The process of buying a home can seem gargantuan to most people. For some, this puts them off the process for years at a time, as they believe that they are unable to satisfy some of the earlier steps in buying a home or feel overwhelmed by the various hurdles they need to jump through to get onto the property market.
However, it’s easier to split the process of buying your first home into 5 different steps. Within each step there may be little nuances that suit your situation, but as a whole all you need to do is follow these 5 steps to eventually find yourself as a homeowner.
Finding financial freedom
There is another word for this: saving. This is where the bulk of your work lies! Unfortunately, the costs of buying a house make it quite hard to enter the property market in some of our major cities. However, besides investing in property interstate or investing/buying a home in a regional market, the only way of entering the market is to find ways to find as much financial freedom as you possibly can. This will range from larger savings measures (selling your car if you don’t rely on it, cancelling your credit cards once they are paid off, living off a single income as a couple, buying with a friend, moving home to save on rent, finding extra income) to smaller measures (cutting down on discretionary spending, such as on coffee, alcohol, eating out, entertainment, holidays). Consider sticking to a savings rule, such as the 50-30-20 rule to help you save.
Making these changes are for some not worth the reward, with some opting instead to rent and divert their savings into different asset types. However, if you do want to buy a home in one of Australia’s major markets, setting up a monthly budget that tracks your spending is a great way to find out how much you can save and to easily calculate exactly when you will be able to afford a property according to your price budget.
2. Setting a price limit
As part of your savings measures, you will need to establish what your price limit is for buying a home, i.e. how far can you go?
A great way to understand how your finances can work for you is by visiting a financial advisor who can look at your current financial situation and suggest ways in which you can get into the property market and to help you structure your finances and savings measures so you are in the strongest position to buy a home.
Creating a monthly budget is the most important part in leading up to this second step of setting your price limit. Having a monthly budget will allow you to calculate your earnings and savings to see how much capital you will have acquired by a certain point. If you know that in 12 months time, if you stick to your monthly budget and your income remains the same, that you will have saved $20,000, then you are able to calculate that you may be able to pay a 10% deposit on a $500,000 property in just over two-and-a-half years. Knowing where your savings will be in any given amount of time will make your options much clearer.
3. Finding a loan
Thankfully, finding a suitable home loan is much easier than it once was. You want to first understand the types of loans available to you, such as fixed rate vs. standard variable rate home loans. You hear those phrases bandied around all the time, but do you know which one suits your needs?
You then want to come prepared by understanding what a lender expects from you when applying for a home loan, such as payslips, bank statements, letters of employment, etc. and understanding what liabilities might affect your success (i.e. how does having a HECS debt affect a loan application?) A lender will be able to provide their expectations clearly but being ahead of the game will help save you time.
Once you have found a home loan that suits your needs and you have spoken with the lender after applying for the home loan, you will be given conditional approval, which typically lasts for a set amount of time (often 90 days) and gives you an incentive to find a home as soon as possible. This conditional approval allows you to make an offer on a home with the assurance that you have approval from a lender that you have the funds secured to purchase the property.
4. Research potential properties
While not all aspects of buying your first home could be called ‘fun’, there is one part that definitely is: research. Okay, maybe not everyone loves this aspect, but plenty of Australians are property-obsessed and will browse listings or attend an auction any given Saturday even if they have no intention of buying.
It is important to become a bit of a property expert before you purchase your first home. This involves drawing on various resources to get a grasp of where the property market is headed in the short, middle and long term. Use a mix of news media, industry insights such as Corelogic, and neighbourhood demographics and market data that can be found on our Price Estimator to get a birdseye view of how specific pockets in any given suburb are performing on the market. This will help you time your purchase.
Consider using a buyer’s agent to help you find a property faster and even help you when bidding for a home. It can be crushing to lose out at an auction but it can be even worse if you know that there was another property that you were equally interested in and which ended up selling well within your price limit. Of course, if you don’t use a buyer’s agent, you also have the option of bidding for a property over the phone.
5. Buying your first home
You are in the final and most exciting stage, and that is bidding for or putting an offer in for a home. It is important to understand the rules of an auction, as these vary state by state, and knowing these rules will allow you to best utilise your toolbelt of strategies for bidding.
If you are successful at auction or when negotiating a property, you will often be required to supply the deposit immediately and sign the contract of sale alongside the vendor (this is usually made available prior to bidding and cannot be changed afterwards). Following this process, you will follow a period of ‘settlement’ before you can finally move into your new home!