Buying a house can be a daunting,complex and often frustrating experience – and that's for people who've done it before! The first homebuyer can often feel completely at sea when faced with their first purchase.
If you're about to buy your first home, you may feel like you’re on the brink of taking a great leap into the unknown. The idea of lenders, real estate agents, solicitors and vendors all with mountains of forms, requirements and jargon may have you wondering whether it's worth all the effort. And on top of all that, you still have to find the right house!
Relax – it's not that bad.
If you take the great leap in a series of steps, you’ll be safe and sound inside your own home in no time. Here are some of the steps you should follow to make your move into the world of homeownership as smooth and hasslefree as possible:
Month 1: February the month to plan and make goals
Laying the groundwork
1 Set your goals
Begin week one by setting your goals for the future. In order of priority, create a 'to do' list and tick the items off as you achieve them.
"It's extremely important to set your goals before beginning your first homebuyer journey, because it's very easy to let something that could be achieved successfully in five months take two years," explains Haley North, mortgage and finance consultant with Smartmove Professional Mortgage Advisors.
2 Realise your deadline Working under pressure will help you achieve the goal of owning your first home. Your deadline here is exchanging contracts for sale before 30 June 2009, in order to be eligible for the $14,000 or $21,000 First Home Owner Grant!
3 Determine how much you are really worth The very first thing to do is to work out just where you stand financially. You need to know exactly what you can afford to pay back each month, as well as what the upfront costs are going to set you back.
4 Figure out much can you repay It shouldn't be too difficult to work out how much you can afford to repay each month. If you've been scrimping and saving to get your deposit together, you should have a budget that's worked well so far, and – who knows? – you might even be the type of person who can stick to it!
Subtract the monthly expenses from your monthly income. It’s essential that you’re realistic here, so factor every last thing into the equation. Don't forget the little things. Do you stop for coffee or a drink on your way home from work? Write it down. Do you splash out on lunch one day a week? Make sure this is all taken into account. Do you invariably spend $10 trying to win the lottery each week? You must include that too. These are the extras you should consider if you’re going to obtain a realistic figure.
By the way, don't forget to allow for unforeseen circumstances such as illness or car damage. Also don't pretend that you can live happily for the next 20 years without ever going on holidays or buying a new pair of shoes.
Once you've deducted your expenses from what you earn, you should have a pretty good idea how much you can afford to repay each month. Use the repayment tables on page 104 to work out how much this equates to in terms of the amount you can borrow.
An expenditure calculator is available on www.yourmortgage.com.au/calculators or you can download other handy budgeting tools from websites such as the RAMS first homebuyer website at www.ownyourfirsthome.com.au
5 Draw up a sensible budget Be realistic and honest with yourself throughout this process. Begin putting your new budget into practice as early as possible – especially if you've cut substantial amounts and expenditure from your monthly outlay.
"People often sit down and make up a budget and think they can easily afford 'X' amount each month, but until they actually try and stick to it, they don't know what they're comfortable with," explains North.
If you're finding it difficult to save, consider moving in with your parents for a reduced rent.
"If you don't have enough savings yet, but don't want to miss out on getting into the market and getting the government grant, discuss family guarantees and gifts with your parents, as well as no-deposit loans with your broker. There are other options for you, which can help reduce your borrowing costs," explains Miriam Agnos, personal mortgage advisor with Smartline.
6 Pay off your existing debts Use some of your savings to pay off any lingering consumer or personal debts. This can help increase your borrowing capacity and prove that you’re ready to take on the added responsibility of a mortgage. If your existing debt has tax complications, a visit to your accountant might be worthwhile.
Doing the rounds
Once you've arrived at a ballpark figure of how much you can afford to borrow and how much you need to have before you can consider borrowing, it's time to go loan shopping.
Before you even think about making a decision regarding which lender to borrow from, there are a number of things that you can do to make the decision-making process easier:
1. Ring around a sample of lenders, starting with your current bank. Ring some of the non-banks as well. Many non-bank lenders have rates that are lower than those the banks can offer.
2. Speak to friends who've borrowed about their experiences. This is one of the best ways of gauging the type of service you’re likely to receive. All lenders will tell you what you want to hear, so personal experience is one of the best indications of what's really going on.
3. Check out ads in newspapers and magazines. Rates are changing constantly, new products are launched and superseded all the time. After a few weeks of research, you'll get a feel for the various types of mortgage products available and use advertising to your advantage.
Getting expert help
The third week of February is the time to begin making contact with the experts who'll help you achieve your first homebuyer goals.
If you haven't yet chosen a financial institution, it may be worth enlisting the help of a mortgage broker. They can suggest a wide array of loans that suit your needs. In most cases, these people work solely on a commission from the institution that secures your business, so this could be one of the few steps in the house-buying process that shouldn’t cost you a cent. But be wary – most mortgage brokers don’t represent all lenders, so there's no guarantee that the loan you're recommended will be the best one for you.
Sorting through the mortgage market for the best home loan could take you several months.
"A good broker should find the best deal for your scenario and then reassess this when you buy. Your situation may have changed – and so, too, your deposit size and the mortgage market," explains North. "They should also be able to hold your hand throughout the buying process, from loan application to unconditional approval, then buying the home and your settlement. Your broker really should be there as part of a holistic approach."
Go to page 62 for more tips on how to choose a mortgage broker.
Accountant or financial advisor
Your accountant or financial advisor can help you prepare a full cash-flow analysis, detailing your current and forecast expenses versus your income. Ensure your accountant or financial advisor has experience dealing with first homebuyers and is prepared to answer each and every question you have regarding your finances.
Both solicitors or conveyancers are qualified to prepare documents for the registration and transfer of your property and give legal advice on contracts. Solicitors are also qualified to give advice on other aspects of law apart from property. It's imperative that you get a few different quotes for your conveyancer or solicitor and settle on a legal representative that you feel 100% comfortable with. The best way to do this is to get recommendations from family and friends.
Once you've chosen a lender and a home loan product, it's time to apply for pre-approval, and you need to provide your lender with the following pieces of information:
• Income verification – your three most recent pay slips for regular borrowers along with three months' consecutive history of earning commissions and your last two years' group certificates (if you earn commissions). Two years'tax returns for self-employed borrowers
• Statements for any debts showing limits and repayments (credit cards, personal loans, etc)
• Evidence of the funds you're contributing – bank statements showing your deposit, or a statutory declaration from the person who may be gifting the money
• Show up to six months' history of savings – this can also reduce the LMI that's payable
• ID – 100 points of ID (your passport and Australian drivers licence)
• First Home Owner Grant – have your birth certificate ready when applying
Pre-approval should be returned within 48 hours of submitting your application, upon which your final borrowing and buying capacities are established.
The big interview
When the time comes for your appointment with the bank, building society or loans manager, don't travel lightly. There are a number of important documents you need to take with you.
Make sure you bring along some proof of your income and savings record, and your estimate of what you think you can comfortably repay. Show them you really mean business with a completed loan application form. Most lenders will send these out to you on request.
The general tip here is to create a good impression with your grasp of the issues, but at the same time, don’t be afraid to ask questions.
Ask about set-up fees. Find out whether you need mortgage insurance – chances are you will if you’re borrowing more than 75% of the value of the property. Be clear about whether there are any early repayment penalties or exit fees.
Ask whether the institution issues any kind of home loan guarantee certificate. And if there’s anything else you're not 100% clear about, this is definitely the time to sort it out.
Month 2: March the month to research!
Getting to know the market
Spend the first two weeks of March talking to family and friends about possible areas of interest for your first home. As well as this, begin reading property and finance magazines (such as Your Investment Property and Your Mortgage), newspapers, subscribing to property reports and newsletters, and collating data for the suburbs that you're interested in.
Websites such as www.realestate.com.au and www.domain.com.au can be useful in getting to know the prospective suburb for your first home.
Make sure you include the following information in your research:
• The minimum and maximum prices that exist in the suburb(s)
• Can you afford this suburb?
• What kind of property and how much property are you going to get for your money? Are you comfortable with this?
• Are the points on your wish list being satisfied, or are you prepared to compromise?
• Compare asking prices for any properties you like with the previous sales in the same suburb
You may find your dream home, but – what's more likely – if you don’t find it, it’s time to rationalise. Ask yourself, of all the properties you've inspected, which ones appealed most and why?
Make a checklist of your priorities. A good way to keep things in perspective is to look at the odd property well above or below your price range. Remember, this is an exercise in compromise. The dream home is one of those fictional creations like 'Mr/Mrs Right' and the 'perfect' marriage, so don't get too hooked into the hype.
Most homebuyers come to realise that the right home for them isn’t the perfect one, but the one they liked which had the least (or smallest) problems.
Spend the third week of March contacting real estate agents in your suburb(s) of choice and sign up to get their daily and weekly property alerts.
Even though you've done your own research, it can be a good idea to ask each agent what properties they have on the market which ones are in your price range.
Sometimes, too, there are properties that aren't advertised online.
Give all the agents your wish list and ask them to contact you ASAP if anything comes on the market that is within your budget in your chosen suburbs. Don’t let them take you for a ride, however, and only consider the ones that actually are in your price range and meet your requirements!
During week four, head back to the internet, newspapers and real estate agents to collate a list of properties you want to check out during upcoming open inspections.
months 3 & 4: April and May the months to hunt!
Once you've established which price range you're in, it's time to familiarise yourself with what's available at that figure. Attend 'open for inspections' in the area you’re looking to buy in – lots of them – but whatever you do, don't jump in too early.
Each Monday and Tuesday, new property listings are registered and listed with real estate agents throughout your areas of interest. On Thursdays and Fridays, the 'Open for Inspection' (OFI) times are listed across the internet and in all the newspapers ready for the week ahead.
Every Friday night from now on, you should aim to sit down and make a list of all the relevant OFI times.
Tips for successful OFIs:
• Print out a Google street map (or something similar) and mark the property locations on it for quick and easy location on OFI day
• Download a homebuyers' checklist off the internet for each property you’re planning to view. St.George Bank has an excellent one-page checklist which is amazingly concise and easy for first homebuyers to use. It has specific boxes to tick and room to write about every aspect of the home (including the layout), and there’s even space for you to comment on the area surrounding the property.
• If you're buying a unit, remember to ask the real estate agent how much money there is in the sinking fund and what the quarterly strata, council and water rates are likely to be
• Record every home you inspect visually with a digital camera
Determine how many properties to see before making offers
Go into the open inspections with a realistic frame of mind, and refrain from viewing properties that are more than $20,000 above your price range. Although we’re currently in a buyers’ market, vendors are hesitant to reduce prices substantially, and large negotiations can be a challenge.
This effectively narrow your search and helps weed out the lemons from the gems. Also, viewing fewer properties that are more appropriate for you is the key to helping you buy well within the next four or five months!
There's no set timeframe that you have to satisfy before making offers on your favourite properties, and the same goes for the number of them.
On one hand, it can pay to be aggressive and view 50 properties before you purchase. On the other hand, if you've fully immersed yourself in the current market, you'll know which properties are worth pursuing and which aren't, so there’s no harm in making an offer after only viewing 10 to 15 in all.
Spend some time researching recent sales as well as comparable sales in the area, and take a look at what the actual property has been sold for previously by sourcing property data from places like RP Data, in order to set your mind at ease.
The key is to make sure you feel confident that you know the local market as well as, or better than, the agent you're dealing with – and never stray from your buying capacity.
"Manage your time better. Don't attend 100 open inspections just for the sake of it. Do your research on the market properly and find out what properties are worth, then if you come across one that meets your criteria, you can start negotiating on it," explains Joseph Chou, CEO, Ironfish.
The most important thing here is to have your pre-approval in place so you can move quickly on properties you like, and keep your conveyancer or solicitor up to date with your progress.
It's vital that you view your first property as a stepping stone towards the perfect home, and keep as many emotions out of the process as possible.
"Don't think of your first home purchase as your only owner-occupied home you’ll ever buy," explains Smartline’s Miriam Agnos. "First homebuyers can't often afford that 'perfect home' price bracket straightaway, so it pays to think of your first purchase as your first investment property. Realistically, you'll be moving out in a few years' time to upgrade, and if you've bought well it provides a good opportunity to turn it into one."
Narrow your choices
By mid-May you should have a clear idea of which properties you want to pursue. Once you've narrowed your search down to your top five, compare them and cull the list again to get the top three. Compare them one against the other using benchmarks like proximity to the CBD or work, schools, water/beach/harbour, lifestyle, shops and so on.
Insist on a pre-purchase inspection
At last you've found the right home for you. Sure, the backyard’s a bit small – but you hate mowing lawns anyway! All other things considered, this looks like the one, and you can’t wait to break out the cheque book and get moving.
Better slow down there, homebuyer.
You wouldn't buy a car without a full safety inspection and the same principle applies here. It's time to get the professionals in to do it for you – and don't baulk at the likely cost of anything between $200 and $600. It's vital you find out about any hidden nasties like damp, shifting foundations, faulty wiring and plumbing, etc. That way, you can factor in the cost of improvements to the total amount of money you'll have to fork out for the property.
The only downside here is if the inspection reveals something seriously wrong with the property – or if you suddenly get cold feet about it for any other reason.
You may feel as though the inspection was money down the drain, but think of it this way – what if you'd only discovered that colony of termites after settlement?
There are also some things to watch out for which your building inspection won’t cover, and which you may not have thought to include on your list of 'must find outs'.
Is the property prone to aircraft noise? Is it in an area that’s a favourite commuter shortcut? Is there a pub on the corner that plays New York, New York every night at closing time?
If you're satisfied that the place really is OK, it’s then time to make your move. If it is for sale by private treaty, you have to make an offer formally through the real estate agent.
Take the plunge
The price tag says $200,000. But how much do the vendors really want, or expect to get? According to one agent we spoke to, in most economic climates it’s usually wise to make an offer within 5% of the asking price, although this can increase in a depressed market.
Taking the example of the $200,000 home, let’s say you offer 5% less, in other words, $190,000. The agent comes back to you saying that the vendor won't accept anything under $198,000. Alright, so your offer was rejected, but suddenly the house is effectively on the market for $2,000 less than it was yesterday – and your hat is now well and truly in the ring.
Chances are you can bargain the vendor down another thousand or two, but don't be greedy, or you may miss out to someone playing the same game as yourself who knows when to stop. Within reason, you shouldn't be afraid to make any reasonable offer, because your agent is obliged to report it to the vendor – no matter how laughable it may seem. That's their job.
It's also worth noting that with a private sale – that is, a sale which does NOT involve a real estate agent – the asking price can often be more realistic as there’s no middleman to pay.
"You want to get the best deal possible, but don't walk away from a property because of $5,000. If you want it, take the final negotiation," Chou advises.
month 5: June the month to finalise!
It's over to the professionals
Once you've negotiated and settled on a final sale price for your property, get in contact with your broker and your conveyancer ASAP.
Read the article on page 34 about how to navigate the legal maze when buying a property.
Don't sign a thing until your solicitor checks the contract between you and the vendor. If you're looking at purchasing at auction, ask for a contract well beforehand. You may want some special conditions included in it and, if so, ask your solicitor or conveyancer for assistance. Be clear about gazumping, cooling-off periods and the like.
When your solicitor or conveyancer gives the contract the thumbs up and you have the written loan approval from your lender, it's safe to pay the deposit. The contracts between vendor and purchaser are then formally exchanged.
Leave the suit at home – this is usually done between the professionals. Special circumstances aside, you're now legally required to go ahead with the purchase, and can face severe penalties, such as the loss of your deposit, if you don’t. Your solicitor or conveyancer now spend the next four or so weeks making final checks on your property. Checking out rates, heritage orders and general documentation are all part of the process known as conveyancing. It's actually possible to obtain selfconveyancing kits, although we wouldn't recommend them to anyone who hasn't been down the homebuying road before unless they have some specialist knowledge. After all, if something goes wrong, who are you going to sue?
There are plenty of things you can occupy yourself with while you're waiting for settlement. Preparing change of address information, obtaining removalists' quotes and arranging building quotes on urgent repairs are just some of them. Come settlement day, you and the vendor, your legal representatives and a representative from your lending authority meet, to exchange cheques and sign the mortgage and other documentation.
Welcome to your new home!
Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker