First Home Buyers: What You Need to Know Before Making the Big Move

Buying your first home can be a daunting task, characterised by a seemingly endless to-do list with a multitude of moving parts to consider. Before you embark on this journey into the unknown, there are some key factors you need to consider to ensure a smooth process from start to finish.

What Can I Afford?

Before you dive into your property search, it's essential to have a clear understanding of the price range your finances can accommodate. Start by analysing your income, expenses, and any current debts (i.e credit card debts), while also setting aside a buffer for any unexpected, additional costs that may arise (such as needing an engineer's assessment). In Australia, the typical deposit is 20% of the property's purchase price, so make sure you have that amount readily available. While some lenders may approve a mortgage with a lower deposit, be prepared for the possibility of paying Lenders Mortgage Insurance (LMI) to safeguard the lender in case of default. Additionally, remember to factor in extra costs to your budget, including stamp duty, conveyancing or legal fees, and removalist expenses.

Which Grants and Government Assistance Programs are Available to Me?

First home buyers can take advantage of four key government initiatives: the First Home Owner Grant (FHOG), the First Home Loan Deposit Scheme (FHLDS), Stamp Duty Concessions, and the First Home Super Saver Scheme (FHSSS).

• The FHOG provides first-home buyers with a one-time payment towards their property purchase. The eligibility and amount of this grant does vary by state/territory, so it's important to research what's applicable in your jurisdiction.
• the FHLDS is a scheme which allows for first-time buyers to buy a property with a deposit as low as 5%, without requiring Lenders Mortgage Insurance.
• Stamp Duty Concessions: The majority of states and territory governments offer stamp duty concessions or exemptions, which are largely dependant on property value and location.
• The FHSSS: This initiative permits you to access your voluntary superannuation contributions (within certain limits) to help fund your deposit for your first home.

What Documentation Do I Need to Provide?

Whether it's your first or third purchase, buying property involves handing over a considerable amount of documentation. This will include;

• Proof of Identity: Acceptable forms include a driver's license, passport, or birth certificate.
• Income Verification: Provide recent payslips from the last 3-6 months, or tax returns and notice of assessment if you're self-employed.
• Savings and Transaction Statements: Include statements from your savings and transaction accounts covering the past 3-6 months.
• Expenses Documentation: Prepare a detailed overview of your monthly expenses, including bills, loans, and other financial commitments.
• Rental History: If relevant, documentation demonstrating a track record of consistent rental payments can help illustrate your ability to manage mortgage repayments.

Which Home Loan Is Right for Me?

When it comes time to selecting a home loan, you'll have the following types to select from; fixed-rate, variable-rate and split loans. The ideal choice for you will depend on your unique financial circumstances and requirements. Once you've chosen the appropriate loan type, it's advisable to shop around and compare the rates on offer from different home loan providers. You'll want to select a competitive rate, but also ensure you review the comparison rate as this will outline most of the associated fees and give you a clearer picture of the actual cost.

Furthermore, keep an eye out for loan features that may benefit you, such as an offset account, redraw facilities, and the ability to make extra repayments without incurring penalties. At this point in your home-buying journey, it's advisable to enlist the help of a mortgage broker who can guide you in securing the ideal loan. Brokers have access to numerous lenders and can offer valuable insights the most suitable products tailored for first-time home buyers.

Do I Need Pre-Approval?

When it comes time to place an offer on a property, you'll be asked by the real estate agent or property vendor if you have financial pre-approval. Also known as conditional approval, pre-approval occurs when a lender agrees to provide you a home loan up to a specified limit, contingent upon certain conditions.

The pre-approval process typically involves you submitting an application to your chosen lender with all required documentation, such as bank statements, income records and credit history. Your application will be reviewed to see if you meet eligibility requirements, and your financial situation assessed for suitability. A check of your credit score will also be performed to determine financial reliability. The settlement process can take anywhere from a couple of days to a couple of weeks, so ensure you submit your application with enough time to spare before searching for a property.

Although not mandatory, placing an offer on a property without one makes you a riskier buyer, and can hurt your chances of securing a property. Therefore, securing pre-approval at the outset will not only strengthen your position as a buyer, but having pre-approval will also give you a clearer picture of your borrowing capacity. Please note that pre-approval does not last indefinitely, and will expire after three to six months (depending on your lender) if you have not yet purchased a property.

Source: NAB

Where and What Should I Buy?

When you're ready to start your house-hunting journey, your two biggest questions might be 'where should I buy?' and 'what type of property should I buy?'. When deciding on a suburb for your new home, consider neighbourhoods that align with your lifestyle, budget, and long-term goals. Attend open houses and property inspections to gauge what’s available within your financial limits while assessing current market trends. It may also be beneficial to collaborate with a property-buying expert, like a real estate agent or a buyers agent, the latter of whom specialises in finding, evaluating, and negotiating properties for you, including bidding at auctions when necessary.

Source: Westpac

When it comes to selecting the right type of property, your decision will largely hinge on your budget and lifestyle preferences. Opting for an apartment means that you'll need to adhere to the rules and residence requirements set by the owners' corporation. This can include restrictions on pet ownership or limitations on hanging laundry on your balcony. Additionally, any modifications—like installing new flooring or air-conditioning—generally require prior approval. Conversely, owning a house offers more freedom to renovate and personalize your space, as long as you comply with local council regulations. From a financial perspective, apartments tend to be more budget-friendly, resulting in a smaller mortgage compared to houses. However, while they can help you save upfront costs, apartments may have limited potential for capital growth, especially in areas saturated with similar properties.

Source: Commbank

What Due Diligence Do I Need to Consider?

Undertaking thorough due diligence is an essential and vital step in the process of making any significant purchase, including buying your first home. Before you finalise and commit to a property purchase, it is highly recommended that you hire licensed professionals, to perform a thorough inspections, such as building inspections and pest inspections, of the property. These assessments should focus on identifying any structural issues, pest infestations or other potential defects that could affect the home’s condition. Moreover, if you are contemplating the purchase of an apartment or a strata property, conducting a strata inspection becomes crucial. This inspection will offer valuable insights into the building’s overall management practices, its financial health, and any potential issues that may arise in the future. Lastly, it is important to confirm the local council rates, as well as investigate relevant zoning regulations, any upcoming developments in the area and any other factors that could significantly influence the long-term value of your property.

What Happens When I Make an Offer?

Once you've identified the ideal property, it's time to proceed with your offer. Offers can be made through several channels, including online submissions or verbal proposals. If the seller accepts your offer, you'll enter into a purchase contract, typically accompanied by a cooling-off period (though this varies by jurisdiction).

Upon receiving the contract from the property vendor, it’s crucial to review and negotiate any conditions outlined within. This could include aspects like the purchase price, settlement timeframe, and included items. Engaging a solicitor or conveyancer is highly recommended to ensure the contract aligns with your interests and that you're making an informed decision.

How Do I Finalise My Mortgage?

Once your offer is accepted and the seller agrees to your proposed terms, the next step in your home-buying process is to apply for formal loan approval through your chosen lender. At this stage, your lender will conduct a comprehensive property valuation to confirm that the property's estimated value matches the amount you are requesting for the loan. This valuation process serves to protect both you and the lender, ensuring that they are not lending more than the property is worth. After you successfully receive formal approval, which may involve some time and additional documentation, you'll proceed to sign the mortgage documents, thus finalising the details necessary to move forward with securing the loan for your new home.

How Does Settlement Work?

As soon as your mortgage has been finalised, you'll enter into a period of time known as a 'settlement period'. The settlement period typically ranges from 30 to 90 days from when the contract has been finalised, during which you'll need to arrange the funds required for the remaining purchase price. At the same time, your conveyancer will handle the legal details of the settlement, ensuring that all documentation is accurate and complete. On settlement day, you can usually expect to pay out the remaining amount of the purchase price to the seller, obtain the title of the property, receive the keys and take full possession of the property. Furthermore, your lender and conveyancer will collaborate to facilitate the transfer of ownership into your name. If you've requested your conveyancer (or equivalent) place your remaining purchase price in a trust account for transfer on settlement day, ensure you receive a receipt for this.

Source: Queensland Government

What Should I Do Once I Move In?

Once you’ve moved into your first property, there’s a lot to tackle – from coordinating removalists and refreshing your décor to meeting your new neighbours. However, before diving into the fun, there are a few essential tasks you should prioritise. To start, make sure that all your essential services, including electricity, gas, water, and internet, are properly set up and functioning before you begin settling in. Next, it’s crucial to notify your bank/s, employers and the electoral roll about your new address to ensure all correspondence continues to reach you. Lastly, ensure you take proactive measures to protect your new investment by securing comprehensive home and contents insurance, which will give you peace of mind and financial security in case of unforeseen events.

How Should I Manage My Mortgage Re-Payments?

Mortgages require regular loan repayments, which you'll need to make at a set frequency. While monthly payments are the most common, you can opt for fortnightly or weekly payments if that suits you better. Once you have established your repayment amount, develop a budget that incorporates these payments and stick to it. It's also advisable to periodically review your home loan, as interest rates and mortgage products evolve over time. Consider assessing your mortgage every couple of years to determine if a more favourable rate or option is available.