There is a lot to think about when buying a home. The process can be both exciting and overwhelming. Identifying what you want in your dream property, understanding home loans and navigating your way through all the paperwork can be challenging.
By becoming familiar with these steps and doing some preparation, you can reduce the stress involved in the buying process. You should seek expert advice when making a large financial decision to determine if it is right for you. Becoming a home owner gives you the ability to make your house into a home, and it gives you a valuable asset to build equity upon.
1. SET YOUR BUDGET
First, decide how much you can afford to spend – keeping in mind all the additional costs associated with buying a home. The largest of these is stamp duty or transfer duty, which varies by state and is generally charged as a percentage of the purchase price.
As an example, if you are a first home buyer buying a property in New South Wales for less than $650,000, you can apply for a full exemption. But if you are buying a property valued between $650,000 and $800,000, you may be eligible for a first home buyer partial stamp duty concession.
Various stamp duty concessions are available for first home buyers depending on the location and the type of property you buy.
In some cases, this cost may be partially offset by First Home Owner Grants (FHOGs) intended to encourage first home buyers to enter the property market. FHOGs also vary from state-to-state and apply mainly to new homes, rather than established properties.
2. RESEARCH THE MARKET
Once you’ve set your budget and chosen your ideal property, it is important to research the market in the area in which it is located. When you are considering a particular location, look at infrastructure and amenities such as public transport, educational facilities and shopping centres.
Geographical factors should also be considered such as distance to the CBD and any infrastructure that will affect noise levels or the aspect of the property, such as substations or large electricity towers.
Websites that can help with research include realestate.com.au and domain.com.au. You could also build a relationship with the local real estate agents in the area, so they can let you know of properties that are coming up before they are advertised. The local real estate agent will also have additional information on any properties of interest.
If finding the right property is proving difficult, you might consider using a buyer’s agent who can do all the house hunting for you, will work to your budget and negotiate on your behalf. Unlike a real estate agent who works for the vendor/seller, a buyer’s agent works solely for the buyer.
3. CHOOSE THE RIGHT HOME LOAN AND GET PRE-APPROVAL
While searching for your dream home or investment property, it’s a good idea to get pre-approval for your loan from your bank. Having pre-approval will mean you can move quickly when you find your dream home. You will need to provide employment details including income and expenses, assets and liabilities, and some personal details. Usually pre-approvals will be valid for 90 days, however this can vary from lender to lender. As with any financial decision, it’s wise to shop around for the best deal.
One important consideration when deciding how much to borrow is the size of your deposit. Most banks generally require you to have a 20 per cent deposit. This means that on a property worth $720,000 you will need to have saved at least $144,000 – plus enough to cover stamp duty and any legal and moving costs.
There are other options available if you don’t have a 20 per cent deposit. Lenders Mortgage Insurance (LMI) enables you to buy a home with a deposit as low as five per cent. Rather than having to save a $144,000 deposit on a $720,000 property, your lender may be able to provide a loan with a deposit of $36,000. This means you can get into your own home sooner, begin paying off your loan and potentially start building equity. LMI is an insurance policy that protects the lender if you default on your loan. LMI is a one-off premium which the lender will pass on to you to pay. The premium can usually be added, or capitalised on to your loan, with your repayments adjusted accordingly.
To calculate the approximate cost of LMI, you can use the LMI premium estimator on the Genworth website genworth.com.au/premiumestimator
4. INSPECT THE PROPERTY
Once you have found the home you want to purchase and before you make an offer, you will want to arrange the necessary inspections. You should consider a:
- building inspection (to check for structural damage) – can vary depending on location $300-$700
- pest inspection – approximately $200-$500
- strata title inspection (if you are buying a unit or townhouse under strata laws) – costs may vary from $250-$350.
You should also consider checking with the local council and state government about zoning issues and future property developments that may affect your home.
Your solicitor or conveyancer should advise you on what inspections are recommended for the type of property you are buying.