Purchasing a home is an exhilarating experience. This article guides you through the home buying process, helping you understand what to anticipate.
1. Save for a house deposit
The initial step is to organize your finances. Create a budget to determine how much you can set aside for your deposit.
Then, conduct some research on house prices. Understanding the general cost of houses helps you establish a target to aim for. An ideal savings target for a house deposit is 20% of the purchase price, plus enough to cover buying expenses (refer to steps 5 and 6 below).
2. Determine Your Borrowing Capacity
Each person’s circumstances are unique. Your borrowing capacity depends on your:
- income and financial obligations
- house deposit and any additional savings
- credit score and credit history
Be realistic about your affordability. To allow for flexibility, calculate your expenses if interest rates increased by 2%.
3. Discover the Optimal Home Loan Rate
When searching for a favorable mortgage deal, the interest rate is crucial. Given that a home loan is a long-term obligation, even a slight variation in interest can accumulate significantly over time.
Evaluate Home Loan Rates
Reach out to at least two different lenders to obtain loan options tailored to your circumstances. A rate reduced by even 0.5% could save you thousands over the duration.
Seek Assistance if Necessary
With numerous lenders available, you might opt to engage a mortgage broker to identify suitable loan options for you. Consult using a mortgage broker for advice on what to inquire from your lender or broker.
Secure Pre-Approval for Purchase
Think about obtaining loan pre-approval from a lender. They will request proof of your current financial status to evaluate your loan repayment capability. Pre-approval is valid for 3–6 months and indicates your eligibility to apply for a loan up to a specified amount. It doesn’t obligate you to a loan but allows you to set a realistic price range and signals to sellers your seriousness about purchasing.
4. Locate a house to purchase
Strike a balance between your desired lifestyle and what you can afford comfortably.
Understand your reasons for buying
Consider why you want to purchase a home. Are you planning to expand your family? Do you wish to renovate? If buying with a partner, discuss these reasons together. Knowing why you’re buying helps focus your property search.
Identify your essentials and preferences
Create a list of your:
- ‘essentials’ (cannot do without), e.g., property size, layout, public transport, schools
- ‘preferences’ (can do without for now), e.g., design, fittings, outdoor space
Concentrating on your essentials will help you prioritize what matters most.
Adhere to your budget
If you’ve been pre-approved for $600,000, avoid looking at properties listed at $700,000. If your preferred suburb exceeds your budget, be open to exploring different areas.
Conduct thorough research
Search online, consult real estate agents, attend property inspections, and explore available options. Take your time — your search might take several months.
5. Negotiate to purchase your home
Discovering a house you adore is exciting, but it’s important not to let emotions take over. Adhere to your budget and remain as rational as possible when making bids or negotiating.
Auction or private sale
If you’re new to buying a home, attend a few auctions to learn the process. Bring along an experienced friend or family member to assist with bidding, or consider hiring a buyer advocate for guidance.
When buying at auction, be prepared to pay a deposit immediately (such as 10% of the purchase price). Remember, there’s no cooling-off period at auctions, meaning the sale is final and not contingent on finance or inspections.
If purchasing privately, the contract of sale will specify the deposit amount and the payment timeline. Most states and territories offer a brief cooling-off period, allowing you to cancel the contract and recover most of your deposit by providing written notice.
Contract of sale
The property’s seller (vendor) will draft a contract of sale. As a potential buyer, first inspect the property and communicate with the real estate agent or seller. Then, request to see the contract of sale. Consult a solicitor or conveyancer to review the contract before signing. Hiring a legal expert is a wise investment to avoid costly errors.
Make an offer
When prepared, you can make an offer in two ways:
- unconditional — a binding agreement to purchase outright if you have secured financing and are confident about the property
- conditional — becomes a binding agreement to buy if certain conditions are satisfied (e.g., valuation, finance approval, inspections)
Building and pest inspection
After identifying a property you like and making a conditional offer, use the cooling-off period to obtain a professional building and pest report. This can save you significant expenses later.
A building inspection checks for structural problems, dampness, electrical safety, and maintenance or repair costs. A pest inspection looks for termite activity or other pest issues.
If you plan to bid at an auction, you might arrange this inspection beforehand.
Finalise your loan
Once you’ve made an offer, inform your lender about the property you wish to purchase and apply to finalise your loan.
6. Finalize Your New Home
You’re nearing the finish line, with just a few more expenses before you can move in.
Settlement
The settlement date is when the property’s title is transferred to you, and your mortgage takes effect. The contract of sale specifies the settlement period, during which you must pay the full purchase price. Your solicitor or conveyancer will complete the settlement with the lender and seller, after which you’ll receive the keys to your new home.
Stamp Duty
Stamp duty is a one-time state government tax on property transfers. Typically, this must be paid within 30 days of settlement.
Determine your payment amount using one of these calculators:
- Australian Capital Territory — Revenue Office: Conveyance duty calculator
- New South Wales — Revenue NSW: Calculator — for land and property transfers
- Northern Territory — Department of Treasury and Finance: Stamp duty calculators
- Queensland — Office of State Revenue: Transfer duty calculator
- South Australia — RevenueSA calculator: Stamp duty on conveyances
- Tasmania — Tasmanian Government: Property transfer duty calculator
- Victoria — State Revenue Office: Land transfer (stamp) duty calculator
- Western Australia — Office of State Revenue: Calculators
If you’re a first-time homebuyer, check if you’re exempt from stamp duty or eligible for a rebate or concession.
Home and Contents Insurance
Safeguard your home and belongings against damage or loss. This might be a requirement of your home loan.
Maintain Your Repayment Schedule
Lastly, update your budget to include your mortgage repayments and ongoing costs like council rates and land tax (when applicable). Adjusting to these additional expenses may take time, so monitor your spending closely.
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Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Insurance (aka: Hippo Wealth), with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at http://www.hippoinsurance.com.au
