Buying your first home can be a fun but daunting experience. Below is a brief summary of the process you may go through as a buyer from saving a deposit, to settling on your new home. Doing your research is essential to getting the right outcome from your property purchase and ensuring that your home repayments are sustainable. To get a more comprehensive understanding of the home buying process, contact your local Home Loan Specialist who will answer any questions you may have or check out ASIC’s Money Smart, ‘Buying a Home’ video series.
Ideally you would have saved a minimum deposit of 20% plus enough to cover the additional upfront costs of taking out a mortgage (more on these below). You can access a home loan with a minimum of 5% deposit permitted you are comfortable with paying for Lenders Mortgage Insurance. This essentially means you pay an additional one-off fee to protect the Lender as you are perceived as ‘higher risk’. Depending on the size of the loan and your deposit, this could cost you between 0.5% – 4.5% of the total loan amount. Ouch.
With the focus on deposit amounts, it’s easy to forget that there are significant upfront fees that need to be paid upon settlement of your loan.
- Stamp Duty
- Conveyencing and Legal Costs
- Title Search and Registration Fees
- Loan Establishment Fees
- Lenders Mortgage Insurance (LMI)
The upfront fees you incur will vary with the size of the loan you require and the deposit you have. On a standard $400k loan budget for around $20k to cover the costs of the listed fees (excluding LMI).
The amount you can actually borrow is determined by assessment, which includes a review of your:
- Income, assets and financial commitments
- Existing debt and credit limits
- Your deposit size
- Requested loan type
- Credit history
When you are ready to find out how much you can borrow, get in contact with us and we will provide you with an accurate assessment of how much you can borrow from us. If you would like a quick indication of your borrowing power, check out our Borrowing Power Calculator. This calculator considers your income, regular expenses, credit limit, interest rate and repayment term but also draws assumptions for other factors that are assessed before agreeing to a loan amount.
When applying for a loan, your credit score will be taken into consideration to determine the loan terms offered and the amount you can borrow. Your credit score shows how risky you are to loan money to, based on several factors including:
- Existing Credit Limits
- Previous Credit Requests
- Repayment History
- Overdue Debts
If you familiarise yourself with your credit score before starting the loan process, you will be able to see if any issues may arise with your loan application prior to contacting a financial institution. If there are any concerns with the information included on your Credit Score document, these can be identified and addressed. Start by requesting your free annual credit score at Get Your Credit Score. If you have any concerns about your Credit Score, get in touch with us and we can talk you through this.
An In-Principal Approval (IPA) provides an indication of the amount you can borrow subject to conditions. An IPA lets you know how much you can afford to spend on a property, and can also be provided as proof for sellers to show you are a serious buyer and can access the funds required to buy their house. This is a commonly requested document by sellers and there is no obligation on you to enter into a loan with the issuer of the IPA. If you are searching or close to searching for your property, contact us to organise an IPA. It takes approximately 10 minutes to complete.
When searching for your first home it pays to think about what price you are comfortable paying for your property. With historically low interest rates on home loans in Australia it’s easy to get sucked in to spending (and borrowing) more than you can afford, especially if your situation changes unexpectedly. Three major scenarios to consider are:
- Will I still be comfortable if interest rates rise again?
- What will happen if the price of housing falls?
- What happens if my income changes?
When assessing how much you can borrow, your financial institution will take certain scenarios into account to ensure the amount you borrow is sustainable. However at the end of the day, you are ultimately responsible for determining how much you are comfortable spending. Not all changes in circumstances can be foreseen, so it helps for you to play out the ones most likely to occur and the potential impact the change may have on you and your financial responsibilities.
Buying Your Property
Once you have your deposit saved and an In-Principle Approval is in place, it’s time to find a property and make an offer. Once you have found a property you like, you will generally follow a process that includes the following:
- Review Sales Contract
- Make an Offer
- Exchange Contracts
- Cooling-off Period
- Settlement Period
After you have inspected a property that you would like to make an offer on, approach the seller or real estate agent to view the Sales Contract. Familiarise yourself with the terms of sale and ensure they are acceptable. If you are happy, the next stage is to submit an offer through the real estate agent. If the offer is not accepted straight away, you will need to negotiate with the seller to come to an acceptable agreement. Note that the method of submitting an offer varies by state.
Once your offer is accepted, it’s time to pay the holding deposit and exchange/sign the contracts. From here you will usually enter the cooling-off period, unless you have bought at auction or if you reside in a state where cooling off periods don’t apply to the sales process. A quick search should help you locate the rules that apply in your state.
This is the time to assess the property and arrange pest and building inspections to ensure the property condition is as per the Sales Contract. You can withdraw from the sale during the cooling-off period if you change your mind or if the property is not as expected, however you may forfeit your holding deposit.
When the cooling-off period is complete, the settlement period begins. At this stage, both you and the seller are fully commited to the sale and any withdrawal from the process during this time will usually involve a significant financial penalty. Usually during the settlement period the full deposit is paid to the seller. At the end of the settlement period you will receive the title and keys to your new property in exchange for full payment. Then comes time for the move!
Depending on which state you live in, you may be eligible for a First Home Owner Grant. This is a financial incentive, provided by the government, for first home buyers to enter the housing market. The terms and conditions of the grant vary depending on the state in which you are purchasing your property. For specific information on this visit http://www.firsthome.gov.au/.