This information is general in nature only and does not constitute legal advice. While Budget Direct has endeavoured to ensure the information we’ve relied on is accurate and current, we do not guarantee it. Budget Direct accepts no liability for this information and recommends you obtain legal advice specific to your individual circumstances before entering into any contracts for the purchase of property or obtaining of finance.
Some of Australia’s leading property specialists share their top tips and advice on buying your first home.
Principal Financial Planner and Property Investment Adviser
We asked them:
What tips do you have for people starting on their search?
Pay off bad debt first. Do you have credit cards or personal loans? Not only do these hinder your ability to borrow, they will also kill your cash flow once you get in the new house.
First and foremost — have your ducks lined up. Make sure your finance is approved and you know your budget limitations. Don’t ask for opinions/advice from everyone and anyone. Everyone who has ever bought a property thinks they are a property expert. Find tips from real experts or those who may be experienced investors.
Because this is your first house, limit your risk and exposure so that your first-ever purchase builds your wealth instead of it potentially creating a problem for you down the track. Buy well within your means and inside a suburb where infrastructure is in place and employment is high.
Once you know which suburbs you’re interested in buying in, take your time to learn more about that area. It is imperative to do your research. What is the median price of homes in that suburb? Does this fall within your range? Is the house close to schools, transport, recreational facilities, shops, etc? Does it meet market demands when it comes to reselling at a later date?Make sure to think of your first home as a stepping stone for your future.
Whether you’re buying a first home or becoming a rentvestor, the key is to do your research. Find out exactly what you can borrow, stick to your budget and never let your emotions get in the way of making a sound decision. Understanding both federal and state grants and duties is also vital, along with surrounding yourself with the right professionals. A mortgage broker who has experience with first-home buyers and conveyancer should be the starting point. Buying your first home is all about taking steps up the ladder to eventually purchase the dream home.
I suggest first-home buyers get their formal finance pre-approval in place and ready to go — before they even start looking. Then you will know exactly how much you can spend and can negotiate confidently to that level. An extra $10,000 or $20,000 in purchase price can often equate to purchasing a home with an extra bedroom, bathroom, or even a pool. It could make the difference between buying your long-term ‘dream home’ and a home that will do for now.
Finance is the first step. Finding out what you can borrow, what incentives are available (e.g. stamp-duty concessions, First Home Owner Grant). Every state is different.
Until you know what you can afford, it’s pointless watch-listing properties or trudging around open houses. You need to know your parameters and any areas of your financial record you need to address before you start on the whole home-buying journey. Check whether you are eligible for the First Home Owner Grant. This programme was introduced on 1 July 2000 to offset the effect of the GST on home ownership. It is a national scheme, funded by the states and territories and administered under their own legislation. Under the scheme, a one-off grant is payable to first-home owners that satisfy all the eligibility criteria. You need to visit your state’s office of revenue website to check your own eligibility.
What are the most common mistakes that first-time home buyers make?
Over-spending. As a rule of thumb, we say clients should spend no more than 30% of their net income on mortgage repayments. If you are earning $1000 in your bank each week, we would say you can comfortably afford $300 per week in repayments without over-extending yourself. Using the above rule again, if your repayments are less than 30% of your after-tax wage, bump them up to pay your mortgage off faster and save you thousands of dollars in interest.
Always give your budget a little stress test. What happens if we have to live on one wage for a time (babies, redundancy, etc.) Also, avoid postcode prejudice. “Oh, we can’t live in X!” Well, guess what? X is your most affordable, sensible option.
Agents and private sellers will take you far more seriously when they know you have finance approved. So much so that if the seller were to receive two identical offers and only one has finance approved, then that buyer will likely get the property. In fact, even if your offer is lower (but you are already finance approved and the other person isn’t), then you may still win the property with the lower offer.
Not understanding the contract. Generally, you take a property ‘as-is’ when buying. If you want the contract to be subject to building and pest inspections, you need to include those terms in the agreement. If you are buying at auction, then it’s worth getting a pre-purchase inspection report up front. It’s a big decision, so don’t rush it and regret it later.
The first time you do anything is a learning experience and buying your first home is no different. The biggest mistake we see first-home buyers make is getting too emotionally invested and not being subjective about what they want to achieve with the purchase. This can lead to overpaying for a property or buying above their budget. Either of those things can make the process a lot more stressful than it needs to be and doesn’t serve them best.
Don’t be afraid to pay for good advice and expertise. If you find the right advisors, the information they provide will be worth their fee 10 times over. They will remain unemotional and will make sure you keep a level head through the whole process. Secondly, I often see first-home buyers get so caught up in the aesthetics of a house. They will forgo a great house, in a great location, because it has an ugly kitchen or bathroom. I would buy an ugly house in a great location any day. The house you can fix, but the location you can’t.
Rushing the process. Do your homework, maximise your spend on your home and work out a wish list. What can the builder do in their packages and what can you do over time to add value to your home? Don’t go crazy spending up big on expensive inclusions that may not add value. For example, a swimming pool may cost you $15,000 but does it add $15,000 worth of value to your new home? Most valuers will tell you cost does not always equal value.
Property is our national obsession. Residential real estate accounts for a whopping $7.6 trillion of our nation’s asset classes. When everyone has a property story to tell, everyone has an opinion. But the reality is that the property market dynamic moves like no other. Even experts can be taken by surprise, so it definitely pays to be actively up-to-date in terms of your property market understanding. And we’re not just talking about the snippets you see in the news headlines.
What are some possibly unexpected things a first-time buyer should plan for?
With banks now making it increasingly difficult to lend, avoid any lending issues by seeing a mortgage broker before purchasing and getting a pre-approval in place. There are always extra costs that come up when buying a new home, from connecting services to buying new furniture. Make sure you have a buffer built up and put aside so you aren’t going into your new homeowner journey on the back foot.
Knowing down to the last dollar how much it will cost to live in and own the property: mortgage, insurances, council rates, body corps (units etc), general upkeep, etc. Be prepared to adjust your lifestyle: eating out/holidays to Bali/going to the opening of an envelope/buying the latest 4WD may have to be put on the backburner.
First-time buyers should be ready and able to act swiftly once they find the perfect home. It’s good to realise that the better the property, the more likely it is that others will be wanting it. By being ready and able to place a deposit down immediately when an offer is accepted, you will get the full attention of both agents and private sellers.
Settlement costs such as pro-rata rates, taxes, home insurance and potentially transfer (stamp) duty costs can add up to a substantial amount at settlement. Work out with your broker or bank how much you may need.
Before you even start the search for a property, speak to a mortgage broker with strong first-home owner experience and they will make sure you have enough funds to complete the purchase, including all costs.
Make sure you know your purchasing costs before you start and put it all in a spreadsheet. Things like pest and building inspections, conveyancing costs, and any initial maintenance work required. Then there’s removalists costs, costs to have the electricity and phone connected. And don’t forget to set aside some cash for the housewarming party. You will only buy your first home once!
The most practical advice I can give is make sure you are organised before you apply for a loan. Understand that everything you do is going to come under more scrutiny. It’s not just a simple process anymore. Technology has been a real game changer. People are using less cash, so everything can be tracked when you use your cards. Make an informed decision before you buy, knowing that someone is watching you.
Lastly, may be well out of your frame of reference for the time being, but thinking ahead 5+ years for school zones is recommended. Otherwise you may find yourselves moving before you want to — remembering that the average time people hold onto a property in Australia is currently 10.3 years. You can find the nearest schools to any property in Australia at on the house.