There’s a lot to get your head around as a first home buyer, and the upfront and ongoing costs are only part of it.
Buying a home is one of the biggest purchases you might ever make, so it’s understandable that saving money for a deposit on a property isn’t likely to happen overnight.
In fact, nearly 40% of Aussie home buyers said it took two to five years to save for a deposit, while another 25% said it took them between five and 10 years1.
If you’re at a stage where you think you might be ready to put some money down on a place, here are some things to consider first, if you haven’t already.
1. Make sure you’re across the upfront and ongoing costs
- Purchase price – this is the actual cost of the property and unless you’re paying for it outright, you’ll generally need to take out a loan, with lenders often asking for a minimum deposit of 10% to 20%.
- Loan application fee – this is a one-off payment to your lender when your loan begins. Fees can vary depending on your provider and will cover things like credit checks, property appraisals and admin.
- Lender’s mortgage insurance – if you have a deposit that’s less than 20% of the loan, you may be required to pay lender’s mortgage insurance, which is a one-off payment to protect your lender if you can’t repay your loan.
- Government fees – stamp duty is a land/property transfer tax applied by all Australian state and territory governments, which can vary depending on where the property you want to purchase is located. Mortgage registration and transfer fees also apply and differ from state to state.
- Legal and conveyancing fees – these cover the services of a real estate conveyancer or solicitor, who’ll prepare the necessary paperwork and conduct the settlement process.
- Building, pest and strata inspections – paying for these services could alert you to any structural concerns or maintenance issues, as well as potential financial problems if you’re getting a strata report, before you buy.
- Moving costs – this will come down to how much you do yourself, whether you rent a truck, hire professionals, or get family and friends involved.
- Loan repayments – what you pay back and how often you make repayments can have a big impact on the time it takes to pay off your home loan.
- Interest charges – you can generally choose a fixed or variable rate or a combination of the two. This is worth some research, particularly as interest rates can go up and down.
- Other ongoing expenses – the ongoing costs of owning a property might include strata fees for communal properties, council rates, utility costs, building and contents insurance, and things like home improvements.
2. Consider that your lender will look at your credit report
A credit report, which details your repayment history, could affect your ability to get approval on a loan, especially if it highlights missed repayments and other past financial issues.
Each lender will assess your credit file against their own policies and there may be instances where some approve your application, while others reject it or delay the process to make further investigations. If you have plans to apply for a loan anytime soon, knowing what’s on your credit report could save you from any surprises if you apply for a loan.
3. Set a limit for how much you want to spend
Many loan terms in Australia are generally around 25 and 30 years, so once you’ve considered the upfront and ongoing costs you’re likely to come across, it’s important to figure out what money you’ll have access to (for instance savings or other financial assistance), in addition to any other costs you may need to prioritise.
There will also be things to think about if you’re buying a property with your partner, or if you have a family member assisting you with some money, potentially signing as a guarantor or going in as a co-borrower.
4. Make sure the locations you’re looking at stack up
They say location is everything, which is especially true when it comes to making a smart financial decision on a property purchase. With that in mind, consider the following points:
- How much properties are going for in the suburbs you’re looking at
- How far you’re willing to live from family, friends and work
- Whether there’s off-street parking and local amenities, such as schools, shops and transport
- Whether you’ll need to renovate and if you have the extra funds to do so
- If there is price growth potential in the suburbs you’re interested in
- If there are proposed developments in the area that could impact the value of your property
- What the crime rate is like in the areas you’re keen on
- How the local job market fares if you’re moving far away.
If you need help gathering some of this information, try speaking to real estate agents who work in the area, or look at real estate companies online. Of course, different features will appeal to different people when looking for a home to live in, so consider what works for you.
5. Find out whether you’re eligible for financial assistance
There are a number of ways you may be able to get help to fund your home purchase, depending on whether you’re eligible. Below are some options to investigate.
First Home Owner Grant
State governments may offer a one-off grant to first home owners who satisfy eligibility criteria. If you’re unsure about eligibility, contact your state revenue office and be sure you apply with plenty of time.
Stamp duty concessions
Certain state and territory governments offer additional incentives to first home buyers, some of which involve stamp duty concessions. It’s often worth researching what’s on offer in the area where you’re buying.
First Home Super Saver Scheme
Eligible first home buyers can withdraw voluntary super contributions (which they’ve made since 1 July 2017), to put toward a home deposit.
Under the First Home Super Saver Scheme (FHSSS), first home buyers who make voluntary contributions into their super, can withdraw these amounts (up to certain limits), in addition to associated earnings, to help with a deposit on their first home.
If eligible, the maximum amount of contributions that can be withdrawn under the scheme is $30,000 for individuals or $60,000 for couples. Notional earnings amount can be withdrawn also.
So, if you’re still some way off buying your first home, making voluntary super contributions (as opposed to saving them in a bank account), to access later under this scheme, could provide tax benefits that may help you to reach your home-deposit goal faster.
6. Become familiar with different types of loans
Depending on whether you’re after a basic package or one with extra features, home loans can vary greatly when it comes to interest rates and fees. To get a better idea of costs, when you see a home loan advertised, you’ll notice two rates displayed – the interest rate and the comparison rate.
The home loan comparison rate will include the annual interest rate, as well as most upfront and ongoing fees. Some home loans with lower interest rates are laden with fees, so while they appear cheap, they could end up being more expensive. The comparison rate can help you identify this and compare loans more accurately.
Be sure to look into the potential advantages and disadvantages of various features of the loans you’re considering as well. For example, some loans may allow you to make extra repayments, redraw funds, or use an offset account, which could reduce the interest you pay over time.
If you’re looking for the best deal, remember to shop around and don’t be afraid to ask your lender if they can do better than the rate that they’re currently advertising.
7. Get your finances in order so you’re ready to go
Home loan approval time can vary, so it’s a good idea to have your loan pre-approved so you know exactly what you can borrow. You’ll also need formal approval closer to purchasing and to have your deposit ready, or you may miss out.
This may mean having your cheque book or a bank cheque ready to go if you’re buying your first home at auction. As part of the process, your lender will also advise you if lender’s mortgage insurance is required.