Top Tips for First Home Buyers
Buying your first home is exciting! But, it can also feel overwhelming with advice flying at you from well-meaning family and friends. Mortgage brokers deal with home loans every day with a vast array of lenders meaning we know the most up to date information you need to secure your first home. In this post, we will share home buying tips for first time buyers. Please read on for our top tips for first home buyers.
Tip 1. You may not need a 20% deposit
According to Domain’s First Home Buyer Report 2020,
it can take a Brisbane couple an average of four-and-a-half years to save for a 20% house deposit, or three years and three months for a unit deposit. Did you know that you may not need a full 20% deposit, though?
Lenders may only require an 8-10% deposit, or some may allow as low as 5% to secure your home loan. These lower interest rates do attract Lender’s Mortgage Insurance (also referred to as LMI) – we can advise what this will mean for your personal situation and loan.
As high of a deposit as you can save will put you in the best position for better interest rates and lower repayments, however, if you can’t achieve the full 20% for your estimated loan requirement, there are alternatives we can help you with to get you into your first home sooner.
Tip 2. Banks may be willing to lend more than you can afford
Most Australian mortgages have 25 or 30 years loan terms, and this debt may be the biggest debt you ever take on, so it’s important to get the best financial advice possible. Each lender will have their own policies to assess your credit history and unfortunately some banks may be willing to lend you more than you can afford without taking your whole individual situation into account.
As a first home buyer, you do not want to take on more than you can afford because the implications to your mortgage and other life plans could be dire if you can’t make your home loan repayments. Talking to a broker is your best option because they are working for YOUR best interests, not the lenders. Brokers are on your side and work to get you the best home loan option while understanding your personal situation, financial goals and the products on offer in the market.
Tip 3. Factor in all associated costs
You might be surprised to learn that there are quite a few costs associated with buying a home, other than your initial deposit. Here’s a quick overview of the home costs you will likely come across.
Upfront costs
Purchase price – this refers to the actual cost of the property. Unless you can pay for a property outright, you will generally need to take out a loan, which will require a 5-20% deposit, depending on the lender.
Loan application fee – a one-off payment that is paid to your lender at the start of your loan. Fees vary depending on the lender and we can advise you what to expect with which lender.
Lender’s mortgage insurance – a deposit less than 20% may require you to pay lender’s mortgage insurance, which is a protection measure for your lender if you are unable to repay your loan.
Government fees – stamp duty applies to all Australian state and territory governments and is a land/property transfer tax. There is also mortgage registration and transfer fees, these differ from state to state.
Legal and conveyancing fees – these fees are your costs for a real estate conveyancer or solicitor to prepare the necessary paperwork and to conduct the settlement process between buyer and seller.
Building, pest and/or stata inspections – these services are important for your due diligence to ensure any structural concerns or maintenance and financial issues are sorted out as part of the settlement process. This upfront cost will save you from potential problems down the track once you are living in your new home.
Moving costs – this cost is an optional one of course! But, an important one to consider for you finances if you plan to rent a truck or hire professionals to help you move into your new home.
Ongoing costs
Loan repayments – exactly how long it takes to repay your home loan will depend on how much and how often you make repayments.
Interest charges – interest rates can be one of the most confusing parts of buying your first home! You generally choose a fixed or variable rate (or a combination of the two) as part of your home loan approval process. We can explain everything you need to know about interest rates to take the mystery out of the different interest rates available from different lenders.
Other ongoing expenses – ongoing costs of owning your own home may include council rates, utility costs, building and contents insurance, strata fees for communal properties and things like home improvements or renovations.
Tip 4. Pre-approval is great for establishing a realistic budget
Having pre-approval for your loan is a great way to know exactly how much you can borrow. Before you dive into ideal locations, property features and inspections, get your pre-approval sorted so you can establish a realistic budget for yourself.
Knowing what you can afford to spend with your pre-approval in hand means you won’t waste any time on houses that are out of your budget. You will know your maximum financial limit and then the fun starts of shortlisting your locations and property wishlists. When you’ve found your ideal property within your budget, we will manage the process for you to obtain formal approval from your lender to get you to settlement day.
Tip 5. Don’t delay when it comes to taking out insurance
Home insurance covers the cost of repairing or replacing your house when something unexpected happens. When buying your home, the rules can differ between states and typically in Queensland, you, the buyer, are responsible for damage to the property from 5pm the next business day after the contract date (this is before settlement). Importantly, your contract of sale may be different to this so it is important that you check your contract and speak to your solicitor or conveyancer to know exactly when you will need home insurance to cover yourself.
Although it is not a legal requirement to have home insurance in Australia, some lenders require you to have insurance as a condition of your loan and it certainly provides peace of mind for the unexpected.
If you happen to be buying a strata title apartment, you typically will not need to purchase building insurance as it will be covered by residential strata insurance. In this case, the cost of the cover will usually be included in your building levies. You may still want to take out contents insurance to insure your belongings inside your home.
Tip 6. Be familiar with auction rules before making a bid
Buying at auction is available to anyone, including first home buyers, but there are rules you need to know about.
Our first tip is having the right pre-approval is crucial to know your maximum price limit so you’ll know when to walk away from the bidding war at an auction.
The main rules that apply at an auction include:
- Buying at auction is final – you must have your finance approved and ready to go.
- There is no cooling off period.
- There are no finance or building and pest clauses available – you buy the property as is on the day of the auction.
- In Queensland, you must be a registered bidder and be able to provide a copy of your Australian driver licence just before the auction takes place.
Some lenders give only an indication of what they will consider approving for your loan and others will complete full verification of your application and documents. As your broker, knowing you are considering buying at auction, we will ensure you get the right lender for your situation.
Tip 7. Real estate agents work for the seller – not for you
When you are looking for your first home to buy, you will likely encounter many real estate agents. Seller’s agents who you contact to inspect a property will be your main point of contact about a specific property and the fact is, they legally work for the seller, not for you. They are employed by the seller to obtain the best price for the property and they simply cannot work in the interests of both the seller and the potential buyers.
Real estate agents can still be a good source of information and it is important to do your research and ask questions while considering a property. You want to make a good impression so the agent likes you and gives you information about the property, the seller, any other competing buyers if you can get them to divulge the information. The flipside is not giving away too much information about your personal circumstances.
North Brisbane Home Loans brokers are experts in mortgages for first home buyers. We can answer any of your questions about finance, deposits, interest rates, the approval process and choosing the right lender and home loan product for you.
Call us on 07 3889 9719 or contact us today and let us help you through the entire process – from pre-approval right through to settlement.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
