There’s a first time for everything. But buying your first property has got to be one of the most challenging firsts you’ll ever experience. Many first home buyers don’t really understand what’s going on with every part of the process from getting a home loan to conveyancing.
Depending on the type of property and your personal situation, the whole home buying process can be very complicated. That’s why early advice on buying a house can be so crucial.
After I bought my first house, I was left wondering why there wasn’t some sort of course on buying property. There were so many different aspects to get my head around. Understanding the timelines and the bidding process was hard enough on top of dealing with the bank too.
Some parts were pretty self-explanatory but other aspects of the property buying process I had to experience and stumble through a few of the processes to really understand a few things.
To help you out on your journey as a first home buyer, here’s my advice on buying a house. Included here are some of the biggest lessons I learnt from the process.
You don’t always need a 20 per cent deposit
Saving up for a deposit is one of the big first steps when it comes to buying property. Without getting a deposit, you won’t be able to get approval for a home loan. It’s only when you have approval for a home loan that you should start looking for properties within your price range.
One of the first questions you might ask yourself is how much do I actually need for a deposit? Many people will tell you it’s 20 per cent.
In most cases, 20 per cent will be ideal for a major bank or lender. But what many people won’t tell you is that there are lenders who are happy to accept less than 20 per cent. Just be wary that your repayments will be higher.
Another disadvantage here is that you will most likely have to pay lenders mortgage insurance (LMI). This type of insurance is designed to protect the bank or lender in case you, the borrower, cannot pay back the loan. You will have the option of adding LMI to your loan, but your lender may charge you a higher interest rate for it.
Many banks are prepared to lend too much
When my partner and I first approached a mortgage broker we learned that some lenders offer you far more than what you can afford to pay back. Some lenders were willing to let us borrow double of what the big four banks were putting on the table. These loans were calculated once our mortgage broker entered our earnings, expenses, and deposit amount into their program. That’s when we saw just how different the lender offers were.
The offers looked great on paper until we realised just how much the repayments were for these big loans. As a couple who were planning on starting a family soon, the repayments just seemed unachievable. In retrospect, it’s easy to see how a lot of first home buyers can fall into the trap of borrowing too much money for their home and struggling to make repayments for years to come.
I think it’s best to be as realistic as you can with home loans. Be prepared for scenarios where you or your partner may be out of work for months. Choose a home loan and repayments that are well within your financial means. If you end up struggling with repayments it can put a lot of financial stress on you that affects your overall lifestyle for years to come.
There are additional costs that come with purchasing a property
Saving up for a deposit and choosing a home loan are not the only financial matters you will have to worry about. One of the best pieces of advice on buying a house I can give is that there are additional costs for purchasing a property. These costs include government fees, stamp duty, and transfer fees. In the final process of inspecting and putting in an offer, you may also want a pest and building inspection. These can cost upwards of $900.
There are many professionals you can rely on for assistance when it comes to buying a house. You may need to pay a mortgage broker, conveyancer, and buyer’s agent. The condition of the house also plays a big role. Before you move in, you may want to pay professionals such as a painter, electrician, locksmith, or plumber to get things back in working order in your new property.
Pre-approval will not 100% guarantee you get a loan
After picking the right home loan and getting pre-approval approval, it was a huge relief. But it’s not the end of the process. It can be a huge confidence boost when you finally go ahead and start putting offers on properties that are within your budget. But the full loan approval only comes after your lender receives a signed contract. Your lender needs the contract to ensure what you’re buying is a worthwhile investment.
Again, it really pays to have a mortgage broker with you during the approval process for a home loan. Issues after pre-approval usually arise when property buyers try to change their minds and adjust what they can borrow after pre-approval. This is a very risky move. If you’re finding properties that are outside of what you can buy, it’s a lot safer to adjust your expectations. Go for a 3 bedroom house instead of a four-bedroom. Little changes like these can put properties back in your price range. Don’t try to change your loan at the last minute.
Take out insurance as soon as you sign the contract
After agreeing on a purchase price with the property seller, there will still be a settlement period before you move in. The settlement period could last up to 30 days before you’re officially allowed to move into the property. During this period of time, here’s one piece of advice on buying a house everyone should know; it’s best you take out insurance on the property as soon as you can! A standard home and contents insurance will cover your property for any damage.
The legalities around what happens with damage can vary from state to state in Australia. Many lenders will still recommend that you cover your house with insurance before the settlement. At this point, it’s still a good idea to ask your property lawyer or conveyancer to see when the best time is for getting home and contents insurance.
Different rules apply for buying at auction
Buying at auction rarely gives buyers that much of an advantage and here’s why. When you go into an auction there’s a good chance you haven’t had a building and pest inspection done on the property. This in itself can be a trap. You could be bidding on a house that has thousands of dollars in urgent repairs that need to be done.
For a standard conditional offer on a house, you can put in a backstop. These offers usually happen during a private sale where there is no public auction on the property. Conditional offers can ensure that if your finance won’t get approved, or the building has issues, you’re allowed to pull out of the property purchase.
With a public auction, you don’t have the luxury of pulling out. So if you have the winning bid and the reserve price is met, you will have to buy the property. So in many ways, an auction can be a trap for first home buyers. One of the best things you can do to protect yourself from auctions is to do your research. Look up how much similar properties have sold for in the same area.
Attend a few auctions and just see how they play out. Observe how bids are done and the tactics used by bidders and real estate agents. Take your time to inspect houses and make sure you know exactly what you’re buying when it’s time to put in a winning bid at auction.
Looking for more advice on buying a house? Get in touch with the Buyer Agents at Wise Real Estate Advice today.