Buying a home is an exciting experience, but can be somewhat daunting, especially if you're buying for the first time. However, a little planning, some homework, and a clear understanding of the steps involved should mean that the hardest part is actually choosing your home. Our guide outlines the steps involved, from working out what you can afford to buy, through to buying a home.
Before you start looking for the house of your dreams, it's a good idea to have finance approved. This will also give you an idea of what price range you can afford. You should also keep in mind the additional ongoing costs that you will need to allow for when owning a home, such as rates, insurance, etc.
The first step is working out how much money you have for the deposit. Generally speaking, lenders will require a cash deposit of around 10 to 20 per cent of the value of the property.
Monthly mortgage repayments should be less than or equal to around 25 to 30 per cent of your gross monthly income. When it comes to borrowing money to buy property, your current levels of debt, credit card bills, car payments and living expenses will all be taken into account. In an ideal world, these should also be less than or equal to around 30 per cent of your gross income.
These days there are many "online" calculators which can give an idea of what a lender may lend you to buy a property. But remember, these calculators should be used as a guide only. You will still need to make a formal application in order for your home loan to be approved.
Choosing a bank or mortgage provider can be a difficult task. A good place to start your research is the internet. Most mortgage providers have their own web site, where they list available loan products as well as current interest rates.
Some things to consider include whether the loan will be subject to interest rate changes (fixed rate or variable, or a mixture of both), how the repayments will affect your lifestyle and over what term the loan should be. Use the comparison rate tables, as these will show the effect of any additional costs such as loan establishment fees or early repayment penalties.
There are many different loans on the market, and you really need to decide which one suits your needs. Nevertheless, industry experts will all agree that a good home loan should include the following features:
- It should be cheap and have no account-keeping fees.
- It should allow you to make extra repayments at no additional cost, not charge fees for early repayment and offer a free redraw facility.
- It should be able to be split between fixed and variable interest rates.
Once you've chosen your lender, you will need to make a formal application for a loan. Often the more information you provide to the lender, the faster your application will be approved. Your application will usually need to include proof of income such as pay slips, employment records, bank statements for any other loans or borrowings including car or personal loans, proof of your savings history and details of any credit cards. Remember to take into account any additional costs of home buying, such as solicitors’ fees, stamp duty, insurance, any government duties, building and pest inspection costs, maintenance or renovations.
Your loan approval is usually valid for 3 months.
Once again, before you start house hunting, do your homework. Think about what you need (as opposed to what you want) in your home. Is a small home or apartment situated closer to work preferable to a larger home further away from work but in a good “lifestyle” area? Take into consideration how many rooms you need, whether proximity to community facilities, schools and transport is important, or whether you are prepared to do renovations on the property in the near future. Make a list and stick to it!
Expect this process to take some time, as it may involve spending weeks (or at least weekends) inspecting properties. Look through local newspapers, surf the internet and attend “open for inspections” in the neighbourhood you’re looking to buy in, to get an idea of prices and what is available. Take notes about the homes you like – it can often be difficult to remember details later.
Once you've found the house of your dreams, you can start negotiating to buy it. An initial deposit may be required – this does not secure the property for you, but it is an indication that you are serious. At this time also, make sure you understand what is included in the sale of the property.
Once you and the seller have agreed on a price, you will be required to pay a deposit.
The next thing to do is consult your solicitor or conveyancer. Usually the solicitor will be provided with a copy of the sales contract by the seller's lawyer or agent. Your lawyer should check the contract and make sure it contains all required documentation, terms and conditions. The contract should include a copy of the property title, any local planning certificates, a diagram showing sewerage, copies of any documents pertaining to easements, a list of any special conditions and inclusions (such as floor coverings, curtains, etc).
Your lawyer or conveyancer will look at the contract and explain the terms and conditions to you. Both you and the seller have a copy of the contract, and once any changes have been agreed to by both parties and implemented, the contract will be “exchanged”. At this time you will be required to pay the balance of deposit, normally 10 per cent of the property's purchase price.
There may be a “cooling-off” period, while you confirm your financing, perform last minute checks and inspections, or change your mind if necessary.
The final step in the home buying process is settlement. This is when the buyer pays the balance of the agreed purchase price and, in return, the title deeds of the property are transferred from the seller to the buyer. The title deeds are then normally held by your lender until the loan is repaid. Before the final settlement, your solicitor should make sure any rates or taxes outstanding on the property have been paid by the seller up to the date of settlement.
When settlement is complete, you (or your lender) will receive a copy of the property title and, of course, a set of house keys!
Although the steps above are only a guide and vary slightly from state to state, you can see home buying doesn't have to be overly complicated. Remember to do your homework, think about what you want in your new home and find professionals with whom you are comfortable. Most importantly, if you don't understand anything, ask!