Entering the world of home ownership is a big step for many, but who doesn't want to trade in their rent payments for a mortgage eventually? Even if you haven't found the perfect property, it's never too early to start thinking about what your first home might look like, and we don't mean the number of bedrooms or floors.
If you're buying a home for the first time, you might not be sure of how to apply for a home loan, or know what kind of grants or duty breaks you might be entitled to. You might not even be sure what sorts of things to prioritize when thinking about where to live – do you want to live closer to your workplace for a shorter commute, or do you want to live in a community with great schools so your children can get a better education?
1. Can you get a home loan?
While many folks will start off with a price range they think they can afford, they've already made one very significant assumption: that they will be approved for the home loan that they think they can get.
Imagine you've planned out the perfect $350,000 home and are absolutely positive that you can get a loan for $332,500... until you can't, because you're not a Resident, you're a Permanent Resident, and as such can only borrow $315,000.
Unless you have $17,000 lying around to cover the difference, it's likely that your plans have just hit a rather significant snag. The moral of the story? You want to make sure you know you can get pre-approved for a loan before you start packing up your belongings.
2. Have you applied for the First Home Owner Grant?
This is a bit of a sneaky follow up to the previous point, but if you don't know what the First Home Owner Grant is, you could be missing out of a significant chunk of property relief.
First introduced in 2000, the grant was designed to help first time buyers get into the home ownership market. While the dollar amount depends on the state or territory – In ACT it can be worth up to $7,000, while in the Northern Territory you can receive up to $26,000 – the premise for the grant is the same: to relieve the burden of duty tax and excessive home prices for first-time buyers.
You can find visit the First Home Owner Grant website for specific details about the grant in the state or territory where you are interested in buying a home.
3. Do you know what information you need for a loan?
One last note on the home-loan process: it's important to be aware of the process involved in getting approved for one. What sort of information is your lender going to ask for? And, more importantly, can you answer all of their questions? With documentation?
We'll spare you a rewrite of our Loan Application Checklist, but your lender will expect to be able to examine your salary, your current assets, and potentially your credit card or bank statements in order to assess whether you should be considered for the loan. If you don't have these things in order, you'll have a really hard time finding approval.
4. Can you make a sensible budget?
It doesn't take a lot of effort to sit down at the kitchen table for twenty minutes and come up with a quick list of expenses. Of course, if you do that, you're more than likely going to forget about a lot of things that you spend money on each month, and wind up with a terribly incorrect idea of how much you're spending, let alone how much you should be saving.
The classic example is the commuter who buys a $5 cup of coffee every day on their way into the office, but that's far from the only minor expense that can really add up. How do you combat this? Make a budget for something else in preparation for buying a home, then try to stick to it as closely and as honestly as possible. Practice makes perfect, after all.
5. Do you know how to go loan shopping?
In some ways, buying a home is just like buying anything else: you want to do it smartly, which means you want to be informed. What's the best way of being informed? By shopping around.
How do you do this? You can check out competing mortgage products online, both with your current bank as well as other lenders. You can also ask your friends or coworkers for advice, if they have recently purchased homes of their own. There's also a lot to be said for picking up the phone and getting mortgage brokers in actual conversation, and you can always use our home loan comparison tool.
So, where do you really want to live? Circling back to the first example: do you want to live close to work? Would you like to live near your friends and family? If you've decided to live without a car, or only one car for you and your partner, what's the public transportation situation like in the areas you're looking for?
Most first time home-buyers think about where they want to live, of course, but typically this is attached to a post code or a city name. It's just as important to think about whether you want to live near a thriving community or somewhere where you can enjoy some solitude – even if it means a long drive to pick up groceries.