November 5, 2021
Guide to Buying Your First Home
Buying your first home is exciting. With interest rates hitting record lows, there’s no better time than now to become a homeowner. However, the procedure of buying a home is extensive, and, unfortunately, no one really teaches you how to maneuver the process successfully.
For this reason, we’ve compiled this guide to help first-time homebuyers get their dream house.
Step 1: Save for a Deposit
You’ll need to sort out your finances before buying your first home. Create a budget to identify how much you can afford to save for a deposit. Aim to save 20% of the purchase price plus closing costs from home insurance, inspection, and stamp duty.
First-time homebuyers are eligible for the First Home Loan Deposit Scheme (FHLDS), which allows them to buy a house with a 5% deposit without paying lenders mortgage insurance. However, it’s better to increase your deposit to spend less on interest overall.
Step 2: Calculate What You Can Borrow
Everyone’s situation is different, but before you go shopping for mortgages, you need to calculate precisely what you can afford to borrow. What you can afford largely depends on your income and financial commitments, including your house deposit and other savings.
You can increase the amount you can borrow by paying off some of your debts. Consider consolidating your credit cards, personal loans, and car finances to lower the number of financial products you need to pay off. Always pay your unsecured debts off first.
Step 3: Check Mortgage Eligibility and Borrowing Power
At this step, do some checks to see if you actually qualify for a home loan.
Contact lenders to get an idea of how much you can borrow based on your financial position to get a realistic understanding of what you can buy. While you’re at it, do a soft credit check on your account, so you can ask the lender about the extent of your borrowing power.
There are many different mortgage types that suit various situations. You’ll need to research your finance options. The most common are variable (changing interest rate), fixed-rate (stagnant interest rate), and interest-only (borrower must pay extra to pay off the principal).
Don’t forget about the interest rate percentage! A rate even 0.5% lower could save you thousands over the lifetime of the loan. If you need help during this step, consult a broker.
Step 4: Find the Percent Home
Try to find a home that balances the lifestyle you desire and what you can afford. You should also consider your plan, like whether you want to have children or move around a lot.
Make a list of your must-haves (layout, property size, schools, public transportation) and nice-to-haves (fittings, design, outdoor space) so you have an idea of what you’re looking for.
Finally, do your research. Speak to property inspectors, real estate agents, and look at properties online. Keep in mind that step 4 may take months to accomplish.
Step 5: Buying the Home and Settlement
Keep a level head when conducting your negotiations. It’s easy to get swept up in the excitement, but this process takes time. You can buy from the following markets:
Private Treaty/Auction: Sit in for an auction to understand how they work, or bring a friend or buyer advocate that can help you. Expect to pay the deposit immediately (there’s no cool-off period). For private sales, you may get a cool-off period.
Traditional Sale: When buying from a conventional sale, you can negotiate with the buyer. You typically don’t need to pay outright unless you use unconditional contracts. Conditional contracts only settle up when certain conditions are met (e.g., inspections).
After conducting your building and pest inspection, make an offer for the home. When you finalize the loan, you can then establish the settlement date (when the deed is transferred to your name) and pay off your stamp duty, which must be paid within 30 days of the settlement.