Being a first home buyer is an exciting time. It can also seem complex and confusing. First home buyers often find themselves dealing with financial and legal processes outside their experience to date.
Regardless of whether your first foray into property is a small bolthole that removes you from the rental treadmill, an investment property or a family home, the process to purchase is much the same.
Tips for first home buyers
Before you take the leap into property you should have done your homework and created a budget, minimised credit card usage, been saving hard, paid your bills on time and researched the property market.
So what other steps will you need to tick off your list when you leap off the precipice into the world of property ownership?
1. Your deposit
One of the biggest hurdles for many first home buyers is the deposit – on average it takes a working couple 4 years to save 20% deposit. With price increases in some areas the required deposit could increase faster than it can be saved!
Don’t yet have 20%?
Some lenders will allow you to enter into a home loan with less than 20% however lenders mortgage insurance will then apply. Lender’s mortgage insurance often allows first home buyers to get into property sooner – most lenders will allow as little as 5% deposit. If you wait to save the full 20% prices could go up! Lender’s mortgage insurance covers the lender but is paid by the purchaser. A one-off premium can potentially run into tens of thousands of dollars and is rolled into the mortgage by the lender. The dilemma for many first home buyers is whether paying lender’s mortgage insurance and getting into the market NOW is more beneficial than waiting and watching prices increase.
Are there alternatives to 4 years of saving?
The bank of Mum and Dad…
In 2010 the average helping hand from parents was $23,000 – today it is more than $80,000. In fact the bank of Mum and Dad is one of the fastest growing finance sources in Australia! The percentage of first home buyers receiving help from family to enter the property market has more than doubled since the 1970s.
But parents don’t necessarily have to contribute the whole deposit. If first home buyers don’t have quite enough now to avoid lender’s mortgage insurance family may be able to assist with a guarantor loan for the shortfall to 20% and/or other upfront costs.
Of course not every family is in a position to help nor should we enter into home ownership seeing it as a short term goal. Saving the deposit is just the start – home ownership will probably require trimming expenses and making sacrifices for the foreseeable future.
2. First Home Owners Grant SA
The first home owners grant SA varies from state to state – it may only apply to building or purchasing new homes, up to a price limit and have rules around how long you must live in the home. If you are eligible for the first home owners grant SA you should take advantage of it. Here is some information on the first home owners grant in South Australia.
3. Stamp duty
Stamp duty is a state government tax on the transfer of land or sale of property. It also differs across states. It could be either a set rate or a percentage of the total sale. Some states offer concessions or bonuses under certain conditions. Check the government website in your state. You can also use our stamp duty calculator to get a better insight into how much stamp duty you may need to pay.
4. Know your borrowing capacity
Obtain an estimate of your borrowing capacity and monthly repayments. As your mortgage broker we can assess your situation and suggest options to suit your needs. We have access to a wide range of loan products and lenders AND there is no charge to you upfront. Your deposit, first home owners grant SA eligibility and cost estimates will be taken into account when calculating your borrowing capacity. Avoid shopping around for home loans with multiple lenders as each enquiry will appear on your credit report!
5. Home loan application
Great. You’ve found a suitable loan! The next step is pre-approval. Why should you have this? When you start looking for a property, pre-approval for your loan provides a clear guideline on how much you can spend. It also allows you to act quickly. Be aware though, your pre-approval will have an expiry date. You still need formal approval of the loan to proceed to a sale.
6. Finding a property
Don’t rush in. Extensive research and property inspections are crucial to familiarise yourself with what is available in your price range.
- Sign up to websites for daily alerts.
- Contact agents in your chosen suburb(s) and provide a wish list and price range.
- Let them know you’re ready to go so they know you’re not a tyre kicker.
- Know your purchase limit and stick to it!
Take photos at EVERY inspection – use these to make comparisons. It’s often difficult to remember when you’ve looked at a lot of properties!
7. Conveyancer or solicitor
You should choose a solicitor or conveyancer at the same time you start looking for a property. With loan pre-approval and your legal matters sorted you will be ready to act and make an offer when that right property comes along!
First home buyers should also consider other costs such as:
- Insurance – many lenders insist you have home insurance – and you SHOULD.
- Strata levies for properties under strata title, eg apartments.
- Pest and building inspections.
- If buying an investment property you will require a quantity surveyor’s report for future tax depreciation purposes. Seek advice from a finance specialist
Interest rates remain at an all-time low but they WILL increase at some point. While lenders generally determine loan serviceability on a higher rate it may be preferable to borrow less than you can afford to build in breathing space. Other strategies worth considering might include:
- Your FIRST property doesn’t need to be your dream home. Perhaps consider entering the market with a smaller, cheaper property? If you rent it out while continuing to live at home and save your money. You may find your savings plus equity over time will assist you towards your dream home.
- Consider co-ownership with family or friends now with a view to going it alone further down the track.
The most important step is to DO YOUR HOMEWORK. As your mortgage broker we can help you explore any new initiatives and options that may be suitable to YOU and your individual circumstances.
Contact us TODAY to let us help you to determine your options.
Disclaimer: This article is generic in nature. All finance and investment decisions should be considered wisely and based on your personal and financial circumstances. Seek proper advice before committing to any course of investment action. This is not deemed as advice.