Owning your own home is a big dream that requires sacrifices. You’ll need to be smarter than ever with your money and pay your home loan on time.
To help you, we’ve outlined the 10 steps you need to follow to become a homeowner.
Step #1 – Examine Your Budget
You must be completely honest with yourself about what property you can actually afford. Owning a home is great, as long as you aren’t struggling to make the repayments on your home loan. Consider your income and current expenditure so you can create a savings plan.
You’ll usually need to pay a deposit of at least 10% of the home’s value, plus the many other fees that come with buying a home. That’s before you consider the monthly expenditure involved in owning a home.
Start by writing down your monthly after-tax income, plus any income you receive from assets or other sources. Take away your current expenses, minus any rent payments you currently make.
The figure you end up with tells you approximately how much you can afford. Use this as your baseline and adjust it for future circumstances, such as having a child.
Step #2 – Work out How Much You Can Borrow
Lenders will take your income into account when considering your home loan application. The amount you can borrow varies depending on your lender, but it helps to have a general idea before you set up a meeting. Our calculator can give you a rough idea of what to expect.
It also helps to speak to a home loan consultant, who can offer more detailed information about how much lenders will allow you to borrow in your current circumstances. Your debt and any dependents you may have will also influence how much you can borrow.
Remember there are several fees you need to account for. You have to pay the fees associated with taking out a loan, in addition to your deposit. You’ll also have to pay stamp duty, though some states may waive this for first home buyers.
These fees combined can cost you several thousands of dollars, so factor them in before you work out your deposit amount.
Step #3 – Finding a Home Loan
Australia has many lenders, each of which offers different home loan features. You need to carefully consider what you want from the loan before making a decision.This is where it’s beneficial to speak to a home loan consultant.These professionals often have access to a wide range of loan types from numerous lenders.
Choosing between a fixed rate or variable loan is your first key decision. A fixed rate loan sets the loan’s interest rate for a number of years, which means you know how much you need to pay each month. However, you can’t take advantage of the situation if the national interest rate drops. You’ll also have to pay break costs if you want to exit the loan early.
A variable rate loan adjusts your payments according to the lender’s standard variable rate, which usually changes to meet the national interest rate. This can be good or bad, depending on the national rate. Such loans also offer more flexibility in terms of early repayment and other features.
Those with large savings may consider an offset account, which allows you to use your savings to pay less interest on the loan. Many lenders also offer redraw facilities and interest-only repayments. You’ll also find that some lenders offer deals, particularly for first-time buyers.
Figure out which features match your needs, then start your search. Lenders ask for a lot of documentation for your home loan application, including identification, proof of earnings, and documents relevant to your personal situation. Have these available so you can speed up the process.
Step #4 – Getting Approval
Finding the perfect home loan means little if you can’t get approval. You need to make sure you provide the documents your lender asks for to keep things moving. You’ll usually have to undertake an interview with the lender too.
Assuming you meet the lender’s criteria, you will receive pre-approval on the loan. This is not the same as full approval. It just means that the lender has given you a “yes”, assuming you meet some other conditions. One of these is a valuation, which the lender carries out to ensure you aren’t paying over the odds for a property.
Pre-approval typically lasts for three months, depending on the lender. This should give you enough time to find a home, but you can always speak to your lender about an extension.
You go through the full approval and settlement stages when you find a home and meet the pre-approval criteria.
Step #5 – Finding Your New Home
Once you have pre-approval, it’s time to start searching for your new home! You may have already found a property, which will speed up the process. However, many wait until they know their budget before starting the search.
There are plenty of places that advertise properties. Your local newspapers will tell you about homes near you, whereas real estate agents can offer more detailed information. You can also use one of the many property aggregator websites. Research property prices in your desired area, so you come armed with information when you start speaking to real estate agents.
As a final note, remember that any agents you speak to work on behalf of the seller. As such, they’ll try to get the best deal possible for their client. Keep this in mind when negotiating the price of the property. Base your decisions on what you have learned during your search.
Step #6 – Get a Building Inspection
You may think you’ve found the perfect home, but a building inspection may highlight issues you didn’t find during your viewing. You should always carry out a building inspection, especially when buying an older property.
There are several types of building inspections you can carry out. These include:
- Standard building inspections;
- Electrical inspections;
- A land survey;
- Pest inspections;
- Strata inspections.
f you’re buying a modern property, a standard building inspection will usually suffice. Even so, you should expect to pay between $200 and $600 for your inspections. This may seem like a lot of money, but it’s nothing compared to how much you will save if the inspection highlights a major issue.
Step #7 – Making Your Offer
How you make your offer will depend on the sale method.
Private Sale: Many mortgage brokers recommend making a lower offer than the asking price. However, this offer shouldn’t be too low. Sticking within 5% of the asking price is typically a safe starting point. You might be able to increase this percentage when offering in a slow market.
You’ll usually make a verbal offer to the seller’s agent. However, some people prefer to make more formal offers using a sales summary. Your solicitor will prepare this document. It contains details of the offer, information about your finances, and any conditions you attach to the offer.
If your offer is accepted, you’ll pay your deposit usually handed over to the seller’s agent.
Auctions: The process changes when you bid at auction. You place yourself in an emotionally-charged environment in which you bid against others at high speed. The winning bid takes the property, after which the buyer must pay the deposit immediately.
There’s often no cooldown period with an auction, so you need to be prepared to pay and have pre-approval for your home loan before taking part.
It’s best to prepare well before an auction. Carry out any inspections and examine the seller’s statement to ensure there aren’t any conditions attached to the property.
Success in either of these situations leads to an exchange of contracts. This is the formal agreement between buyer and seller, during which you pay your deposit. Once signed, you must abide by the conditions of the contract. Failure to do so can lead to the contract being broken.
Step #8 – Conveyancing
Do not agree to an exchange of contracts until you have a solicitor examine the paperwork. This legal professional will highlight any points of concern that you need to raise before signing.
Once you’ve got those details sorted, you must work with a conveyancer to arrange the transfer of the property’s title. This can cost up to $1,500 or more, though you’ll usually pay somewhere between $600 to $800.
Conveyancing covers everything about the transfer except for stamp duty, which you pay yourself. You could choose to do the conveyancing yourself, as many states offer kits to help you along. However, you’re legally bound to take responsibility for any mistakes you make.
Step #9 – Wait
It may not seem like an important step, but the period after the exchange of contracts gives you a chance to breathe and slow down. You’ll usually wait for about six weeks after signing your contract, during which your solicitor will handle some of the finer details. These include writing to government departments, performing council checks, and examining survey diagrams.
You do need to have a good solicitor. Many sellers won’t offer you extra time if your solicitor drags their feet during this period. However, the work is mostly out of your hands at this point.
Step #10 – Settlement
With the wait finally over, you’re ready to settle the transaction. Your solicitor or estate agent will meet with the seller’s agent to exchange your deposit for the title of ownership. This title is then transferred to you (as you’re the new owner of the property), and you’ll begin repaying the home loan.
Your solicitor should take care of telling the state about the change in homeownership. Also keep in mind that some lenders may make building insurance a condition of your home loan.
Congratulations! You now own a property.
What to do next
So those are the steps you can follow when buying a new home. Before getting started, we recommend you do the following:
- Find out how to estimate the value of a home;
- Calculate how much you can borrow in your current situation;
- Live chat with one of our mortgage brokers to find out more.
This information is general in nature, and you should always seek professional advice when making financial decisions.