re buying for the first time. Understanding what your ‘must haves’ and ‘nice to haves’ are will go a long way to helping you decide if a property is worth compromising for.
3. What can you afford?
Knowing what you can afford is a vital first step in your journey to being a first home buyer.
Some important aspects to keep in mind, are current interest rate levels, your job security, potential income growth, impacts of family changes such as having children, and what you’re willing to sacrifice if need be, to pay off a mortgage.
While crunching the numbers might seem a bit daunting, our home loan calculators can make the task a lot easier – but keep in mind these are only a guide. You should always seek professional advice when it comes to your individual circumstances.
4. How to save for your first home
The important thing to remember when saving for your first home is to not just save blindly. Work out exactly what you need to aim for, so you can establish a savings strategy that can work for you.
Examine your loan options with a lender or mortgage broker. You may have the capacity to borrow with a 5% to 10% deposit if you can afford lender’s mortgage insurance (LMI).
Also keep in mind associated loan costs such as stamp duty, legal fees and loan set-up fees. You may also be eligible for a first home owners’ grant to help with these initial costs.
For a small fee, an independent financial adviser can also help with setting up a savings plan.
5. How much deposit do you need to buy your first home?
There is a common misconception you must have at least a 20% deposit to secure a home loan.
While most lenders prefer this, it’s also possible to secure a loan with a smaller deposit, with many lenders now offering this option.
One option is to take out LMI. This insurance will cover the lender for the risk they take in providing a loan to someone with less than 20% deposit.
The cost of the insurance is in most cases built into the ongoing costs of the loan. Remember that taking this option will cost you more in the long term.
Another option is the ‘family guarantee’. This is where a close relative uses the equity they have in their property to provide security for your loan.
The amount guaranteed is calculated on the percentage of the preferred 20% deposit you have saved, meaning the smaller the deposit, the greater the relative has to guarantee.
One advantage of this option is that once you have paid back enough of the loan to cover the deposit shortfall, the family member’s guarantee will usually be released.
While these options may not suit every situation, low-deposit loans do make sense in fast rising markets where waiting to save the required 20% deposit would mean spending more in the long run.
6. Different ways to buy your first home
Nowadays, there’s more than one way to buy a home. Options such as rent to buy and teaming up with friends and family are just two of the alternatives. Here’s a round-up of the most popular ‘alternatives’ to the traditional method.
While looking for your first home, you could consider buying something with a spare room that you could then rent, to help with paying the mortgage. This could be a good option if you’re worried about your ability to make the repayments.
An increasingly popular way to get started in places with high home prices, this is where you rent where you want to live, while you buy and lease out a rental property in a more affordable suburb. Keep in mind this may have implications on eligibility for first home buyer grants.
This could mean you all end up with a home you previously couldn’t afford. Just ensure you get some good legal and financial advice before making the leap.
Buying off the plan means you don’t have to pay the full amount for the property until it’s completed, giving you extra time to save between paying the deposit and settlement.
Instead of that house with a yard, maybe an apartment or a townhouse could be a good starting point. Instead of new, is an older home better suited? Looking at the different options is super smart.
If the suburb that has everything you want is a bit out of your price range, look around for similar suburbs that are more affordable.
In many cases, if you’re prepared to look further afield, you can find the home that offers just about everything you need and still be within your budget.
7. Common mistakes to avoid
As a first home buyer, you want to sidestep the common mistakes like overextending yourself or being overly picking. Here are some to avoid.