Buying a home for the first time comes with a bag of questions, hence our Advice Centre, and one question that we have seen pop up on our socials once in a while is what sort of timeline to expect when buying a home for the first time. When do you head to the bank to talk about a loan, who should you talk to, how long does settlement take, how long should you expect to wait before you find the right property? In other words: when!?
Buying a home for those already on the market is a separate issue. This is always a juggling act, and comes with that other important question: do you buy a home before you sell your existing home or vice versa? We address the question of buying a house before selling here, but for those first home buyers, here is what you should expect for the major chapters in your purchasing story.
Unfortunately, you cannot avoid doing a thorough budget when buying your first home, and this may mean being more thorough than you have ever been. How long will it take you? That depends on your Excel skills, or even how fast you are with a pen and notepad, but spend an afternoon equipped with coffee and bagels and figure out how much you have coming in, how much you have going out and how this relates to your home ownership goals.
A budget will dictate your goals more than anything. Once you know what you can afford, then reduce your budget by 10-15%. You don’t want to buy a home at the limit of your budget. This is the easiest way to place yourself in financial stress further down the line.
2. Financial advice
The next step in the process is receiving financial advice. Rather than a mortgage broker, an accredited financial adviser will look at your income and your budget and help you identify any possible expenditures you have not accounted for, especially those hidden costs associated with buying a home.
How long before you want to be living in your new home should you be talking to a financial advisor? At least 6 months prior, as you need time to research loans, the market and the homes you want to potentially purchase.
3. Hunt for a home loan
This process may take you as long as it does to find your actual first home. Since a tightening on interest-only loans in 2017 and increased scrutiny on the financial sector, lending in Australia is a more tightly regulated environment. You need to both be prepared in terms of approaching a lender with a clear budget to demonstrate your ability to pay off a loan and leave plenty of time to find the best loan for you. There are a large number of loan types available to you, but one big question you need to answer is whether you will take out Lenders Mortgage Insurance. This option has been marketed heavily to first home buyers, as it allows them to enter the property market with less than a 20% deposit. However, there are risks associated with LMI, and you need to decide whether you would be financially better off to wait to save up a 20% deposit or whether the added cost of LMI to your mortgage would be offset by longterm capital gains. Remember that if you do become financially incapable of paying back your mortage, you are responsible for your LMI, not your lender (which is why it is called Lenders Mortgage Insurance).
Research home loans well before you think about buying a home. Once you have found the type of loan that suits your needs and financial position, you can go about securing financing. A pre-approval certificate will typically last for 6-12 months, so you have plenty of time to then start looking for a property.
Like all Australians, you have probably been partially obsessed with property your whole life, which is why you should have a good idea of the market and the properties available before you secure pre-approval, but once you do get approval from your lender, it’s time to hit the pavement and work hard to find the right property.
4. Find your property
Reach out as much as possible with agents, don’t just go it alone. You will quickly become acquainted with the agents of those areas you are interested in, so developing a relationship with them may provide opportunities for buying outside of an auction as well as helping you in negotiations.
Once you have found the property that suits your budget and that you really do want to bid on, you need to conduct building inspections. Pest and building inspections can range from $200-$600, so make sure you have narrowed your search down and are confident that the property you want is not being overvalued. You may want to get an independent valuation from your lender, as they will want to know that you can afford the property.
There are some states in which inspections can be done post-auction, such as Queensland, but others require inspections to have been done before signing on any dotted lines.
5. Final inspections
Once you have successfully negotiated the purchase of a property, either privately or through an auction, you then enter a settlement process. This is also negotiable but can range between 30-60 days in length. During this time, you have the right to conduct a final inspection before settlement, to ensure the property is in the same condition it was when you last inspected it prior to purchase.
6. Move in!
A moving checklist will highlight how much planning can be involved in moving homes, which is why it is a good idea to begin the planning process well before buying a home or at the very least once you have signed a contract.