Buying a property for the first time is a very emotional and energy consuming ordeal even at the best of times! It is very important to have an action buying plan to keep you focused on the process as this will help you stay firmly objective as many first time buyers get overwhelmed at the prospect of owning their home that their reasoning and decision making process becomes clouded and many decisions are made hastily which could end up to be very costly in the long term.
The home loan market has become very competitive and there are hundreds of home loan products and options offered by banks, credit unions and non-bank lenders. There are some hard and fast rules that you should consider.
3 Steps to First Home Buying
1. Where do you start?
The best place to start is to call on your current bank. The bank where you keep your savings and have your salary credited into – They have your banking history at that can be a determining factor to a successful finance application.
Have a preliminary loan interview and application assessment process with their loans officer to go through the banking requirements. Please refer to the 5 questions to ask your bank when applying for a home loan. Do not apply for a home loan at this point it would be recommended that you talk to a number of banks so that you can compare the loan products and their features and fees payable.
Be aware that most lenders will probably steer you toward the so called honey moon rate or introductory type loans. At first these may appear to be cheaper due to the lower rate being offered however, always ask for the comparison rate as this will determine whether you will actually benefit from this type of loan product. See my home loan type guide for a summary guide on available loan products in the market.
Please also refer to myloan selector for guidance as to which type of loan could meet with your borrowing needs.
Be aware of the honey moon or introductory rate home loan and the no deposit home loans. The honey moon type loan start off with up to a one percent lower than the standard market variable rate for a period of six to twelve months but then revert to the standard variable rate and if you wanted to roll over into a cheaper rate offered by a professional home loan package you will be charged a penalty fee.
The no deposit home loans whilst at first seem like a great idea and appealing in concept really forces you to borrow much more than you may be comfortable in borrowing. A simple rule is that you should have at least a ten to fifteen per cent deposit as this allows you to borrow less and places less strain on your monthly cash flow. And it is always a good idea to get into a home with some level of equity.
These days most banks and other lenders charge an exit fee or a deferred establishment or discharge fee if you refinance or sell the property within the first four years of the loan term so be sure you cover this aspect with your loans officer.
It is also extremely important that you establish what your property buying associated costs will be. Once you are satisfied that you have met with a few banks and have compared fees and features of varying loan products – apply for a pre-approval with the lender that is offering the best product for your borrowing needs for the appropriate loan amount as advised by the bank officer.
The pre-approval will in most cases be conditional upon the type of property and the property valuation report. The pre-approval may last up to six months depending on the lender. Having the pre-approval gives you peace of mind as it lasts for up to six months.
2. Be informed:
You must be prepared and take appropriate steps to limit any mistakes. You should start by having a solicitor ready to refer to in order to explain to you the terms and conditions of the contract of sale for your new proposed purchase also discuss the proposed legal fees the solicitor would be charging or even discuss the opportunity with your accountant as to whether you are financially ready to support a mortgage.
Once you are armed with a pre-approval you can start to research the market by talking to real estate agents and scan through the papers and internet sites for properties that meet within your price range. You should also have an established idea as to what type of property will meet with your needs whether it is a house or an apartment.
3. Take action
Once you have your pre-approval in order you will know just how much you can afford to spend on your property you can then start on your next phase that includes market research; get the demographics for the area you want to buy into and the type of property to meet with your needs, you can also look into on-line property reports which provide valuable market intelligence and you should use as a starting point in the complex maze of the real estate market.
The process of buying your first home is challenging however there are steps that you can take to make the experience a little less stressful as the following 5 Biggest Home Buying Mistakes should be avoided at times.
First Home Buyers Government Assistance Scheme
Not all first home buyers may qualify for the First Home Owners Grant and Stamp Duty concessions offered by the Federal and State Governments.
There are established rules that determine whether a first home buyer qualifies for the benefits.
Under an agreement between the Commonwealth and the States and Territories, the Commonwealth guarantees funding of first home owner grants since the 1st July, 2000 for the amount of $7,000 which may used as a deposit toward your first home.
Basically to qualify the applicants must:
- Be a natural person, at least 16 years of age (not applying as a company or trust)
- Be an Australian citizen or permanent resident or be applying with a person who is
- Be buying or building a home for which the contract was signed on or after 1 July 2000 or building a home as an owner-builder where building commenced on or after 1 July 2000
- Ensure each person holding a relevant interest in the property is an applicant
- Ensure an applicant will occupy the home as their principle place of residence for a continuous period of 6 months commencing within 12 months of completion of the eligible transaction
- Lodge an application within 12 months of completion of the eligible transaction
- Not have previously received a First Home Owner Grant in any State or Territory of Australia
- Not have owned a residential property anywhere in Australia after 1 July 2000
- Not have owned and occupied a residential property anywhere in Australia after 1 July 2000
Please note that the above is only a summary and further details may be obtained from your respective State and Territory offices of revenue and the FHOG claim forms.
Each State and Territory provides different benefits however in summary each state provides stamp duty concession such as on the mortgage loan stamp duty and transfer of land/property stamp duty.
Under an agreement between the Commonwealth and the States and Territories, the Commonwealth guarantees funding of first home owner grants which have been paid to many thousands of people who have purchased their first home since the scheme commenced on 1 July 2000.
Please refer to First Home Owners Grant Forms click on your respective State or Territory of the Australia map and download the applicable First Home Owners Grant claim form where you will find detailed information for qualifying criteria. In order to claim your $7,000 grant you must complete and submit the FHOG form and lodge it with all relevant supporting documentation to your applicable State or Territory Office of Revenue.
Offices of State Revenue quick reference guide for First Home Buyers
Please find links to Revenue Offices around Australia for further information relating to eligibility for the Federal Government First Home Owners Grant scheme and eligibility for Stamp Duty exemptions and concessions.
Disclaimer: The above is a generic representation only. It does not constitute financial advice or mortgage structuring advice. It is only to be used as a guide only. Please discuss your financial needs with a financial planner, accountant or your banking representative.
No reliance should be placed on the above information.