Buying a home – whether it’s your first or your fifth – is likely to be a major undertaking. In addition to being one of the largest expenses you’ll ever have, it's also undeniably complicated.
To avoid feeling overwhelmed and underprepared, it’s a smart idea to research and understand as much as you can about the process before diving in.
In this article, we’ll give you 11 tips for buying a home that will make you feel more confident and ready to get started.
1. Do your home loan research
Taking the time to learn the ins and outs of home loans can make you a smarter borrower and land you a better mortgage.
Getting across the home loan lingo and learning about everything from interest rate types to the settlement process will give you confidence when applying for loans. But if you’re feeling lost, a mortgage broker can help you navigate the process.
Even if you consider yourself to be a mortgage whiz, a mortgage broker can take a lot of pressure off you during the sometimes-stressful home buying experience.
When it comes to researching home loans, don’t just go for the first home loan you find without comparing it to others on the market. Take the time to look at loans offered by various lenders – even if it means going with a lender that isn’t your ‘usual’ bank.
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2. Give yourself plenty of time to save up a deposit
Your home loan deposit will likely be the largest expense you pay upfront when buying a house. The bigger your deposit, the smaller home loan you’ll require.
The benefit of having a smaller home loan is that it’ll take less time to pay off, meaning you’ll pay less interest over the life of your loan.
A larger deposit can also increase your borrowing power, meaning that you could get approved for a larger mortgage which could help you afford that more expensive property.
You might also like: How to grow your home loan deposit
3. Make sure you save enough for your deposit
The amount you’ll ideally need to save for your deposit will be dependent on a variety of factors including the type of home you want to buy, its value and your finances.
In most circumstances, a 20% deposit is standard when it comes to buying a property to avoid being charged Lenders Mortgage Insurance (LMI). So, if you want to purchase a $500,000 property, a 20% deposit would be $100,000 – that's no small amount.
Some lenders will accept a small deposit but may charge LMI to account for the risk. Basically, when you apply for a loan your Loan to Value Ratio (LVR) is calculated.
LVR signifies how much a person is borrowing relative to the value of the property. For example, if you buy a property valued at $2,000,000 with a $500,000 deposit, your LVR becomes 75%. Essentially, you are borrowing 75% of the property’s value.
The lower your LVR, the better. You’ll be seen as a lower risk borrower by lenders and may get access to lower interest rates and more competitive home loan products.
Whether you are planning to save a 5% deposit or a 25% one, it’s still likely going to cost you a lot of money and take significant time to save up. Therefore, the home buying process is a lengthy one that requires a lot of planning.
4. Get your finances into shape
In addition to saving up a home loan deposit, it’s important to make sure your finances are in order. This means not only saving up for a deposit, but the many other home buying costs involved.
Lenders prefer to lend to borrowers who are financially stable. This means that they’ll comb through your financial records, including your bank statements and credit score.
In the months leading up to applying for a home loan, try to keep your expenses sensible so that the lender has no reason to hesitate in approving you.
Don’t forget to look at your credit report. You can check your credit file for free a couple of times per year and it’s a good idea to know what’s in your report before you apply for a loan.
Make sure there aren’t any inaccuracies and see whether you should be aiming to boost your credit score before you apply for any loans.
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What are the upfront costs of buying a home?
Here are some of the upfront costs that may apply when buying a home and obtaining a mortgage:
Home loan application and establishment fees
Legal and conveyancing fees
Property and pest inspection fees
Lenders mortgage insurance (LMI)
Moving fees.
5. Figure out what you want and need in a property
When purchasing a home, whether it’s an investment property or where you intend to live, it’s good to have a clear idea of what you are looking for. This can narrow down your search and help real estate agents recommend you potential properties.
Create a list of features in a home that are essential, as well as ‘nice-to-haves’ and anything else you’d like to avoid.
Make sure you’re realistic about what you can afford. It’s no fun falling in love with a property that you can’t afford to buy. And be financially responsible – don't push the limits of your budget if it’s going to possibly cause you financial stress in the future.
If you’re struggling to find properties you can afford in your desired suburb, consider being open-minded about different locations. Alternatively, consider whether a smaller dwelling or apartment could fit your needs if the location is really important to you.
You could even look into ‘rentvesting’ which is where you rent in your desired location while generating income from an investment property you own elsewhere.
6. Get home loan pre-approval so you can buy with confidence
Pre-approval is a formal indication from a lender that they are likely to approve you for a specified loan amount.
Mortgage pre-approval is conditional, so the lender could still choose to decline your formal loan application.
Pre-approval helps you get a realistic idea of what your property budget actually is. This way you don’t waste time on homes outside of your price range and can confidently submit offers on a house or bid at auction.
Borrowers with pre-approval are often seen more favourably by vendors as it suggests that the settlement process could be faster.
You might also like: Explained: What is home loan pre-approval?
First home buyer advice: If you’re a first home buyer and not sure how to get your first home loan, our borrowing calculator is a great place to start. This will give you an idea about how much you can borrow and what your repayments might be.
How much is home loan pre-approval and how long does it last?
Pre-approval is typically free and is limited to a period of between 3 and 6 months in most cases. However, many lenders will approve you for an extension if you request one before the end of this period and your financial circumstances haven’t changed.
7. Speak to a mortgage broker
You can get a lot out of speaking to a mortgage broker. In addition to doing a lot of the hard work for you, they’re also on hand to answer your questions and guide you through the loan application process.
They can speak to lenders on your behalf and find home loans that could be a good fit for you.
To provide potential recommendations, they’ll get to know you and your needs. There are so many home loans out there and not all of them will be suitable for you.
So, whether you need an expert to explain the difference between a fixed rate and a variable rate or simply would like to know more about your home loan options, a mortgage broker could help.
The best part – most mortgage brokers provide their services for free.
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8. Find out if you’re eligible for government buyer assistance schemes
Did you know that there are a number of government schemes aimed at helping first home buyers own property sooner?
Some of these schemes include:
First Home Loan Deposit Scheme
Stamp duty concessions and exemptions (state-based)
9. A home loan is more than just its interest rate
It may sound obvious, but it’s important to consider more than just the interest rate when choosing a home loan. Yes, getting a competitive interest rate is important but what else should you consider?
Fees: some lenders charge administrative fees on their home loans which can increase your home loan repayments
Features: see if it’s worthwhile to you to get a loan feature like an offset account or redraw facility
Customer service: the level of service provided by the lender is also important to consider, along with how well they keep customers informed of changes. Read lender reviews or ask around for word-of-mouth recommendations.
Interested in seeing how your your repayments could be? Use our home loan repayment calculator.
10. Get the property professionally inspected
No one wants to get stuck with a dud property, so don’t let your excitement rush you into a purchase you haven’t researched yet.
This is where you might consider getting a professional building inspection and a pest inspection.
A building inspection carefully examines the physical condition of the property, looking for current issues as well as future problems that may arise.
A pest inspection checks for potential infestations and damage caused by pests (e.g. termites).
Both inspections will cost money, but the peace of mind is usually worth it.
If an inspector does flag an issue with the property, that doesn’t necessarily mean that you shouldn’t buy it. You may be able to use this problem to negotiate down the price with the vendor or get them to repair it before selling.
11. Negotiate as hard as possible
Everyone wants to get a good deal and you may have to be prepared to negotiate to get one. Even if you can get the price down by $15,000, it all adds up in the long run.
Here are some property negotiation tips:
Come prepared with research about the local property market and comparable homes that have sold recently.
Listen to the vendor’s needs – do they need a fast settlement? Could you negotiate the price down in exchange for speeding up the settlement time?
Leave the emotions at the door and don’t let them sway you into making a poor decision.
Don’t provide an offer or bid you can’t afford. Set a strict upper limit and stick to it.
Be prepared to walk away – there will be other properties.
Buying a home can be stressful, but your home loan doesn’t have to be. Aussie’s brokers can help you find a suitable home loan from one of Australia’s leading lenders. Book an appointment to learn more today – no commitment required.
