The process of buying your first home
Buying your first home can be a daunting prospect. Apart from the amount of money required, the actual process of buying a house can appear scarily complicated and confusing.
But what if we broke it down step-by-step? And explained the various government schemes available to assist first-time buyers? And, ran you through Great Southern Bank’s clever tools and products designed to help you own a home quicker than you ever thought possible?
Well, that’s exactly what we’re going to do right now. So, strap yourself in because the next stop is Home-Owner Central!
Step 1 – Think about what you want
As with any major purchase, it’s wise to work out exactly what you want before you start looking. You’ll no doubt be familiar with the phrase, ‘location, location, location’. That’s because it’s generally considered the single most important thing to get right.
How close do you need to be to work? Shops? Public transport? Friends and family? And if you’ve got kids (or are planning some), how far away are the local schools? And what are they like?
Then there’s your non-negotiables. Does it have to be a house, or will a unit or apartment do? What’s the minimum number of bedrooms you need (bearing in mind possible future additions to the family)? Is not having a garage/swimming pool/garden a dealbreaker?
Get this stuff straight in your mind first and you’ll be off to an excellent start.
Step 2 – Understand your borrowing power
Once you know what and where you’d like to buy, it’s time to see how it measures up against what you can afford. While you might dream of keeping up with the Kardashians (or even just that kid from school who’s raking it in as an Instagram influencer), you need to be realistic.
If you currently rent a property, you can get a rough idea of your borrowing power almost instantly via our Buy or Rent Calculator.
If you don’t currently rent, or you don’t mind taking a couple of minutes to get a more accurate assessment, our Borrowing Power Calculator is the way to go.
Once you’ve done this, you’ll have a much better idea of what you can afford which will help you refine your search. But before you start hitting the real estate websites, there’s a whole lot more to consider.
Step 3 – Work out your upfront costs
There are a number of substantial upfront costs involved in buying a home. Foremost among these is your deposit. Responsible lenders recommend that you aim to save at least 20% of the purchase price. This is because deposits lower than 20% require you to take out Lenders Mortgage Insurance (LMI), which will significantly increase the size of your loan.
This is all good to know, but with the national house price average now just shy of $1m, you don’t need to be a genius to realise that 20% is likely to be a serious amount of cash.
If you’re starting to feel despair creeping back in, all is not lost. For one thing, under the First Home Loan Deposit Scheme (FHLDS), part of an eligible first home buyer’s home loan from a Participating Lender will be guaranteed by NHFIC. This is aimed at enabling you to purchase your first home sooner with as little as a 5% deposit without having to pay LMI (lenders criteria apply).
And there’s more good news. There are several other money-saving government schemes for first home buyers which you can access along with the FHLDS.
The schemes and eligibility requirements vary by state and territory, so we recommend you check out our guide to financial assistance for first home buyers to see what this could mean for you.
However, while your deposit will almost certainly be your biggest upfront cost, it won’t be the only one. There are also things like stamp duty, mortgage registration, solicitor’s fees, building and pest inspections, home insurance, removalist costs and others to consider.
Our Upfront Costs Calculator can give you a rough estimate of how much you might be looking at.
Step 4 – Decide which type of loan works best for you
There are two main types of home loan - fixed and variable interest rate loans. There is also what’s known as a split loan, which is a combination of the two. Finding the right home loan for you depends on your circumstances, priorities and preferences.
A fixed rate loan means your repayments will be charged at the same interest rate for an agreed period, typically from one to five years. On the plus side, this makes budgeting easier because you know exactly how much your repayments will be and you’re protected in the event rates rise. On the minus side, it means you might miss out if the interest rate goes down.
Conversely, a variable rate loan is subject to market conditions. If rates fall, it’s likely your variable rate will follow, thereby reducing your repayments. Similarly, if rates rise, so might your repayments. Although this is clearly a bit of a gamble, variable rate loans usually offer more features and flexibility, such as an offset account, the ability to make extra repayments, or the ability to pay off your loan early without incurring a penalty fee.
Finally, a split home loan potentially offers the best of both worlds by having fixed and variable portions of your loan. You can manage the risk of an interest rate rise via the fixed portion, while also enjoying the extra features of a variable rate home loan such as those listed above.
Needless to say, this is an extremely important decision. If you’re at all unsure which is the best loan type for you, we recommend connecting with one of our Home Loan Specialists.
Step 5 – Get pre-approval
Pre-approval is when a lender agrees in principle to provide you with a home loan. It normally lasts for up to 90 days and has various conditions attached. Applying for pre-approval is free and you’re under no obligation to take out the loan. However, it’s important to understand that pre-approval isn’t the same as unconditional approval. Once you’ve found a property you want to buy, you’ll still need to complete a full application.
Given that it’s not a guarantee, you might be wondering what the point is. Well, for one thing, it allows you to move fast. Depending on where you’re looking to buy, the housing market can be extremely competitive. With pre-approval secured, you’ll know exactly what your budget is and be in a position to make an offer immediately.
It also means you’ll have done most of the paperwork in advance, so you won’t be chasing pay slips and bank statements when the time comes to apply for unconditional approval.
Step 6 – Find your home and make an offer
Resist the temptation to make an offer on the first half-decent place you see. Ideally, you should attend a fair few viewings to get a sense of what’s available in your price range.
But when you do find the home you want, you need to act quickly.
This is where things get serious, so you will need the help of a conveyancer (a lawyer who specialises in the legal aspects of buying and selling property). If you don’t know how to go about finding one, your mortgage lender can advise you.
Unless you’re a multi-millionaire who can afford to make an unconditional offer (i.e. you don’t need a mortgage), your offer will be conditional on several things. Obviously enough, gaining full approval from your lender will be chief among these, but there will also likely be conditions around things like pest and building inspections, as well as insurance.
Don’t worry if this sounds complicated, it’s your conveyancer’s job to ensure all this is dealt with correctly.
If your offer is accepted, your lender will help you take the final step towards applying for unconditional approval.
Step 7 – Settlement period
In a marathon, they say the last mile is the hardest. But when it comes to buying a house, the opposite is true. The process of transferring ownership is handled entirely by the buyer’s and seller’s legal and financial representatives. The settlement period typically lasts around six weeks but can take up to twice as long depending on the circumstances.
While this offers a welcome period of respite, the one thing you can do while you’re waiting (and in some cases might be legally obliged to) is organise home insurance.
Step 8 – Settlement day
Finally, the day you’ve been waiting for! Settlement day is when you assume legal ownership of your new home. The process involves your conveyancer meeting with your lender and the seller's representatives to sign and exchange the final documents of the sale.
Your lender will advise how much money you will need in your account on settlement day and help you ensure your bank accounts and home loan repayments are set up correctly.
So, there you go. While not exactly a walk in the park, buying your first home needn’t be overly complicated or stressful. And with all the various forms of help available, it may well be more achievable than you thought.
Clever tools to help you save for a deposit
We know saving for a home deposit is hard, which is why we have several smart ways to help you reach your savings goal quicker.
For example, pairing an Everyday Edge Account with a Home Saver Account unlocks a bonus rate of interest on your savings. Then there’s The Boost, which allows you to save an amount of your choosing every time you make a Visa Debit Card transaction. And if you’ve got a weakness for splashing the cash, you can avoid temptation by hiding your savings in The Vault.