Buying your first home is exciting! You have (probably) been savings for a fair while and now you are thinking the time might be right?

We see this a lot. At some point you feel secure about your income / employment and your expenses are under control, you probably even find yourself browsing the real estate pages or attending open homes. This has been a goal you have worked towards and perhaps now is the time to take the plunge.

Questions that we often get at this point are:

  • What are the steps in the buying process?
  • Where do I go from here / What is my next step?
  • What First Home benefits are available for me?
  • Do I have enough deposit?
  • What loan amount can I afford? (and what will the repayments be?)
  • Do I need to build a credit rating?
  • Do I go to a bank or use a broker?
  • Who do I talk to for help with the contract?
  • How do I find the right home for me?

We also came up with a series of questions -seperate from the above- that might help you with your first home purchase, see here.

So, we thought it might be helpful to put the answers to these question in a page. A simple guide for you, a way to navigate your first home buyer journey. You can jump ahead to the section you are interested in or read this from start to finish.

We hope this page will help answer your questions and give you the confidence to reach out if you need more. We have broken the above questions up in segments, see links below:

Couple checking finances

What are the steps in the buying process?

There are actually two processes happening simultaneously. The property (buying) process and the finance process. They interact but have different milestones. We did a full description of the two processes and how they need to “line up” on a seperate page, see here.

Here, we will just mention the simplified version. There are the following steps:

  1. Finance application -> pre approval (you are now ready to make offers or bid at an auction*)
  2. Make an offer on a property / register for an auction
  3. Offer accepted / pay holding deposit (At this point your cooling off period starts)
  4. Formal / unconditional finance approval
  5. Exchange / commit to purchase (now you need to pay the 5% or 10% deposit)
  6. Settlement (here the title deed transfers to you and you become a home owner

* -Legal disclaimer- Be aware that the auction process always has an element of risk attached. The complexity is a bit more than this space allows so talk to us to get the details. Be fully informed.

Where do I go from here / What is the next step?

A good starting point is checking what loan amount you can afford and are comfortable with. And that means talking to a broker or a bank*. They are qualified to help you work out what is possible for you. There are significant differences between a bank and a broker and we cover that a bit further on. For now, I will just mention the basic of a finance application. They are quite simple, a bank (or lender) wants to see 3 things:

  1. Do you have some money to put towards the purchase yourself? (this is your savings or equity)
  2. Do you have (stable / reliable) income to make mortgage repayments? (Affordability)
  3. Is your credit history good?

If there is a “yes” for all three of these questions, you will probably find a lender who can help. Of course, this is only the starting point and a lot more needs to be done to be ready. I’m only pointing out the basic principals of mortgage lending. I will cover the rest further on.

* Yes, there are online “affordability calculators” as well. But most of these are marketing tools designed for you to like the webpage / lender and make an enquiry. Also keep in mind that these tools provide just one opinion and won’t show you what is possible with all other banks/lenders.

Some of the benefits you can expect from working with MFS:

  • Unbiased finance advice: We are not tied to any lender of bank. Our only objective is to help you achieve your property goals. Find out what matters to you and what your situation is. Then we research and present your options. You decide what is best. It is as simple as that. No lender preference.
  • Access to all the latest First Home Benefits and information: There are 5 Home Buyer benefits available (some State, some Federal). The rules for eligibility constantly change so if you are a First Home Buyer, it is important to know what you are entitled to. We help you navigate the different benefits and how to apply.
  • Access to all the current lender specials: Yes, lender will create specials to attract new customers. This can come in the form of a rebate, a lower rate or a reduction in mortgage insurance. These offers are often valid for a certain time period only and can be conditional.
  • A strategy to get in front of other buyers and a “how to snap up a property before auction”: How would you like to find out what properties are coming onto the market before they’re listed? The advantage of knowing early and being able to make an offer before anybody else or do a private viewing can not be overstated! We can help you get to that front of the queue.
  • The “4 ways to get your deposit together” info sheet
  • The “3 steps to save $150k or more on your mortgage” info sheet
  • 20 years experience in helping First Home Buyers

What First Home Benefits are available?

To make it easier for first home buyers to buy, the government has create a number of benefits. Below I have listed the most common ones.

  1. The First Home Owners Grant (first introduced on 1 July 2000 to offset the impact of the GST) is the most well known benefit. A national scheme but administered and funded by the states, it provides a one off $10,000 payment to eligible first home buyers. There are several criteria that need to be met to qualify. Some of the criteria are:
      1. You or your partner must not have previously owned a home
      2. The grant is only available for new homes
      3. The maximum purchase price of the property is $750k

For more (and the latest) information, check out the firsthome.gov.au website.

2. The exemption of stamp duty (full or partial) is next. Also called the “First Home Buyer Assistance Scheme”. This allows first home buyers to get into the market without paying stamp duty or paying a reduced amount. The official government website is here but a great place to work out what stamp duty you need to pay is here.

Stamp duty is one of the main cost when buying a property so this benefit can make a big difference in how much deposit you need. For example:

    • A $550k purchase attracts $19,957 in stamp duty but $0 if you are eligible for the FHBAS
    • A $750k purchase attracts $28,957 in stamp duty but that is reduced to $20,804 if you are eligible for the FHBAS

3. The First Home Loan Deposit Scheme is a federal government initiative to support eligible first home buyers purchase their first home sooner. The scheme provides a guarantee for First Home Buyers which means no mortgage insurance is payable.

The scheme has 10,000 places for the 2022 financial year. Some of these places are allocated for new homes and some for existing homes. Also, the scheme is only available via participating banks and lenders. More information on places and qualification can be found here.

4. First Home Super Saver Scheme (FHSS) scheme allows you to save money for your first home inside your super fund. This will help first home buyers save faster with the concessional tax treatment of superannuation. introduced by the federal government in 2017 to reduce pressure on housing affordability. Full details on the government website here. From 1 July 2018 you can apply to release your voluntary contributions, along with associated earnings, to help you purchase your first home.

Do I have enough deposit?

The banks (and the media) often talk about a 20% deposit. Which, on a $800,000 purchase is $160,000… However, the reality is we see many people with a much smaller deposit come to us looking to buy a first home and that still works! Usually the minimum you need is about 5% (as genuine savings*). So on a $800,000 purchase that is only $40,000. A little easier to manage!

But that is the simplified version. Where it gets tricky is there are possibly other costs like stamp duty, LMI and solicitor fees that need to be covered. Here is an indication what these can add to your cost:

  • Stamp duty is about 3% of the purchase price. So on a $800,000 purchase about $24,000. You might be exempt (in full or partial) from stamp duty but there are criteria. Here is a great place to check.
  • Lender Morgage Insurance (LMI) is a risk fee lenders charge if the loan is over 80% LVR. The cost depends on actual loan amount and the LVR and can easily be $5,000 or more. It is harder to avoid but there is a government program call the First Home Loan Deposit Scheme which can cover this.
  • Solicitor fees. To buy a property in Australia, you need a solicitor or conveyancer. This person checks the contract, does the title searches and arranges settlement with the vendor. An average fee is between $1,200 and $2,000

Those are the major cost. We normally advice to keep some savings aside as emergency funds and allow for moving, rates and insurance. So whilst the minimum is about 5%, a realistic figure is about 8% or even 10%.**

Some lenders accept less than 5%

Where do these funds need to come from? Not all funds (or in all circumstances) need to come from savings. They can also come from:

  1. A Gift. If a family member or other person provides the deposit, it can be accepted as long as it is a “non refundable gift”.
  2. Via a Guarantor. A guarantor is a person who is offering equity from their property as additional security for the loan. Read more here.

* Genuine savings are funds you have accumulated over time. The banks can accept funds as genuine if they can see the money in your account over a 3 months period. It is fine to have the amount required by the end of that 3 months if you have been adding regularly.

** There are a few lenders who will accept less than a 5% deposit or a deposit from “non genuine savings”. For more information on this, get in touch with us.

What loan amount can I afford?

There is a range of factors that influence your borrowing capacity. Your income, living expenses, area you live in, your family circumstances (single or married, children, …), financial commitments / debts you currently all have an impact. And then there is the challenge that each lender interprets these figures differently. Some lenders will assess your living expenses from your bank statements, some will use a benchmark figure that applies to your situation, some will rely (to a certain extend) on figures you supply.

A place to start or get an indication is here.

It is a generic calculator so not accurate across all lenders but it is useful as a starting point (and the page does not ask for your name and email which is nice). For a detailed analysis, contact us. We have tools that allows us to work out what your borrowing capacity is across 30+ lenders.

Do I need to build up a good credit rating?

Your credit score is one of the factors that helps a bank or lender determine whether to accept your loan application, how much they’re willing to lend you, and depending on your score, it could also impact the term and interest rate they will offer.

The lower your credit score is, the higher the risk you are to the bank or lender. The higher the number, the better it looks in their eyes.

Your credit score is an important part of the process when applying for a loan and shows a lender your financial history. Generally, this includes amounts you have borrowed, applications, enquiries and your record of repaying these loans. How responsible you have handled loans and other credit facilities in the past.

If you’re looking to help your credit score, here are some tips to get you started.

1. Do I get a credit card to build up my credit score?

A credit card can help your credit score IF you go about it responsibly:

  • Don’t apply for multiple cards. Every enquiry (including a simple phone call) can result in an entry on your credit file. Pick one carefully (low rate, low limit, low fees)
  • Pay on time. Crucial to a good credit rating. The card provider informs the credit bureau every time you are late.
  • Make sure you pay the full balance every month or if that is not an option, pay more than the minimum. This shows lenders you are handling finance responsibly and making repayments a priority.

2. Stick to the due date

It’s  crucial to pay electricity, water, phone and credit card bills on time. There can be some leeway with the provider of these services and perhaps only a small late fee, but don’t rely on this. Prioritise paying these on time as a lender uses this information to check how responsible you are with finance and credit

You can set up direct weekly, fortnightly or monthly payments to minimise the ‘bill shock’ of when you receive an unexpected number of bills at the same time. All you need to do is pay the remainder.

3. Lower your credit card limit

If it’s possible, lower the limit on your credit card. Not only will it help with the excessive spending but could also help improve your credit score.

Consider looking for a card with no annual fees, lower interest rate or one that has an initial period of no interest. However, don’t go applying for too many credit cards or loans.

4. Avoid buy now, pay later offers

These services can be a real trap. Often considered handy for cash flow but just as often overlooked when it needs to be paid. And when that happens it has a quick and real impact on your credit file. Lenders also see them as a way for people to buy stuff when their cash position does not allow it. It makes a lender wonder if you are an “impulsive buyer”

5. Consider the number of applications

Your credit score also reflects how many enquiries and applications you’ve made. This could appear as a red flag and reflect poorly on your credit score, showing that you’ve applied for a variety of loans that weren’t approved.

Carefully consider if you need the loan or credit card and do some research before applying for every credit card on the market.

Do I go to a bank or a broker?

Shopping for a home loan is one of the first steps you need to take once you decide to embark on your homeownership journey. There are several ways to go about this process, each with its own benefits and drawbacks. The important thing is that you pick the one that suits your market understanding, comfort level, and financial capability.

  • Using a mortgage broker

A mortgage broker acts as an intermediary, connecting borrowers with home loan products from a wide range of banks and lenders. A mortgage broker will help you navigate the 50+ lenders and 200+ products but more importantly, make sure your situation fits the policy of a lender (think type of income, length of employment, employment industry, amount of deposit available, type and location of property and more). They will advise you on available features, products, government incentives, lender rebates and help you understand your chances of a successful application. 

Mortgage brokers have a duty to act in your best interest. By law they have to make sure the loan(s) they propose are suitable to your plans and circumstances. Some mortgage brokers charge a fee but they also receive a commission from the lender on successful settlement of a loan so many brokers do not charge a fee. However, you do not need to use a mortgage broker. You are free to research and compare loans on your own to find the best deal  or approach a bank or lender directly.

  • Going to a branch (bank direct)

The second option is going to a branch. Perhaps the bank where you have your transaction or savings account and have been banking for many years. A bank or lender will explain the mortgage options they have available and find one that suits your needs. They can not talk to you about other lenders of course so be aware of that limitation. It is only the bank’s products they can discuss. A lending specialist from the bank will normally help with your application, but you will be expected to do most of the work.

  • Going online (other lender direct)

A third option (becoming more popular these days, especially with Millennials and Gen Z) is searching online for available options. This seems a good solution as it is quick, can be done from anywhere and at a time that works best for you. But beware of a few dangerous pitfalls:

  • The top rankings results in search engines are not per say those that have the best product or rate or service. It might be the most advertising dollars that got it to the top.
  • Online product offerings are marketing. It is aimed at convincing you to take the next step and contact the lender. It is not an unbiased review.
  • Most lenders focus online on rate and being “friendly” or “trendy”.  Policy (one of the main elements of a successful finance application) is often very hard to find.

Who do I talk to for help with the contract?

Buying a house and taking on a home loan is a huge financial commitment. Small errors can cost you significant money in the long run. There are two main documents that require particular attention:

  1. The contract of sale (property related transaction)
  2. The mortgage document pack (finance related transaction)

Read these contracts thoroughly before signing. For the purchase of a property and the contract of sale you need the help of a solicitor or conveyancer. Their role is to provide you with legal advice and protection on the property transaction. However, they do not always provide advice on the mortgage documents so if you need that as well, make sure you ask.

If your finance is arranged with the help of a mortgage broker, they can help you understand what the different lender forms mean. Before you sign on the dotted line feel free to ask questions.. It is important you are comfortable with what you sign and feel properly informed.  It is better to hold off or walk away from a loan offer that doesn’t meet your expectations than live with regret later.

A good solicitor or conveyancer will check all the property details are accurate, there are no easements or caveats or claims on the property and that you are aware of any special conditions. They will then liaise with the mortgage broker, the lender solicitor and the vendor solicitor to facilitate a smooth transition of home ownership.

How do I find the right home?

Buying a home is  much more than a financial investment; it’s also a lifestyle choice. There are many different variables to consider and what might be important to some may not be so important to others.  If you’re a new first home buyer and need some help with defining the right home for you, here are a few things to think about:

  • Apartments vs. Houses

The choice of whether to live in an apartment or house was purely based on finances. You’d rent an apartment until you could afford to buy a house, but apartment living is growing in popularity whether out of preference, convenience or both.

An apartment means less clutter, lower energy bills, less maintenance. With a more spacious house you have access to a back and front yard, extra space and storage with bigger rooms, additional bathrooms, and your own garage.

How do you decide? Consider your needs and how you want to live.

Are you comfortable with a shared living environment?

What sort of commute do you want to have each day?

Do you prefer living in close quarters, or having room to move?

Are you looking for your ‘for now’ home, or your ‘forever’ home?

 

  • One, two or three bedrooms

The easiest way to decide the right number of bedrooms is by how many people will be living in the home. There are several advantages for an extra bedroom, whether in an apartment or house, including a greater resale value in the future. Even if you don’t need or may not be comfortable spending the extra money for an extra bedroom, you might consider getting a family member or finding a roommate to help assist with your mortgage repayments.

Here are a few things to consider:

Do you work from home? 

Do you need a productive work space at home?

How often do you have guests?

Are you single or in a relationship? 

Do you have children or see yourself having children soon?

How important is having storage space?

 

  • Location, location, location!

You can change everything about a house except its location. The choice of where to live is a high priority amongst home buyers. Proximity to local cafés, shops, schools and parks; low crime rates; street access and parking as well as access to public transport and being away from the “hustle and bustle” are some attributes worth considering.

What really shapes your decision is your life stage, relationship status and personal preferences. Younger home buyers will cite access to bars and restaurants as desirable, while those with or looking to start a family will prioritise streets with less traffic and congestion such as a cul-de-sac.

When deciding on location, consider:

Can you afford it? Do you have room in your budget?

How far do you have to travel to get to work? Where is your nearest grocery store? 

How close is it to your family and friends?

Does the area have a good community feel?

Is the area or suburb expected to grow, or develop further? 

How big or what populated area would you like to live in?

 

  • Are you looking for your ‘forever home’?

Your ‘forever home’ doesn’t need to tick everything on your wish list. Do you see yourself living there for the next 20 or even 30 years. It is the home that you see serving you and your family for years to come – from babies through to retirement?

It’s worth investing in a property that is adaptable and can change with your family’s needs. Location and land size are essential to this.

Consider these tips if a house has the potential to be your ‘forever home’.

Is there enough room for a growing family?

Does it have potential for expansion?

Will the house suit your needs as you grow older and become less mobile?