Buying your first home can be daunting. There are so many details, fees and steps to take. Don’t let the complicated terms scare you, after all, buying your first home is a great accomplishment!
Following are some tips to help you embark on your home buying journey. Good luck!
Find out how much you can borrow
To find out how much you can borrow, you will need to speak to a lender such as a bank or building society, or a mortgage broker. The lender calculates a maximum loan amount based on your income, savings, assets, expenses and credit history.
Although lenders will tell you the maximum amount you can borrow, this doesn’t necessarily mean you should borrow up to your limit. Ongoing mortgage repayments are higher for bigger loans, and other costs of owning a home, such as council rates, strata fees and insurance can add up.
How much do you need for a deposit when buying your first home?
The deposit is the amount of money you contribute from your savings towards the purchase. The typical deposit is 20 per cent of the purchase price, although it’s possible to buy a home with a deposit as low as 5 per cent.
Buying with a larger deposit allows you to take out a smaller loan with smaller repayments, and you’ll generally get a better interest rate. A bigger deposit also means you’ll start your home-ownership journey with more equity, which is important when it comes time to upgrade further down the track.
If your deposit is less than 20 per cent, you may have to pay Lender’s Mortgage Insurance (LMI). Borrowers with a loan-to-value ratio (LVR) of more than 80 per cent are deemed more risky by lenders, so LMI protects lenders in case you default on your loan. The cost is generally added to your loan as a lump sum, but you’ll also pay interest on that amount over the life of the loan.
In some cases, it can be more economical to pay LMI rather than wait and save the full 20 per cent, as property prices might increase faster than you can save, which might lock you out of the market in your ideal suburb.
Saving for a house deposit
Saving a property deposit has never been easy and requires discipline, usually at a time when you’re finally earning a decent salary and have more money to spend.
The first thing you need is a goal. Once you have spoken to a lender to determine how much you need as a deposit, research any government incentives that could give you an added boost.
Transferring money to a high-interest savings account that is separate from your everyday account makes it a little bit harder to access that money easily, meaning you won’t be as tempted to take it back out again.
Having a set portion of your salary paid into this account gives you a clear idea of how much you are saving, and further reduces temptation.
Also think about ways you can increase your income to save faster. That might mean asking for a promotion at work, taking on additional hours or even selling unwanted items.
What are the hidden costs of buying a house?
Apart from the purchase price, there are many other costs that come up during the home-buying process that need to be considered. As most of these costs are unavoidable, it’s best to think about them at the start of the buying process so you know exactly what you will be paying.
- Pre-purchase inspections can cost about $500, but it’s worth it to avoid buying the wrong property or to understand what problems you’re up against.
- Legal fees cost about $1500 to $2000. As a general rule, conveyancers charge a flat fee, while solicitors charge by the hour and may cost more. You also need to arrange conveyancing, which is the transfer of property title from one person to another. Most people employ a solicitor or conveyancing expert. The services of a conveyancing specialist cost up to $1,500 and the fee will usually include survey, building and pest reports. Many practitioners, however, offer conveyancing services for as little as $600. Conveyancing fees cover all the costs of the transfer of property, except for stamp duty, and most conveyancing firms will give you a free quote.
- Stamp duty is unavoidable for many buyers and normally costs tens of thousands of dollars, but first-home buyers may be entitled to exemptions for certain properties.
- Council rates can cost several hundred dollars per quarter, depending on the value of the property. Ask the vendor for a copy of a recent council rates notice to estimate future payments.
- Strata fees vary depending on the building but can cost anywhere from several hundred to several thousand dollars per quarter. A strata report will reveal the fees required, as well as the financial health of the sinking fund so you’ll be prepared for any special levies.
- Home insurance will cost several hundred to several thousand dollars, and in many cases is required by the lender. For apartments, building insurance is usually included in strata fees, but it’s still a good idea to take out contents insurance to protect your property. Landlord insurance is recommended for investors.
- Renovations may be difficult to for first-home buyers to estimate from the beginning, but experienced renovators always recommend budgeting more than you think is required.
What grants and incentives do first-home buyers get?
Eligible first-home buyers can take advantage of state government grants, discounts and schemes to help make buying the first property easier.
Most incentives require buyers to live in the property for at least 12 months, and buyers whose partner has previously purchased a home are normally excluded.
There are also maximum price thresholds, and schemes can change from time to time.
Grants and incentives available in your state
News South Wales
- No stamp duty on property under $650,000, or vacant land under $350,000.
- Discounted stamp duty on properties between $650,000-$800,000, or vacant land between $350,000-$450,000.
- $10,000 grant for new properties under $600,000 and owner-builder/building contracts worth under $700,000.
- No stamp duty on property under $600,000.
- Discounted stamp duty on property between $600,000-$750,000.
- $10,000 grant for new properties under $750,000.
- $20,000 grant for new regional properties under $750,000.
- No stamp duty on property under $500,000, or vacant land under $250,000.
- Discounted stamp duty on properties under $549,999, or vacant land under $399,999.
- $15,000 grant for new properties under $750,000.
- No stamp duty on new-built properties under $470,000, or vacant land under $281,200.
- Discounted rate on new-built properties between $470,001-$607,000, or vacant land between $281,201-$329,500.
- $7500 grant for new properties of any value.
- All first-home buyers pay some stamp duty.
- Off-the-plan stamp duty concession available of up to $21,330 on properties under $500,000.
- Varying amount available to FHBs on new-built or established properties (post-June 2014).
- $15,000 grant for properties under $575,000.
- No stamp duty on properties under $430,000 or vacant land under $300,000.
- Discounted stamp duty on property between $430,000-$530,000, or vacant land between $300,000-$400,000.
- $10,000 for new and existing properties of any value.
- Full stamp duty applies.
- $20,000 grant for new properties of any value.
- No stamp duty on property under $500,000.
- Discounted stamp duty on properties between $500,000-$650,000.
- Household Goods Grant of up to $2000 available.
- $26,000 grant for new properties of any value, subject to eligibility.
Have any other tips? Share them in the comments section 🙂
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