Home Buying Guide Step 1: Preliminary lifestyle check

home buying guide preliminary lifestyle check

The decision to purchase your first home is not one to be taken lightly. In the first step of our Home Buying Guide, we discuss how you can conduct a preliminary lifestyle check to see if you’re ready to own your castle.

Owning your first home requires persistence and passion, not only to navigate the costly and time-consuming purchase process, but also to learn the ins and outs of being a financially responsible homeowner.

Before you start researching different markets and properties, step back and reflect on your readiness to buy a home both emotionally and financially.

This involves evaluating your lifestyle, conducting a financial health check and identifying your homeownership strategy.

So how ready are you? (exit out of the tab once complete to come back to the guide).

Pre-research lifestyle check

When determining whether it’s the right time to own the roof over your head, you need to carefully consider your lifestyle needs both now and in the future. Your job security, number of dependents and lifestyle habits will influence your borrowing capacity when you submit a home loan application, and can indicate whether you’re in a sound position to buy a home.

Here are some key points to think about when deciding if you're ready to buy a home.

Life stage reflection

Job security

When reviewing a home loan application, most lenders prefer that you’ve been in your current job for at least 12 months as this demonstrates that you have a stable source of income that can be used to service your mortgage repayments. If you have high job security, then you represent a lower risk to the lender.

It’s worth considering where you are in terms of your career path, whether your income is sufficient to service mortgage repayments and other associated costs of purchasing a property. Sit down with an accountant and a financial planner to see whether you could afford to service an average mortgage.

Lenders will also be interested to know about your type of employment (casual, part-time or full-time) and the prospect of your continued employment.

Depending on your occupation, some lenders may offer professional package home loans and in some cases it may waive lender’s mortgage insurance (LMI) if you’re a doctor or accountant, as you are perceived as a low risk borrower due to your high earning potential.

If your employment is secure, then you may be ready to buy.

On the other hand, if you’re a low-income earner or you’re receiving Centrelink benefits, it may be more difficult to qualify for a home loan. If this describes your situation, seek independent advice about your readiness to buy a home. While it may be possible for you to qualify for a home loan with a specialist lender if you can prove that you have a secondary income source to repay the mortgage, you need to think about whether this is a financially responsible move.

Parent-to-be borrowers

One of the biggest lifestyle changes comes with the decision to settle down and have kids.

While this can be an exhilarating time, you need to think about the cost of extending your family and how this will influence your ability to purchase a home. This is because the number of dependents that you have can affect your borrowing capacity.

In general, each dependent that you have will lower the amount you can borrow by $50,000-$60,000.

Recognising the sharp rise in costs that will result from having kids, many lenders will request that you factor in the cost of childcare, education fees and unexpected medical expenses when listing your day-to-day expenses.

If you plan to receive government benefits such as Family Tax Benefits, keep in mind that some lenders only consider this as a secondary source of income and you’ll need to supply supporting documentation when completing your home loan application.

It’s important that you're honest with your lender and your mortgage broker when discussing your lifestyle situation. If you intend to have kids in the near future, this can significantly affect your ability to service the mortgage.

Find out how you can apply for a home loan while on maternity leave and how you can afford a home as a single parent.

Sticking around?

Your intended length of stay in the home you purchase can help you determine whether you’re ready to buy.

Due to the significant transaction costs of servicing a mortgage and owning a home, many financial advisers believe that you should only buy a home if you intend to live there for 5-10 years. This is enough time to build up equity in your property and to allow your property to appreciate in value.

From valuation fees and application fees, buying a home requires significant financial resources. If you don’t occupy the home for long enough, then you may not generate a profit when it comes time to sell (assuming an owner-occupier strategy).

If you don’t believe you can settle down in one location for an extended period of time, then renting may be a better option for you.

Wanderlust

Your enthusiasm for travel may not fit into your homeownership goals. You need to evaluate any future travel plans that you have in store and consider how this will affect your finances.

Speak with your trusted accountant or financial adviser about any overseas trips you have on the agenda and whether or not this can remain a part of your lifestyle. Remember that frequent trips may put you in further debt, which could affect your capacity to repay your home loan.

If you have multiple overseas trips planned and you’re not sure whether you’ll be able to afford your repayments on top of your travel debt, then you may not be ready to buy a home.

However, some homeowners rent out their home while they’re overseas and use the rental income to go towards their periodic repayments. With careful budgeting and planning, it may be possible to maintain your travel lifestyle while servicing a mortgageHome buying campaign 1 travel

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Finance

Affordability

Taking out a home loan will probably be the biggest financial decision you’ll make in your lifetime, so you should sit down with an accountant during this preliminary stage to see how much you can afford to borrow.

Enter your details into our calculator below to see how much you can afford to borrow.

Even if you haven’t started looking at suburbs or properties yet, it’s a good idea to get an idea of how much you can afford to borrow as this will help fine-tune your search later on.

Be conservative and realistic when punching in the numbers to ensure that you avoid mortgage stress further down the track.

Existing debts

Your credit file and the amount of existing debt that you have can reflect whether or not you’re ready to purchase a home. Request a copy of your credit file to review your financial health.

If you have several credit cards and personal loans, then you may want to rethink your financial behaviour and take measures to improve your credit file. For instance, if you’re struggling to make payments when they’re due, contact your provider to negotiate a new payment plan so that you can make your payments in full and on time.

Another way to repair your credit rating is to get into a regular savings habit. This may involve making regular deposits into a high-interest savings account to demonstrate that you have a good savings record and financial discipline.

If you have bad credit, you may not be a good candidate for a home loan application, in which case it may not be a good time to purchase property.

Deposit

Ideally, you want to come up with at least a 20% deposit so you can avoid paying lenders mortgage insurance (LMI) for a full documentation home loan.

If you don’t have at least 10-20% deposit saved, there are low-deposit loans available, however you may want to think about whether you are financially prepared to buy a home, and whether you can afford to pay for mortgage insurance.

Look below to see the mortgage insurance costs for different deposit sizes.

LMI costs graph

Costs

When estimating the costs of buying a home, you need to break down government charges (such as stamp duty), lender's fees (including the application fee) as well as other associated costs (such as conveyancing or inspection fees).

Use our calculator to estimate your home-buying costs.

Remember that you’ll also need to factor in a contingency buffer for holding costs such as repairs and maintenance or a rise in interest rates if you take out a variable rate mortgage.

Upfront costs

Let’s assume you’re purchasing a property that will be owner-occupied and is worth $650,000. The interest rate is 4.5% and you have a 20% deposit of $130,000. Here’s a roundup of some of the major upfront costs.

  • Stamp duty. The amount of stamp duty payable depends on the state in which you’re purchasing the property. For this example, you would expect to pay around $24,740 if you were a first home buyer in NSW.
  • Legal charges. This will depend on the complexity of the property ownership structure, but a ballpark figure would be around $1,000-$2,500.
  • Building and pest inspection. It’s important to get a building and pest inspection completed to ensure that the property is structurally sound and to avoid any hiccups down the track. You can expect to pay around $500 for an inspection.
  • Mortgage application fee. Also known as an establishment fee, you’ll pay around $500-$600.
  • Lenders mortgage insurance (LMI). Assuming a 20% deposit, you generally wouldn’t need mortgage insurance, although this will depend on the loan type. If the lender did require LMI for this loan, the premium would be $5,205.
  • Valuation. Some lenders may charge you to get your property independently valued, which could cost around $400-$500.
Hidden costs

There are also several hidden costs of homeownership to consider.

  • Maintenance. Minor repairs such as carpet cleaning or replacing bathroom fixtures can quickly add up. You’ll need a contingency of around $5,000-$8,000 per year for unexpected maintenance and repairs.
  • Utilities. Factor in an extra $5,000 annually to cover electricity, gas, water, heating and cooling expenses.
  • Strata levies. Typically, strata levies should be around 1%-1.2% of the property value for apartments with facilities and 0.5% for apartments with minimal facilities. Assuming the above details for an apartment with facilities, you would pay $7,800 in annual strata costs.
  • Security. If you live in a unit or apartment, you may need to pay extra for a security system. This could amount to $500.
  • Removalist. It’s important to factor in the cost of moving expenses, especially if you’re moving a long way from your current place of residence. The average removalist cost for moving a three-bedroom home interstate ranges from $3,500 to $4,500. This will depend on the company selected, the distance you are moving and the amount of items (and labour) that you require for the job.
  • Council fees. These fees could cost around $300-$700.
  • Professional advice. A licensed accountant or financial planner may charge around $200 per hour.
  • Petrol. When inspecting properties, you’ll be driving back and forth, which will cost you not only time but also money in petrol. If you inspect three different properties in one day, this may equate to a $50 petrol bill.
  • Time. The time taken to inspect different properties is a non-monetary cost to consider. When you start looking at different properties in different locations, you may spend half your weekends reviewing properties.
  • Emotion. Don’t underestimate the emotional investment of buying a home. It can be a lengthy and complex process that demands patience and positivity.
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Get strategic

Once you’ve reviewed your lifestyle and financial status, it’s time to think about your homeownership goals and strategy to prepare for your suburb and property search.

Your goals will be guided by your motivation for purchasing a home.

For instance, if you’re a first home buyer, you may want to purchase a new property to secure the first home owner grant (FHOG) scheme in your relevant state. The stamp duty concessions and grant will help fund you purchase if you do not have enough savings to complete the required deposit.

On the other hand, a seasoned home buyer or investor may be interested in finding a property with renovation potential for a buy-and-flip strategy. In this case, an investor may be motivated by the amount of value that can be added to the property and the subsequent return that can be expected.

Remember to be realistic when setting your objectives, your home-buying strategy and timeline.

Level of risk

When defining your homeownership strategy, a critical thing to consider is the level of risk that you’d like to exercise. Are you willing to buy near a mining town that could experience a downturn? Or would you prefer to buy a property in a blue-chip suburb that’s likely to deliver long-term capital growth?

Now that you’ve completed your preliminary lifestyle check, you can move on to Section Two of the Home Buying Guide: Suburb Research.


Start comparing home loans right now

Rates last updated October 21st, 2018
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.57%
3.58%
$0
$0 p.a.
80%
Get a very low interest rate and pay fewer fees. Enjoy a fast online application process and add a 100% offset account for $10 a month.
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.59%
3.61%
$0
$0 p.a.
90%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.
3.64%
3.66%
$0
$0 p.a.
80%
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2 million from a convenient online lender.
3.69%
3.73%
$600
$0 p.a.
95%
A home loan with no ongoing fee and a redraw facility that you can borrow up to 95% LVR.
3.59%
3.62%
$0
$350 p.a.
90%
Get a low variable interest rate and buy a property with just a 10% deposit. 100% offset account attached.
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Get double Velocity Frequent Flyer Points with this mortgage to spend on flights and more (for a limited time, subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.54%
3.57%
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80%
A competitive variable essentials interest rate product aimed at refinancers looking to switch to a lower rate.
3.87%
3.91%
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$10 monthly ($120 p.a.)
90%
Get Velocity Frequent Flyer Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
3.54%
3.58%
$0
$0 p.a.
80%
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility. $900 cashback offer.
3.64%
3.64%
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70%
A low interest rate home loan with no application or ongoing fees.
3.69%
4.86%
$0
$395 p.a.
90%
Special discounted rate for first home buyers. Start your home buying journey with 2 years of fixed repayments at a competitive rate plus package discounts. Available with a 10% deposit.
3.68%
3.70%
$0
$0 p.a.
80%
A competitive variable rate mortgage for owner occupiers that comes with a no fee debit card with a $5,000 limit.
3.74%
3.74%
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$0 p.a.
80%
A basic owner-occupier home loan with a low variable rate that requires a 20% deposit.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.68%
3.70%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.
3.79%
3.80%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
3.84%
3.85%
$0
$0 p.a.
70%
Keep your LVR at 70% or below and enjoy a special discounted rate. Also, pay no application or ongoing fees.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Earn double Velocity Frequent Flyer Points on your mortgage for a limited time (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.75%
3.75%
$0
$0 p.a.
70%
Pay no application or ongoing fees and get a flexible loan with the ability to split up to 6 times.
3.79%
3.82%
$0
$0 p.a.
80%
An essentials variable investor mortgage with a high borrowing amount so you can fund a large purchase.
3.74%
4.13%
$0
$349 p.a.
90%
Get a sharp rate plus package discounts and a 100% offset account.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.79%
3.79%
$0
$0 p.a.
80%
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.69%
4.12%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
3.67%
3.69%
$0
$0 p.a.
80%
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
3.70%
3.70%
$0
$0 p.a.
70%
Get a discount for keeping your LVR at 70% or below with this innovative online lender.
3.80%
3.80%
$0
$0 p.a.
70%
Earn tens of thousands of Qantas Points or more with this variable owner occupier mortgage. Requires a 30% deposit.
3.64%
3.64%
$0
$0 p.a.
70%
A basic variable home loan that offers a competitive interest rate with no application fees and no ongoing fees.
3.84%
3.84%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.64%
3.59%
$0
$0 p.a.
80%
Fast, 100% online application process. Very limited fees. Optional offset account (with fee).
3.99%
3.92%
$0
$10 monthly ($120 p.a.)
90%
Enjoy a competitive fixed rate with no application fee. Earn double Velocity Frequent Flyer Points to spend on flights and hotels. Terms and conditions apply.
3.85%
3.85%
$0
$0 p.a.
80%
Pay no application and ongoing fees with Macquarie Bank Basic Home Loan. Split and redraw facilities included.
3.71%
3.71%
$0
$0 p.a.
70%
A variable rate home loan that has a lot of flexible features. This loan has a 100% offset account.
3.72%
4.10%
$0
$395 p.a.
80%
New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.
3.59%
3.58%
$0
$0 p.a.
80%
Apply online and get fast approval for this fixed rate, low-fee loan with redraw facilities. Add a 100% offset account for a small fee.
3.81%
3.81%
$0
$0 p.a.
80%
A home loan with a competitive rate and plenty of handy features. This product comes with a 100% offset account.
3.89%
3.91%
$0
$0 p.a.
80%
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
4.17%
4.21%
$600
$0 p.a.
95%
Variable rate home loan from one of the big 4 banks. Available with just a 5% deposit.
3.72%
3.74%
$0
$0 p.a.
80%
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.84%
3.82%
$0
$0 p.a.
80%
A fixed rate loan with free redraws, few ongoing fees. Apply online with a fast approval process.
3.69%
4.08%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.69%
4.75%
$0
$395 p.a.
90%
Enjoy a competitive rate with no application fee for this package loan.
3.99%
4.13%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with no application fee.
3.74%
3.74%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
4.04%
4.07%
$0
$0 p.a.
90%
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
3.76%
4.15%
$0
$395 p.a.
90%
A high maximum LVR home loan with redraw facility and additional payments. Get this mortgage with a 10% deposit.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.75%
4.00%
$0
$248 p.a.
70%
Borrowers with a 30% deposit can get this competitive rate.
3.97%
3.99%
$0
$0 p.a.
80%
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
3.99%
4.44%
$395
$0 p.a.
80%
Pay no ongoing fees on this investment loan fixed for 3 years.
3.70%
3.90%
$0
$0 p.a.
70%
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
3.89%
3.94%
$0
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
3.99%
5.35%
$600
$0 p.a.
90%
Competitive rates for fixed for 3 years with redraw facility.
3.99%
3.99%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
3.91%
3.92%
$0
$0 p.a.
80%
Investors can go from application to approval in as little as 20 minutes with this innovative online lender.
3.74%
4.01%
$395
$0 p.a.
80%
A competitive fixed interest rate product with no ongoing bank fees.
4.31%
3.95%
$0
$0 p.a.
80%
A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
4.29%
4.31%
$0
$0 p.a.
80%
Investors will pay no application or ongoing fees for this interest-only loan.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule.
4.18%
4.18%
$0
$0 p.a.
80%
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
3.89%
4.24%
$0
$0 p.a.
80%
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.94%
4.95%
$595
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying and pay no application or ongoing fees.
3.99%
4.86%
$0
$0 p.a.
80%
Access a fee-free 100% offset account and pay no application or ongoing fees.
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
4.14%
3.96%
$0
$0 p.a.
80%
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
4.14%
4.81%
$0
$0 p.a.
80%
Pay no application fees and access a fee-free redraw facility with this fixed rate loan.
3.84%
3.91%
$0
$0 p.a.
80%
Get instant online approval and flexible repayment options with this fixed rate mortgage for investing.
3.99%
3.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.94%
3.92%
$0
$0 p.a.
80%
Lock in your interest rate for 2 years and enjoy flexibility, an optional offset account and a fast online application process.

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Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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