Some of the things to consider when buying your first home.
For many Australians, buying their first home marks a significant and memorable milestone. And like most big achievements in life, we usually get there through a series of thoughtful decisions and smart, strategic planning.
Statistics show that the average-income Australian couple takes almost five years to save for a deposit on their first home in one of our capital cities1.
If you’re considering putting some money down on your dream home, here are a few important factors to consider.
Figure out how much money you have
Most loan terms in Australia are generally 25 and 30 years2, and as a mortgage is likely to be one of the biggest debts you’ll ever take on, it’s important to prioritise your financial goals and figure out where a home purchase ranks on that list.
The price of the property you’re looking to buy will play a big part, as it will often determine the deposit you need. That being said, it’s well worth figuring out how much you can realistically afford before you begin looking.
If your family is planning to help with finances, it’s a good idea to sit down with them to discuss how they plan to contribute. Keep in mind that there could be risks, benefits and tax implications if financial help is given.
Meanwhile, if you’re buying property with a partner, it’s important to be upfront about your financial past and plans.
Check out AMP’s helpful cost of home loan calculator if you’d like help crunching the numbers, or alternatively speak to a bank or mortgage broker for guidance.
Find out if there are black marks on your credit report
A credit report, which details your repayment history, could affect your ability to get approval on a loan, especially if it highlights financial issues from the past. This is one of the many reasons it pays to be in control of your debt.
Each lender will assess your credit file against their own policies, there may be instances where some approve your application, while others reject it or delay the process. It can be discouraging, but hang in there. If you have plans to apply for a loan anytime soon, reviewing your budget and talking to your financial adviser could be worthwhile.
Knowing the details of your personal credit report could save you from surprises if you choose to apply for a loan.
Set a limit for how much to spend on a new home
Here’s a snapshot of the common buying home costs you’re likely to come across.
Purchase price – this is the actual cost of the property. Unless you’re able to pay for it outright, you’ll generally need to take out a loan. Take note: lenders will generally ask for a minimum deposit of 10% to 20%.
Loan application fee – this is a one-off payment to your lender when your loan begins. Fees can vary depending on your provider, and will cover things like credit checks, property appraisals and basic admin.
Lender’s mortgage insurance – if you have a deposit that’s less than 20%, you may be required to pay lender’s mortgage insurance, which exists to protect your lender in the instance you’re unable to repay your loan.
Government fees - stamp duty is a land/property transfer tax applied by all Australian state and territory governments, which can vary depending on where your future home is located. Mortgage registration and transfer fees also apply and differ from state to state.
Legal and conveyancing fees – these cover the services of a real estate conveyancer or solicitor, who’ll prepare the necessary paperwork and conduct the settlement process.
Building, pest and strata inspections – paying for these services will help ensure that any structural concerns or maintenance and financial issues are sorted—saving you from potentially detrimental problems down the track.
Moving costs – this will come down to how much you do yourself, whether you rent a truck, hire professionals, or simply prod your family and friends into giving you a hand.
Loan repayments—what you pay back and how often you make repayments—can have a big impact on the time it takes to pay off your home loan.
Interest charges - you can generally choose a fixed or variable rate or a combination of the two. This is worth some research, particularly as interest rates can go up and down.
Other ongoing expenses – the ongoing costs of owning a home might include strata fees for communal properties, council rates, utility costs, building and contents insurance, and things like home improvements.
Make sure the locations you’re looking at stack up
They say location is everything, which is especially true when it comes to making a smart financial decision on your home purchase. To help you buy a home you love - and for the right price - consider:
- how much properties are going for in the suburbs you’re interested in
- how far you’re willing to live from family, friends and work
- whether there’s off-street parking and local amenities, such as schools, shops and transport
- whether you’ll need to renovate and if you have the extra funds to do so
- if there is price growth potential in the suburbs you’re looking at
- if there are proposed developments in the area that could impact the value of your home
- what the crime rate is like in the areas you’re keen on
- if you’re moving far away, how the local job market fares.
If you need help gathering some of this information, try speaking to real estate agents who work in the area, or look at real estate companies online. Of course, different features will appeal to different people when looking for a home to live in, so consider what works for you.
Find out whether you’re eligible for financial assistance
There are a number of ways you may be able to help fund your home purchase. We’ve outlined some options to look into below.
First Home Owner Grant
State governments offer a one-off grant to first home owners who satisfy all the eligibility criteria. If you’re unsure about eligibility, contact your state revenue office and be sure you apply with plenty of time.
Stamp duty concessions
Certain state and territory governments offer additional incentives to first home buyers, some of which involve stamp duty concessions. It’s often worth researching what’s on offer in the area where you’re buying.
First Home Super Saver Scheme
Eligible first home buyers can withdraw voluntary super contributions (which they've made since 1 July 2017), to put toward a home deposit. Under the First Home Super Saver Scheme (FHSSS), first home buyers who make voluntary contributions into their super can withdraw these amounts, up to certain limits, in addition to associated earnings, from their super fund to help with a deposit on their first home.
If eligible, the maximum amount of contributions that can be withdrawn under the scheme is $30,000 for individuals or $60,000 for couples.
So if you’re still some way off buying a first home, making voluntary super contributions (as opposed to saving them in a bank account), to access later under this scheme, could produce tax benefits that help you reach your first deposit goal faster.
Become familiar with different types of loans
Depending on whether you’re after a basic package or one with extra features, home loans can vary greatly when it comes to interest rates and fees. To get a better idea of costs, when you see a home loan advertised, you’ll notice two rates displayed—the interest rate and the comparison rate.
The home loan comparison rate will include the annual interest rate, as well as most upfront and ongoing fees. Some home loans with lower interest rates are laden with fees, so while they appear cheap, they could end up being more expensive. The comparison rate can help you identify this and compare loans more accurately.
Be sure to look into the potential advantages and disadvantages of various features of the loans you’re considering. For example, some loans may allow you to make extra repayments, redraw funds, or use an offset account, which could reduce the interest you pay over time.
If you’re looking for the best deal, remember to shop around and don’t be afraid to ask your lender if they can do better than the rate they’re currently advertising.
Get your finances in order so you’re ready to go
Home loan approval time can vary, so it’s a good idea to have your loan pre-approved so you know exactly what you can borrow. You’ll also need formal approval closer to purchasing and to have your deposit ready, or you may miss out. This may mean having your cheque book or a bank cheque ready to go if you’re buying your first home at auction.
As part of the process, your lender will also advise you if lender’s mortgage insurance is required.
Don’t miss out on your last chance for a home inspection
Home inspections of the property you’re considering will alert you to serious issues that may not be visible to the eye—asbestos, termites, electrical, ventilation and serious plumbing faults, for example. These problems could eventually cost you a whole lot more than the building inspection itself.
If you’re buying a townhouse or apartment, strata reports can tell you whether the property is well run, maintained to a decent standard, and adequately financed. Knowing what to look for when inspecting a house is a step in the right direction to finding these common and hidden imperfections.
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