Buying your first property can be a daunting prospect for many first home buyers, with lots to consider and a seemingly endless amount of information to take in before making such a big purchase.
However, there are some basic principles that every first home buyer should be aware of when venturing into the property market in Australia, many of which can save you time and money, as well as helping make your purchase run as smoothly as possible.
Here are four tips to get you started:
-
-
Get yourself a pre-approval to borrow
-
As a first home buyer you need to understand how much you can afford to borrow, and lenders are more than willing to outline the size of loan they are likely to approve based on your financial situation.
This is called a pre-approval, which involves a financial institution such as a bank or non-bank lender assessing your financials to provide you with a figure you are likely to be able to borrow to buy a property.
There are several advantages of obtaining a pre-approval:
-
- Knowing how much you can borrow will help you narrow the property search, so you don’t waste time looking at properties that are out of your financial means.
-
- It can give you an advantage over other buyers who might not have taken this step, as you can mention you have pre-approval status to the real estate agent selling the property.
-
- If you are buying at auction, you will be able to confidently bid (and know when to stop if the price gets above your range).
-
- Once you have an offer accepted, the approval process is often faster for buyers who have a pre-approval.
It’s worth noting that while getting pre-approval is a really useful first step, it’s not a guarantee that your home loan application will be approved. You’ll still need to get full, unconditional approval before confirming the purchase, but having a pre-approval in place makes it much more likely this will happen without significant delay or issues, as long as your financial situation hasn’t changed.
2. Take the time to understand the purchase process
Once you’ve identified a property you want to buy, the process of actually securing it can seem complicated, especially for first home buyers with no experience of doing this.
The basics, however, are relatively straightforward if you understand the terminology.
With a private sale (sometimes called a private treaty) the seller (known as a vendor) sets the asking price and requests offers from buyers. In a buoyant market, the vendor will often receive several offers, and may make a counter offer to the one they choose to proceed with.
A counter offer will be higher than your original offer, but sometimes lower than the original asking price, and is an indication of what the vendor would be happy selling the property for.
You should ideally ask for a contract of sale prior to making an offer if possible, although doing this after you’ve agreed a price is also fairly common. Terms can vary between states, but in Victoria for example this will include a Section 32 statement, which discloses information about the property to the potential buyer to ensure transparency.
It’s a good idea to have a legal conveyancer to check this over before proceeding, and many will do this at no cost.
Once you are comfortable with the contract, you should then contact the seller’s agent and formalise your offer, including any conditions you wish to include.
The most common condition of a property sale contract often relates to any issues you have identified via a building and pest inspection. It’s highly recommended to get this done (at your own cost) before entering into a legally binding contract of sale, especially with older properties.
The final condition to include in the contract is a clause stating that your offer is “subject to finance”, which means your offer is only legally binding once your lender formally approves the purchase and that you can borrow the amount requested.
You’ll often be asked to sign the formal offer by the seller’s agent, which is nothing to be concerned about as long as your conditions are clear. You may also be asked to put down a small holding deposit (as little as $500 is usually sufficient) to indicate you are committed to the purchase.
The final deposit (typically 10% of the property price) is payable once your finance has been approved. This will be handled by the conveyancer on your behalf when required.
Taking the time to understand this process (and the legal terms you will be confronted with during it) can save a lot of uncertainty and reduce the stress involved.
3. Go to a few auctions prior to bidding to see how they work
Although buying a home via private sale is the most common way to purchase property in Australia, many of the Eastern States still see over 20% of their property sales via auction, so it’s worth getting to know how to navigate these.
Attending a couple of auctions for properties when you’re not necessarily intending to buy can give you a useful insight into how they work.
Observing the process of the auctioneer and taking note of the strategies used by successful bidders can give you a good understanding of what to expect and how to succeed if you go down this route.
It’s also important to know that the winning bidder at an auction is legally obliged to purchase the property – so the stakes are higher!
That doesn’t mean first home buyers should rule out auctions as a way of purchasing your first home, but don’t bid over the amount of your pre-approval as any sale at auction is not subject to you obtaining finance.
Given the increased liability of the buyer at auction, it’s worth getting your conveyancer to check the contract (and strata report if it’s a unit) before the auction – again, most will do this free of charge.
It’s also possible to make an offer before a property goes to auction, as vendors may be tempted to accept a reasonable offer to avoid the uncertainty of the auction process from their perspective too.
4. Find a good mortgage broker to help you
With all this information to take on board, having a helping hand to guide you through the process can be a big help, and finding a good mortgage broker who will assist you along the way is a good (and free) way of doing this.
Mortgage brokers make their money from the lenders, with most getting commission on the loan, so their service to you involves no upfront costs.
Some of the things a good mortgage broker can assist with include:
-
- Introducing you to a legal conveyancing firm. A good one will make the purchase process run smoother and often offer free advice prior to sale.
-
- Working with you to identify a suitable lender for obtaining a pre-approval and then work with both parties to manage the buying process. This can include speeding up the valuation process, which is essential when going from pre-approval to fully approved lending.
-
- Give you access to Property data such as the sales history of your chosen property and comparable property sales, which helps you decide if the purchase is a good deal. They may also review your intended property and advise of any red flags the lender is likely to raise (flammable cladding on apartments is a common one).
There are also several government incentives and schemes to help first home buyers get on the property ladder. A mortgage broker will be able to guide you through these to see if you qualify, often saving you thousands if you do.
Some first home buyers will be reluctant to speak with a broker as they believe they don’t have a big enough deposit or a stable enough income.
However, most good brokers will be happy to guide you on this and advise of steps to take to get you close to your goal, even if you aren’t quite ready (and many are but don’t realise it!).
While buying your first property can be initially seem daunting for first home buyers, understanding how the market works and having a good mortgage broker in your corner can alleviate the stress.
After all, the feeling of securing that first property you can call your own is one you won’t forget. And the process of achieving it doesn’t need to be as far away or worrying as you might initially think!
Loanscope has helped hundreds of first home buyers get on the property ladder. Contact us to arrange an obligation-free discussion on how we can guide you through your first property purchase
