Owning the family home is the great Australian dream. If you decide to go down that path, do yourself a favour, don’t listen to the mainstream media that wants to scare you from living that dream. Sure it will require some discipline and some effort, they are well worth it!
So how can you get on the property ladder in this day and age?
Step 1 – Determine your budget
I know it’s another scary word… but budgets don’t need to be hard or micromanaged! They do however help with knowing how much you can save for the home deposit, and how much you can afford in repayments once you got your new place.
So do set some time aside to sit down and figure out how much income you have and where all that money is going right now.
There are plenty of different budget templates out there, and you need to use the one that works for you. If you need some help you can get a copy of my favourite version here. Why do I like this template? Because it also outlines the way I set up my banking – Wants = my spending money, Needs = my expense account, Savings = my online saver with another institution.
Step 2 – How much can you borrow
Now that you have your savings plan to get your deposit sorted, and know how much you will be able to spend comfortably on repayments you will need to get an idea on how much you can borrow. The amount for this may vary from lender to lender as they have different lending criteria, to get the best understanding it help to visit a mortgage broker as they will have a good idea of how much the lenders on their panel will lend to you based on your income, debts, assets, number of dependents and whether you are buying the property alone or with somebody else.
Brokers can also help you weigh up the need for various features and packages that lenders can offer you with your homeloan.
Step 3 – Know your area
OK, so you probably have a set idea of where you want to live, start looking at the advertising online, in the paper at the agents office to figure out how much you should be paying for a property of your dreams, and what you could expect to get for that money. Visit home opens and talk to the agents, whilst they are employed by the vendor, they also only get paid when the property is sold, so the right questions can give you a great insight to what you could buy.
Step 4 – Get pre-approval
Whilst you have an idea of how much you can spend and where, it is a great idea to obtain a pre-approval from the lender you decided on. Make sure you have all the necessary documents ready for your lender or broker.
Procedures vary from lender to lender, but it is likely you will be issued with either a ‘home loan guarantee certificate’ or a ‘pre-approval certificate’. This means that, subject to a few conditions, your home loan either has been, or will be, approved when you find the property you want to purchase.
One of the main conditions is often a valuation of the property to ensure a buyer isn’t paying too much for a property.
Loan approvals don’t last forever. They typically are valid for around six months, but sometimes up to 12 months. If you find your pre-approval has expired or is about to, contact the broker and see if it can be extended or if you have to re-apply.
Step 5 – Don’t forget to order inspections
Anyone buying a home should have it inspected for faults. Make sure the property you buy isn’t a dud – and there are plenty out there, especially in cities where housing stock can be very old and run down.
There are number of different inspections to be made depending on the type of property, including:
- building inspections
- pest inspections
- electrical inspections
- strata inspections and
- a land/property survey
These inspections are likely to cost anywhere between $200 and $600 each. Don’t baulk at the cost as it can save you thousands of dollars. It is vital that you find out about any hidden nasties like damp, shifting foundations, termites, faulty wiring and plumbing. Then you can factor in the cost of repairs to the purchase price or decide to drop the deal altogether.
You can arrange this prior to making an offer, or make the contract subject to satisfactory reports.
Step 6 – Making an offer
This can be tough for first home buyers as I find that many a times they fall in love with the property, and can end up spending more than they should. So before you make the offer decide on what you best (maximum) price is for the property.
If you are good at standing your ground, you can give that to the agent and do not budge from it. Otherwise start at a lower figure so you have a little room to negotiate. Always give your offer in writing so the vendor knows you are serious.
Once your offer is accepted and you’ve accepted the sale contract, it’s time to pay your deposit. This is typically given to the real estate agent, who holds it on behalf of the vendor in a special trust fund until the sale is finalised.
Step 7 – Legal legwork
Once you’ve found the property and you have the contract, it’s important that you check the contract carefully to ensure that everything about the property is understood and that there will be no legal surprises after you have purchased it. Signing a contract without a lawyer looking at it first is madness. If you want to make any changes to the contract, now is the time to do it.
Your lawyer can also arrange the transfer of property title from one person to another. These services cost up to $1,500 and the fee will usually include survey, building and pest reports.
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.
Step 8 – The waiting game
Take a deep breath and relax, you’ve earned it. The pace slows a little now as you wait for your legal team to do some tyre-kicking. For the next six weeks, sometimes less and sometimes more, your conveyancer or lawyer will make enquiries about the property. Survey and drainage diagrams will be examined, government departments will be written to, heritage orders will be inspected and council checks will be performed. In other words, the work is usually out of your hands.
This is also the time when your broker arranges your loan with the lender and ticks of any outstanding conditions that need to be met for an unconditional finance approval. Things like that valuation we mentioned earlier are arranged. If the bank is satisfied, they will provide the unconditional approval so you can move ahead with the purchase.
If for some reason the legal or finance requirements are not met in time you can ask for additional time. A kind vendor may grant you this but don’t count on it. The chances are that the property is also costing them money (through their own mortgage repayments or lost interest) and they are under no obligation to give you more time. This is the time when buyers and vendors usually get an attack of the jitters. Hang in there! Not long now!
Step 9 – Settlement at last
Settlement day is the day that your legal representative and your lender meets with the vendor’s representative to swap your cheque with their title of ownership.
Government departments need to be notified of the change in ownership, this is typically taken care of by your solicitor or conveyancer. You should have the building insured at the time of settlement otherwise some lenders won’t lend you money. To remove any ambiguity, a safe course of action is to insure the property as soon as you exchange contracts.
Enjoy the feeling
Congratulations, you are now the proud owner of your new home and you’re ‘in the property market.’ Buying your first home is a major achievement that involves time and effort, but it’s well worth it.
Are you ready to make a purchase, contact me today to arrange your finance pre-approval.