Chasing the great Australian dream of home ownership can be a long, daunting journey for most people and it doesn’t help that the country has entered a recession.
For buyers, the good news is that property prices are edging lower. The national median housing value dropped by 0.4 per cent to $557,818 in May, falling for the first time since June 2019, according to figures from CoreLogic.
If you’re looking for your first home, chances are you might be feeling a little lost. But by following the right game plan, making a property purchase could become a rewarding experience. After all, you only buy your first home once, so why not enjoy the ride?
Sort out your finances
They say a good start is half the battle. Take the time to work out how much you can put down as a deposit. Ideally, you should have at least a 20 per cent deposit as anything less than that may incur lenders’ mortgage insurance (LMI), which could cost you thousands of dollars. You may need to consider if it’s worth paying LMI to enter the property market sooner, or if there are other options that could get you there.
Don’t forget about potential stamp duty, as this may add tens of thousands to your upfront expenses. It’s a good idea to check out any potential buyer assistance you could access in your state or territory, as any grants or exemptions could take some pressure off your finances.
You’ll also want to estimate your borrowing power and potential mortgage repayments, so you know what you’re getting yourself into. There are online tools and calculators to make the numbers easier for you, helping to give you a sense of what to expect.
Arm yourself with pre-approval
While not required, it’s wise to secure pre-approval before you kick off your property hunt. Pre-approval, or conditional approval, is when a lender agrees in principle to lend you a set amount of money for your property purchase, but it isn’t guaranteed. Pre-approvals are usually valid for three to six months, so it’s best to apply only after you’ve done your research and are seriously thinking of buying.
The beauty of having pre-approval is you’ll know what your budget is, and you can narrow your search to more realistic options. Real estate agents and property sellers will also know that you’re a serious buyer.
While it might be easier to just apply with the bank you’re with, make sure to shop around for the best lender and loan for you. This is where a mortgage broker might come in, as they often have relationships with a range of lenders. It’s also not a good idea to only consider the big banks for a home loan, as you could be missing out on better deals offered by smaller banks or non-bank lenders.
Finding the right property
One of the most exciting parts of the home buying journey is the property search. Location is usually the most important factor when seeking a property, so it’s worth giving this one extra time to mull over. If you can’t afford to buy where you’d like to, consider similar alternative areas.
As well as the location, think about the type of property you’d like to buy and whether you have the budget for it. Ask yourself if you want to buy:
- A freestanding house, unit/apartment or semi-detached property (i.e. townhouse, duplex etc)?
- An old property or newly built one?
- A property that needs some renovations (if buying a second-hand property)?
- A one, two or three-bedroom home? Or do you need more space?
Before you buy a property
Buying a home involves legally binding contracts, so it makes sense to have a legal expert on your side. Before signing anything, your solicitor or conveyancer can review and provide legal advice on your contract of sale, as well as your rights and obligations as a buyer.
You may also want to invest some money in a building and pest inspection or a strata inspection if you’re looking at a unit. This could save you some serious coin in repair costs down the track.
Finalising the sale
You’ve found your dream property and done your due diligence. Now it’s time to sign and exchange the contracts. This is when you pay the agreed deposit, but the vendor doesn’t receive this until settlement. If you had pre-approval, you’ll need to proceed to securing formal approval to obtain financing from your lender.
There’s usually a cooling off period after you sign the contract of sale, which allows you to back out of the deal by paying the vendor a percentage of the purchase price. This generally doesn’t apply to auctions, where you may need to pay your deposit on the day if you are the winning bidder. If you’re buying off-the-plan, the cooling off period may be longer. Check the laws in your state or territory for specific details.
Before settlement day, you’ll need to make sure the remainder of the purchase price balance and any stamp duty is paid. When this has all been done and dusted, ownership of the property is legally transferred from the vendor to you. Now you can collect the keys and call the property yours.