Helpful steps to buying your first home.
The Australian property market is in a transformative period with unprecedented demand, low stocks, and some of our lowest interest rates ever, making it even more challenging for women looking to buy their first home. That’s why it’s important to get started on this journey as soon as possible, and to take advantage of the many sources of help available.
Recent research by CoreLogic found that, based on the average weekly full-time earnings for women, it could take women an additional 10 months to save a 20% deposit on a median priced house, compared with the average full-time earnings for men. This is just one of the factors that leads to gender disparity in home ownership.
But, if you’re reading this article, it appears you’re keen get started on your home ownership journey so here’s some helpful tips to get you underway. These tips are also summarised in our handy checklist.
Step 1. Save your deposit and upfront costs
The first step is to save for your deposit and upfront costs. To get started, it's a good idea to look at what you can genuinely afford in home loan repayments . As confronting as it may feel, sit yourself down with your bank statements, bills, receipts and so on and take a candid look at your current financial situation. How much money do you have coming in? How much are you saving? How much are you spending? What are you spending it on? Our Spend Snapshot tool may be helpful in putting this information together.
Then ask yourself if there are any changes you would like to make to your spending or saving that might be helpful when saving a deposit and eventually repaying a home loan. This should also help you to work out how much you can afford to repay each month, so you can then calculate how much you can afford to borrow. This in turn shows how much to save for your deposit and upfront costs.
The bigger the deposit you can save the less money you will need to borrow and the less it will cost you in the long run. Lenders will generally lend up to 80% of the property value, though they may lend you more with Lenders Mortgage Insurance (LMI). LMI is an insurance that allows a lender to lend to a higher value as it provides protection for them should you be unable to repay the loan. This can add a significant cost; however, it may also mean you’re able to buy a home sooner without having to save a larger deposit.
Let's work on the scenario that you want to make a 20% contribution to the property purchase. This 20% can come from a few different sources. You may be eligible for government grants such as the First Home Owners Grant (FHOG), or you may have parents who are willing and able to provide a parental guarantee based on the equity in their home. And, of course, there is your own savings.
Remember too, in addition to your contribution, there are also up-front costs to cover as well. These costs include things like stamp duty, conveyancing costs, building and pest inspections, finance costs, and so on. Don’t be caught short. Make sure you do your research and factor in all those costs … including moving into the home after you've settled.
A couple of quick tips for saving …
- Keep your savings separate to your spending money so you're not tempted to dip into it.
- Set up automatic transfers from your pay or transaction account to keep it simple.
- Celebrate milestones to stay focussed and motivated.
There's more detail on saving your deposit and upfront costs in our article 'Saving a deposit for a home'.
Step 2. Obtain finance pre-approval
Once you're close to having your deposit saved then it's time to visit the bank … or a broker … to obtain a pre-approval for finance. By getting pre-approval you are better placed to know how much you can afford and be more confident to put in an offer when you find your ‘dream home’.
It's a really good idea to have a good understanding of your own financial fitness before applying for a home loan. Make sure you don’t have any unnecessary loans or credit cards; make sure you know where your money is going and that you're confident you'll be able to keep up the repayments; and make sure that your credit score is healthy.
Ask your lender, or broker, about the different home loan options available. Some key aspects it may be helpful to talk about:
- Rate discounts or ‘honeymoon’ rates.
- Fixed or variable rates.
- Splitting the loan.
- Repayment frequency.
- Redraw facility or offset account.
- Repayment holidays.
Take a long-term view and consider what you may need from a home loan in the future, not just right now.
The lender will likely ask for lots of information from you to help them assess your application. They will want to know things like where you live now, where you work and how long you've been there, how much you get paid, and what other expenses you have. They must also gather evidence to support the information you provide, so expect to be asked for documents such as your driver's licence, payslips, bank and superannuation statements and so on.
If you get a knockback the first time, it is not the end of the world. Most lenders will help you to understand why your application wasn't successful and whether there are steps you can take to make your application stronger in the future.
Step 3. Choose a home.
Then armed with your finance pre-approval you can now start searching for your home. Owning a home is a long-term proposition so it's important to keep in mind what you will need in the future as well as what you need right now. You'll need to take into account things like the location - is it more important to you to have a short commute to work or to have a relaxed and quiet lifestyle? Is it important to you to have easy access to retail, medical, educational, or recreational facilities? Are there any future development plans that could affect the home … for better or worse?
Another consideration will be what type of facilities you want in your home. How many bedrooms, bathrooms, and garages do you need? Is it possible to start out with a smaller more affordable home and build up to your dream home over time? What utilities are connected? Gas? Electricity? High-speed internet? Do you need disability access? How secure is the property? Does it have lockable windows and doors?
The security of the property will have an impact on your insurance costs, which is one of the ongoing costs you need to consider too. Another ongoing costs to consider is the maintenance the home may need. If it's an older home, will it require repainting or recladding? How will you manage the lawn, garden, and, possibly, pool maintenance? Or, if it's an apartment, there will most likely be strata levies to pay that may go up each year.
When you’re inspecting properties, take notice of things like:
- How much natural light is there inside the house? This may have an impact on your energy costs.
- Which direction does the house face? Will you have morning sun or afternoon sun in your living area? Is the house situated to catch prevailing breezes? Again, this can have an impact on your energy costs and your enjoyment of living there.
- Are there any sources of environmental noise? Things like overhead flight paths, railway lines, busy roads etc.
- Does the home have solar panels? Or a suitable surface if you wish to install in future?
Make sure you thoroughly research all aspects to give yourself the best chance of ending up with a home that you love and will love you back.
Step 4. Get into the paperwork.
Once you've decided to make an offer on a home, that's when the rubber really starts to hit the road. Put your offer to the agent who will then liaise with their client to negotiate the terms of the contract. You may be able to negotiate things like the price, the deposit amount, and the settlement date. The deposit on the contract may be as little as $1000 but expect it to be more like 10% of the purchase price, and this will need to be paid to the agent when you sign the contract. Standard settlement periods differ from state to state but its commonly 30-60 days. It's also recommended that you negotiate the contract to be conditional upon satisfactory building and pest inspections, and also finance approval. This gives you an opportunity withdraw from the contract should the inspectors find something you are not satisfied with, or should the lender not approve finance. Even if you have pre-approval there is no guarantee that something hasn’t changed or that the lender won't change their mind.
Now the paperwork really gets underway and it’s a good idea to surround yourself with professionals that can help you through the process. Head back to your lender to get final approval of your finance, and then find yourself a conveyancer or lawyer. Your lender and your legal representative will take care of most of the leg work but making yourself available to sign documentation promptly will make their job easier and your purchase go more smoothly.
This is the point where those upfront costs start to kick in too. If you've made your contract subject to building and pest inspections, you'll need to have these completed within the set time frame, and of course, pay for them. Once you've signed the contract it is important to insure the home as you now have a financial interest in it. And your legal rep will also look to have their fees and costs paid too. This will include the most significant expense of stamp duty. It's important to have the money readily available to cover these costs as they arise.
Step 5. Settle and move in
As settlement day approaches, it’s a good idea to start getting your utilities connections organised and book a removalist. You may be able to do a pre-settlement inspection, which gives you an opportunity to see whether there are any repairs or maintenance to be done prior to moving in, and how much of a clean you are going to need to do. There’s lot of moving parts when you’re moving house so a checklist may be super helpful.
Then on settlement day your legal rep and lender will do the exchange of documents and money. Your lender will most likely ask you to make the balance of your contribution available in the few days prior to settlement so that nothing interferes with the process on the day.
Once the exchange is completed, you'll receive the keys to your new home and can take possession.
So, there’s our 5 simple steps to buying your first home.
- Save your deposit
- Get finance pre-approval
- Choose your home
- Get into the paperwork
- Settle and move in.
This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness for the information to your own circumstances and, if necessary, seek appropriate professional advice. © Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.