Table of Contents
Introduction
Buying your first home should be one of the most exciting moments of your life. Between busy open homes, competitive auctions, and never-ending paper work, it sure doesn’t feel like it. We’ve put together the Complete Guide for First Home Buyers to help you survive and thrive through to the day you move into your first home.
How do I prepare to buy my home?
Even if you think it will be a while before you dip your toe into the property market, now is the time to start preparations. It takes time to build a credit story that maximises your budget, saves you interest, and gives you the biggest chance of approval with your eventual lender. So make sure you tick these six steps off as early as you can.
Looking after your credit rating
If you take one thing and one thing only from this guide, it’s to pay all of your debts on time. Your credit health is a crucial measurement used by lenders when deciding whether you’re a reliable borrower.
I recommend that you request a free credit report from one of the leading credit reporting agencies to check for poor conduct. If your score seems low or there is evidence of poor conduct, it is a smart idea to reach out to a mortgage broker or reputable credit repair agency to determine whether further action is required.
It’s also important to minimise unnecessary applications for credit. This includes credit cards, property rentals and utilities, just to name a few.
Reducing credit limits
When working out your borrowing power, lenders look at the total limit on things like your credit card, rather than the amount owing. Therefore, it’s best to reduce these limits or cancel the credit altogether in anticipation of a home purchase.
Remember, even if the balance on your credit card is zero, it’s the limit that the lenders pay attention to.
Saving to grow your deposit
Having a deposit of greater than 20% of the purchase price, plus stamp duty and other fees, is a surefire way to eliminate the need for lenders’ mortgage insurance (LMI). If you can’t quite get your savings to this level, the First Home Guarantee is a great option if you meet the Government’s strict criteria.
Failing this, there are two options. The first is to explore “no LMI” loans offered by certain lenders. The second is to bear the cost of LMI. These decisions require careful consideration and are best made with the help of a mortgage broker.
As an added bonus, the larger your deposit, the lower the interest rate.
Researching the types of home loans available
It’s time to put in some legwork to understand the types of loans and features available. Everything from offset accounts and redraw facilities to interest-only and split loans. We’ve put together a few articles to get you started.
Consistent income
Lenders love borrowers who can show consistent income. Here are the ideal scenarios for different employment types.
- At least three months for full-time and part-time employees
- At least 1 year for casual staff
- At least 2 years for self-employed
If you’re thinking about buying a property, it’s best to avoid changing jobs. If you are self-employed, try to sure up your financials.
Exploring the option of pre-approval
A pre-approval provides you with an indication of the amount that a lender would be willing to lend you. It’s an important tool for First Home Buyers to understand their budget, helping to narrow down the ideal property. It is especially valuable when looking to purchase at an auction. We have a full article that explains how to buy at auction here.
How much can I borrow?
There are eight main factors that control how much you can borrow.
- Your income
- Your outstanding debts
- Your living expenses
- Your credit history
- The size of your deposit
- The type of home loan sought
- Your assets
- The value of your property
The best way to calculate your borrowing power is to talk with your broker. They have the tools and expertise to easily compare amongst the hundreds of available options. If you’re simply looking to get a rough idea of how much you can borrow, there are several calculators that will help.
What government assistance is available to First Home Buyers?
Federal and State Governments offer some great support to First Home Buyers trying to break into the property market for the first time. Here are the highlights. We have a post dedicated to this topic here.
First Home Buyers Assistance Scheme (NSW)
The NSW First Home Buyer Assistance Scheme is a massive help to First Home Buyers who purchase a property worth less than $800,000. It provides either a concession (discount) or exemption (fee waiver) on stamp duty costs.
For example, if you were to buy an existing home valued at $650,000 in NSW, you will save $24,555.00 in stamp duty. Here are all the details.
There are similar schemes in other states not covered here.
First Home Guarantee (Federal Government)
The First Home Guarantee helps First Home Buyers to purchase their home with a deposit of as little as 5% of the purchase price. Without the scheme, loans of this nature would attract a hefty Lender’s Mortgage Insurance premium. The scheme has limited places and participating lenders. For a full list of eligibility criteria visit this page. We have written a full article on this topic here.
First Home Super Saver Scheme (Federal Government)
The First Home Super Saver Scheme enables First Home Buyers to salary sacrifice up to $50,000 into their superannuation account for the purpose of saving a deposit. Tax savings typically result in an accelerated savings process. For a full list of eligibility criteria, visit this page. We have written a full article on this topic here.
Under the Shared Equity Scheme, the NSW government contributes up to 30-40% of the purchase price for your home. This dramatically reduces the deposit required to a minimum of 2% of the purchase price, with no Lender’s Mortgage Insurance (LMI) payable. It also results in substantially lower ongoing mortgage repayments. In exchange, the government owns up to 30-40% of your property, and shares in the increases and decreases in the property’s value, until you pay off the government’s share. It opens in January 2023 with 3,000 spots.
Eligibility criteria and further information can be found here.
First Home Owners’ Grant (NSW Government)
A $10,000 grant is available for First Home Owners who purchase newly built or off-the-plan properties. For a full list of eligibility criteria, visit this page.
First Home Owners’ Grant (QLD Government)
A $15,000 grant is available for First Home Owners who buy or build a new house, unit or townhouse. For a full list of eligibility criteria, visit this page.
How do I go about finding my first home?
There are millions of houses and units in Australia. How do you go about finding the right one?
Write out your ‘must-haves’ and ‘nice-to-haves’
To save yourself the agony of scrolling through thousands of properties, it’s so important to sit down and write out a realistic list of what your first home must have, and what would be nice to have.
Must-haves are those features and characteristics that you can’t do without. You should use this list to populate and save searches on realestate.com.au and domain.com.au. Things that make this list are typically:
- Location: the streets and suburbs that you would consider living in.
- Property type: whether it’s an apartment, a townhouse, a duplex or a fully-detached house.
- Bedrooms: how many bedrooms do you need?
- Bathrooms: how many bathrooms do you need?
- Other spaces: do you need a home office? Room for two cars? A space for the kids to play outside?
‘Nice-to-haves’ are exactly that – the features and characteristics that would complete your dream home but which you would be willing to sacrifice if needed. Maybe it’s a dishwasher, a second bathroom, or even solar panels.
These two lists will:
- Focus your online search and save you a bunch of time clicking through meaningless photos.
- Save you the heartache of falling in love with places that don’t meet your ‘must-haves’.
- Help prioritise the items that do make it onto your watchlist.
Extend your search off-market
Almost 40% of properties sell before they even make it online. There are two main ways that you can access these listings:
- Share your must-haves with local real estate agents.
- Engage a buyers’ agent with extensive industry connections.
Inspect, inspect, inspect
Keep your Saturdays free. Pictures only tell part of the story, so make sure you inspect any property that meets your must-haves. You might discover hidden problems or pleasant surprises.
If you want to get ahead of the game, organise a 1-on-1 inspection with the agent as soon as the property is available.
Do your checks
Spend the few hundred bucks on a building and pest inspection. It’s worth it to show you what you’re signing up for. If it’s a strata property, buy the strata report. It’s as simple as that.
Negotiate
Buying a house is likely to be the biggest transaction of your life. A small effort to negotiate can go a long way.
Dealing with real estate agents can be tricky. They are known for employing dirty tactics to get vendors the best price possible. For this reason, you should consider using a reputable buyers’ agent who can take of this on your behalf.
It’s best to tailor your offer to the needs of the vendor, so try to uncover the motivation for the sale. Has the vendor purchased a new house already, and is after a quick settlement? Would the vendor like to rent the property back from you for a couple of months while they look for a new place? Understanding the vendor’s motivation will give you the best chance of having an offer accepted.
Don’t give up
Finding a home can be tiring, but the perfect place is out there. Don’t give up!
How do I pay for my first home?
There’s a lot to think about when it comes to paying for your first home.
Your savings
Your savings are a crucial component in paying for your first home. It’s not just your deposit – it’s stamp duty, conveyancing fees, transfer fees, buyers’ agent fees, building and pest inspections, and strata reports. You may be able to circumvent this requirement with a guarantor loan or another form of Low Deposit Loan
Your home loan
There are hundreds of lenders to assess, each with its own criteria and process. It’s important to be sure when you apply, as a decline will hurt your credit file.
Once you have landed on your preferred product, the following will occur:
- Your broker will request supporting documentation in line with the chosen lender’s requirements. This generally includes proof of income, expenses, employment, identity and any existing debts.
- Your broker will complete the lender’s application form on your behalf and submit it to the lender, together with all supporting documents.
- The lender will assess your application against their criteria, including the verification of all information that has been provided.
- The lender may request additional supporting documentation if required.
- If the application is successful in meeting all requirements, the lender will issue formal approval. The lender will issue loan documents for you to review and sign, effectively accepting their offer to lend you money.
For property purchases, the contract of sale will specify the settlement date. This is the date that ownership will be transferred in exchange for the agreed purchase price. In preparation for this day, your conveyancer will work together with the lender’s settlement agent, the seller’s solicitor and your broker to prepare and register the transfer of ownership and funds.
After settlement, your new lender will reach out to offer a welcome and set you up in line with your needs. Your repayments will then commence.
What does a mortgage broker do for first home buyers?
A good broker knows the thousands of home loan products inside out. They will:
- Ask you questions to understand your goals and circumstances
- Recommend the most competitive and suitable set of solutions
- Negotiate the loan on your behalf
- Take care of all of the application legwork
- Once you settle, make sure that you remain on the right loan as circumstances change.
Good brokers are aware of policy exceptions that help get approvals where applications would otherwise be declined (e.g. unusual employment, bad credit, small deposits).
They have strong relationships with lending decision-makers, meaning they are in a strong position to negotiate a great rate.
Good brokers know exactly how lenders like their applications prepared, making for a fast and easy process for customers.
