New research from ING shows in spite of the fear, most Australians are ahead on their home loans. Read more…
It used to be that owning property was part of becoming an adult. As property prices have skyrocketed in Australia, this dream has moved further and further out of reach. This doesn’t mean, though, that owning a home is entirely unattainable. If you think you’re ready to get a foot on the property ladder, this guide will take you through everything you should know.
Before you start: Find out your home buying strengths and weaknesses with our quiz
Other important considerations to make when buying your first property
1. Deciding on your goal
What is your home buying goal? Do you want to be an owner occupier? An investor? Do you want an established house? Are you looking for a new build? There are a number of goals to consider.
- Owner occupier. If you’re looking for home to call your own, the type of house you’re looking for could be different than if you’re looking to buy an investment. With property prices at historic highs and continuing to rise, you may need to adjust your expectations. Buying a detached house in an inner ring suburb is out of reach for most average Australians. Instead, you might have to look further afield, or at smaller properties. You can read our ultimate home buying guide for more information.
- Investor. If you’re buying as an investor, you’ll need to consider things like the rental yield you’re looking to get out of your property, whether you want to use a property management company and balancing the potential for capital growth with the potential for generating regular rental income. You’ll also need to take into account that investor loans often come at higher interest rates, and carry some tighter criteria. You can read all about investing in property in our investment hub.
- Established homes. If you want to purchase an established home, you may find that you’re ineligible for some government assistance such as the First Home Owners Grant or stamp duty concessions.
- New home. Buying a newly built home comes with definite advantages. You may find you’re eligible for assistance, such as the First Home Owners Grant or stamp duty concessions. You may also have the opportunity to have your home built to your specifications. Be aware, though, that buying a home off-the-plan from a developer can carry its own risks. If you're interested in buying a property off the plan, read our guide.
2. Working toward your goal
Once you know what your goal is, you can take steps to work toward it. For homeownership, there are a couple steps you’ll need to accomplish your goal.
- Getting across your finances. Before you can really begin looking at homes or working toward buying, you’ll need to have a look at your finances. Examine your income and expenses to see what kind of home loan repayment you can afford. You’ll also want to look at your credit score to avoid and nasty surprises when you go to apply for a home loan. If you have multiple debts, you might consider consolidating them with a loan or a credit card balance transfer.
- Saving a deposit. This is the biggest hurdle for most would-be homebuyers. In many cases, you’ll need a 20% deposit. It goes without saying that saving 20% of the purchase price of a home is a pretty big ask. You’ll need to budget carefully, and may want to look into high interest savings accounts to help your money grow faster. Alternatively, there are home loans available with , though these carry the cost of lenders mortgage insurance (LMI). Another option could be to ask a family member to serve as your guarantor.
- Finding the right property. While it’s good to obtain home loan pre-approval before you settle on a property in earnest, you should start looking into the suburbs and types of housing you think suit your goals. Decide if you’ll be looking at apartments or detached houses, and if you’ll build or buy an established home.
The top 4 mistakes to avoid as a first home buyer
1. Looking at physical property before making a plan
Property investment expert Chris Gray recommends with first starting with finding out what you want from the property and then start trying to work out the numbers. "Property is the last thing on the list. It's the last 5%".
2. Not using any professionals along the way
You should compare and seek the advice of mortgage brokers, accountants, conveyancers and building inspectors along your way. Failing to do this could see you buy a lemon or get into legal or financial strife later on down the track.
3. Concentrating on first home owner grants rather than the actual property and process
You should try to get whatever grants and assistance you can, but a better priority should be finding the right property, especially if you're an investor. If you save money on a property because of a grant but over 25 years this property performs poorly it could cost you much more than the value of the grant.
4. Buying the first property you see
Some experts say you should look at a minimum of 100 properties before buying one. Whatever the number may be, you should visit a number of properties first to get a feel for what you like, and also the process.
3. Finding the right home loan
If you're like most of us, you'll be borrowing money to pay for your first property. Here are the average interest rates for home loans right now:
There are a variety of home loan options out there. Here are a few things to keep in mind:
- Fixed or variable rate. You’ll want to decide if you’re looking for a fixed rate or variable rate home loan. The interest rate on a variable rate home loan can change from month, meaning your repayments can change. This is great if rates are going down, but if rates rise your home loan could become more expensive. However, variable rate home loans often come with more features and flexibility. Fixed rate home loans lock in your repayment for a period of time, usually one to five years. This can be great if you want some certainty in your budget, but keep in mind that you won’t benefit from any rate cuts, and these loans sometimes offer fewer features and less flexibility.
- The right features.You’ll want to look for a home loan that has the features that suit your budget and needs. Home loans with offset accounts, for instance, help you pay less in interest by offsetting the amount your interest payment is calculated on by the amount you have in your offset account. Loans with unlimited additional repayments help you pay your home loan off faster by putting additional funds toward it. Home loans with redraw facilities allow you to access extra funds if you need them.
- The right lender. It’s worth looking outside the major banks to see if you can get a better deal. Some online only lenders use their low overheads to pass on interest rate savings to borrowers. Some smaller banks and credit unions can offer a more personal touch, along with competitive products. If you’re self-employed or have bad credit, some specialty lenders can offer options major banks won’t.
- Do your research. Before deciding on a lender and a home loan product, do your research. Find out about which products, features and rates will best fit into your budget and lifestyle, and which lenders can best serve your needs. Learn how to compare home loans to find the best deal for you.
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