Buying Your First Property: A Guide for First-Time Home Buyers
Purchasing your first property is an exciting milestone, but it can also feel overwhelming due to the amount of research and planning required.
As a first-time home buyer, you might not be sure where to begin or what steps to take throughout the process. To simplify things, we’ve put together a helpful checklist of important considerations and steps to guide you along the way.
1. Start saving a home loan deposit
Ideally, when buying a property, you’ll want to save a deposit of 20% or more of the property's purchase price.
While it's still possible to buy with a lower deposit, this often means you'll need to pay Lender’s Mortgage Insurance (LMI), which is an additional cost you’ll need to cover.
💡 Did you know? LMI is designed to protect the lender if the borrower is unable to meet their repayments.
Having a smaller deposit could also mean you miss out on competitive interest rates, which could result in paying more over the life of your loan. The bigger your deposit, the lower your Loan to Value Ratio (LVR), which is calculated as:
LVR = (Outstanding loan amount / Property value) x 100
In general, borrowers with an LVR of 80% or lower are seen as less risky by lenders, which could mean better loan terms for you.
2. Work out your budget
As tempting as it might be to buy a waterfront mansion, it's not always the most financially sensible option for everyone. Understanding your borrowing capacity and setting a realistic budget is crucial to avoid making financial decisions that could lead to mortgage stress.
Take a step back and carefully plan your budget. Remember that beyond the purchase price of the property and your home loan repayments, there are other upfront costs to consider, such as property inspections, stamp duty, and conveyancing fees, just to name a few.
💡 Savings Tip: If you're serious about buying a property, it's essential to take a thorough look at your savings, assets, debts, and liabilities.
By keeping an updated record of your savings, income, and spending habits, you’ll be better equipped to find ways to save and eliminate unnecessary expenses, giving you a clearer path toward homeownership.
3. Get expert help to make things easier
Get help from a mortgage broker
A common misconception is that mortgage brokers charge hefty fees for their services. In reality, many mortgage brokers don’t charge any fees, so you won’t be out of pocket when seeking home loan assistance.Not only are many mortgage brokers and home loan specialists free to use (including ours), but they are a valuable resource to help you navigate the property market and secure the right loan.
Got questions about interest rates? Mortgage brokers can explain how rates will impact your repayments and loan term. Unsure whether to choose a fixed, variable, or split rate? Based on your goals, preferences, and situation, they can guide you on the most suitable option for your needs.
Hire a Buyers Agent
While mortgage brokers are experts in home loans, buyers agent provide valuable insights into specific areas and suburbs. Real estate agents are pros in the property market, with a comprehensive understanding of what’s selling, where, and at what price. They can help you with:
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Finding properties that match your criteria and budget
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Providing information on average property prices and recent sales
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Offering insights into different suburbs
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Assisting with bidding at auction
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Negotiating prices
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Closing the deal when purchasing a property
The level of involvement from a real estate agent will vary, and their service fee will reflect this.
Obtain Advice from a Financial Advisor
Just as mortgage brokers and real estate agents are experts in their fields, a financial advisor can help you manage your finances and make informed financial decisions. Mortgage brokers and real estate agents typically don’t offer financial advice, but financial advisors are specifically trained to do so. They can help with:
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Offering advice to improve your financial situation
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Creating a financial strategy to meet your goals
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Advising on investment opportunities
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Tax planning to minimize what you pay
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Reviewing your insurance, debts, and investments
If you need expert advice on managing your finances and making sound financial decisions, a financial advisor is the professional to consult.
4. Review Your Credit Report and Find Out Your Credit Score
Your credit score is a key indicator of your credit history, and lenders use it to assess what kind of borrower you are when you apply for a home loan. The higher your credit score, the more reliable and trustworthy you appear as a borrower.
For first-time home buyers, checking your credit score is essential. A clean credit report will make the application process smoother and increase your chances of securing a loan with favourable terms.
You can improve your credit score by consistently paying bills and credit cards on time and reducing outstanding debt. It's a smart idea to assess your creditworthiness early in the home buying process, so you can make any necessary adjustments before applying for a loan.
💡 Did you know? You can obtain a free copy of your annual credit report from online providers, helping you keep track of your credit status.
5. Get Pre-Approved Before You Start Your Search
Before diving into the property search, it's a smart move to get pre-approved for a home loan. Home loan pre-approval, also known as approval in principle, provides an indication of how much a lender may be willing to lend you.
While pre-approval isn’t mandatory to buy a home, it offers several benefits:
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It’s free to get pre-approved
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It gives you a clearer understanding of how much you can borrow before committing to a property
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Pre-approval is valid for up to 3 months, giving you peace of mind during your property search
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You can request an extension before the expiry date if needed
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It enables you to attend and bid at auctions with confidence, knowing your budget
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Vendors tend to favour pre-approved buyers, as they can potentially settle sooner
Having pre-approval can streamline the buying process and make you a more attractive buyer to sellers.
6. Check if you’re eligible for any government grants
With housing affordability becoming more challenging, both federal and state governments have introduced various initiatives to support first home buyers in securing their first property. You may be eligible for first home buyer grants that can help you save and potentially accelerate your entry into the property market.
For example, the First Home Owner Grant (FHOG), introduced in July 2000, provides first home buyers with additional funds to buy or build their first home. This grant is available nationwide, but each state or territory has its own legislation and eligibility criteria for the scheme.
If you qualify, this financial boost could be used toward your 20% deposit, potentially helping you avoid paying Lenders Mortgage Insurance (LMI) and making homeownership more affordable.
7. Search for your property
Research Areas and Suburbs
The location of your property is just as crucial as the property itself. While you might fall in love with a house, if it's too far from work, schools, family, amenities, or public transport, the reality of living there may not align with your expectations.
To make a well-informed decision, it's essential to research suburbs that meet your lifestyle needs — whether it’s being close to schools for your kids or near public transport for an easier commute to work. Factors like crime rates, noise levels, and the overall vibe of the area should also play a role in your decision-making process.
A great way to get a feel for an area is to visit it during the weekend or after work hours. This gives you a chance to explore nearby facilities, observe the neighbourhood’s atmosphere, and ensure that it suits your lifestyle before making a commitment.
Choose the Right Property for Your Needs
While it’s easy to get caught up in the excitement of modern interiors, well-maintained gardens, and stylish renovations, it’s essential to consider your future plans when choosing a property. Think about how long you plan to stay in the area and whether the property suits your long-term needs.
Do you foresee yourself settling down with a partner and children? Or are you looking for a property that can easily be upsized or relocated in the next few years? First-time buyers may be eager to jump on the property ladder, but planning ahead can help ensure you don’t rush into a decision that may not suit your future.
Consider whether you’ll be happy in the property long term and what type of space will best accommodate your growing needs. While things can always change, a little foresight can prevent you from making a hasty decision on your biggest investment.
House or Apartments?
The type of property is an important consideration. Would you prefer the convenience and amenities of apartment living, or the space and privacy of a house in the suburbs? From detached and semi-detached houses to townhouses, villas, and units, there’s a wide range of options to explore.
Build or Buy?
You’ll also need to decide whether to buy a new or established home or to build your own. If you’re leaning towards buying a property that requires renovations, make sure you budget for these and factor in potential delays. If you’re buying a brand-new home, saving for a larger deposit to avoid Lender’s Mortgage Insurance (LMI) may be necessary.
Alternatively, if you’re considering building, buying off-the-plan, or purchasing a house and land package, weigh the risks and benefits before making your decision.
Finally, keep in mind that certain property types, known as risky properties, may not be easy for lenders to finance, so always check with your mortgage broker about these before you proceed.
8. Set Up the Right Inspections Before You Make a Purchase
Before committing to a property purchase, it’s highly recommended to arrange building and pest inspections. These inspections ensure the property is structurally sound and free from pests that could lead to costly repairs or health and safety hazards in the future.
Having a second perspective on the property will help identify any faults or issues that might have gone unnoticed. If issues are found, you’ll have the opportunity to negotiate the price down, especially if they are not dealbreakers.
Buying without these inspections could leave you with hidden costs later on, which could significantly increase your expenses down the line.
9. Make an Offer
Once you’ve found the right property and completed your due diligence, it’s time to make an offer.
If you're considering buying at auction, keep in mind that auctions don’t offer a cooling-off period, so if you’re the highest bidder, you’re committed to purchasing the property.
On the other hand, when buying via private sale or private treaty, there may be room to negotiate a cooling-off period, but beware of being gazumped — where another buyer offers a higher price before you’ve sealed the deal.
Before making any offers, ensure you have pre-approval for a home loan. This gives you peace of mind, knowing that you’re only bidding on or offering on properties within your budget.
10. Close the Deal
Once your offer is accepted, it’s time to pay the deposit and receive the contracts. At this stage, it’s crucial to have a solicitor or conveyancer review the contracts and documents before you sign to ensure everything is in order.
Your solicitor or conveyancer will also handle the formal approval (also known as unconditional approval), and once you reach settlement day, the lender will pay the seller. You’ll be responsible for paying any final costs such as stamp duty.
If there are any delays during settlement, it’s good to know your options and how to handle them. Soon after, you’ll receive the keys to your new home and can start making your repayments.
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in Residential & Commercial Banking