First time home buyers – a guide to getting started.
Buying your first home is one of the most exciting times in your life. But equally, working out how to finance it can be quite daunting and challenging. So we’ve put together a general checklist of information to help you to navigate your savings journey – and hopefully make the process as seamless as possible.
Identify your Budget.
The first thing you need to do is determine is how much you can borrow.
As well as an initial deposit, you’ll need to look at your income, spending and savings so you can figure out exactly what you will be able to repay each week, whether you have enough money now to cover the initial deposit or whether you’ll need to set a savings goal to get you there. The more deposit you can save the better and most lenders like borrowers to have minimum 20% deposit. You may be able to secure a loan with a smaller deposit, but this can result in restrictive conditions being put on your mortgage. So, it’s best to save as much as you can.
For this stage of the process, it’s often a good idea to consider engaging a financial planner to advise and ensure you don’t over extend yourself.
Research and Planning.
Once you know your budget, you’re ready for the next step – working out what areas have properties that meet your needs within your price range.
Start by taking the time to research the property market to gain a better understanding of housing availability, how much it will cost, and other options you may have as a first-time buyer. The CoreLogic RP Data and Australian Property Monitor websites can both provide a good general overview of trends and current price shifts, while national websites like domain.com.au and realestate.com.au can show you precisely what's up for sale, and the estimated asking price. Local and state newspapers can also be very useful for finding more information. More affordable suburbs tend to be on the fringes of the city or in regional areas, but the advice and experience of a professional agent can also help you find a first home in places you hadn’t thought to look.
Once you ‘ve decided on a particular suburb or location, keep abreast of what is going on in the area you’re interested in. Start inspecting homes and attending auctions for observation as often as you can. Not only will this allow you to physically see what you can get for your money but will also give you the lay of the land and prepare you for when you are ready to purchase. Also, keep an eye on weekly sales results as this will give you a good general indication if things are selling in the price guide they were marketed in. Likewise, if you‘re planning to build your own home, visit residential developments and on-site display villages in the area to give you some idea of what you can afford to build, and where – not to mention some great design inspiration.
Make sure to factor in other costs associated with buying a home.
You will also likely be up for a range of other fees along the way which can include conveyancing and legal costs, stamp duty, a property valuation, council rates and land tax, although some of these may vary depending on the value of the property, whether or not you have purchased it off-the-plan and/or whether you intend to make it your primary place of residence. If you’re planning to borrow more than 80% of the property’s value, you may also be required to pay lender’s mortgage insurance.
Get your house deposit together.
Once you’ve found where you want to buy, worked out what you can afford, factored in all of the associated costs, and are clear on where you currently stand with your finances, now’s the time to get your deposit together. If you don’t have a deposit already, you’ll need to set up a savings account or work out another system of saving that works for you to get it together.
It may also be worth looking at or discussing with your financial and/or legal advisors any possible concessions and grants that may be available to you, as this may provide you with some additional financial assistance and hopefully make homeownership more accessible.
The Federal Government’s First Home Super Saver Scheme (FHSS) allows you to save money for your first home inside your super fund. This will help you save faster with the concessional tax treatment of superannuation.
For eligibility criteria and more information, visit:
Victoria First Home Owner Grant.
Victorian first home buyers may also be eligible for a payment of $10,000 for a new home valued up to $750,000. So, what’s classified as a new home? A new home as stated on the Victorian State Revenue Office website includes:
- A newly built home;
- An existing property which is being sold for the first time as a new premises property;
- A land and building package; or
- Vacant land on which you’ll will build a new home.
The FHOG may be paid in addition to other exemptions or concessions for eligible home buyers, including pensioners and the timing of the payment will depends on the contract you sign to buy or build your new home, and whether you lodge your application with an approved agent or the SRO directly.
To find out more details about eligibility and the types of homes/constructions that may qualify, and all other qualification criteria visit: https://www.sro.vic.gov.au/first-home-owner.
The Victorian Homebuyer Fund.
In Victoria there’s also a scheme called the HomesVic Shared Equity Initiative. This allows eligible first home buyers to purchase a home and qualify for a home loan with a deposit of 5% or more, with the Victorian Government contributing up to 25% of the purchase price in exchange for an equivalent share in the property.
Participants are required to buy back the government’s share in their property over time through refinancing, using savings, or upon sale of the property. The Victorian Government doesn’t charge interest on its investment in participants’ homes but shares in any capital gains or losses proportionate to its share in the property.
To find out more details about the Victorian Homebuyer Fund as well as eligibility criteria, visit: https://www.sro.vic.gov.au/homebuyer. As always, do seek independent financial and legal advice before you make any binding decisions.
Principal Place of Residence Duty Concession.
A principal place of residence duty concession may be also available to you when you buy a new or established property valued up to $550,000, which you intend to move into within 12 months of your settlement date and live in as your primary home for at least a year. Where there are two or more buyers, at least one of you must satisfy these eligibility requirements, although it is not necessary for the same buyer to occupy the home for the whole 12 months.
To find out more details about the Principal Place of Residence Duty Concession and eligibility criteria, visit: https://www.sro.vic.gov.au/pprconcessions
Stamp Duty Exemptions and Concessions.
If you’ve entered into a contract to buy a property, and the dutiable value of your property is $600,000 or less you’re exempt from paying Stamp Duty. Or, if your home value is between $600,001 – $750,00, there’s a sliding scale of concessions that will reduce the amount you’ll have to pay.
If you buy a home before any building works have started or have finished, you may also be eligible for the off-the-plan duty concession that can apply to contracts for land and building packages, apartments or unit complexes. This reduces the value of the property by the costs of the construction or refurbishment occurring on or after the contract date, reducing the amount of duty to be paid on settlement.
To find out if you are eligible for stamp duty concessions visit: https://www.sro.vic.gov.au/land-transfer-duty
Land Tax.
Victorian homes are exempt from land tax unless they’re used as an investment property or a holiday home. To find out more about land tax visit: https://www.sro.vic.gov.au/land-tax
Sorting out your Finance.
Once you're ready to buy, it’s time to organise your finance. With a wide variety of new lenders entering the marketplace, confidently choosing a lender you’re comfortable with can feel overwhelming. So it’s important to undertake some due diligence and to consider seeking independent financial and/or legal assistance.
Fortunately, there are steps you can take to help you make the right choice. Speaking to a mortgage broker who is a member of the Mortgage and Finance Association of Australia (MFAA) is a good place to start. MFAA member mortgage brokers will be able to tell you about the variety of reputable lenders available to you. Plus there are also a number of government-operated organisations and websites that provide handy tools and also opportunities to help you to conduct due diligence checks on your own, should you wish to do so.
Alternatively, if you’re planning on borrowing from a bank, the Australian Prudential Regulation Authority (APRA) is an independent authority that supervises deposit-taking banking institutions. After a bank is licensed by APRA, it’s subject to ongoing supervision to ensure it is managing risks and meeting regulatory requirements. APRA-regulated banking institutions are licensed, so you can check the APRA website to see if a potential bank is licensed and adhering to APRA's requirements.
There are lenders out there who are reputable but aren't deposit-taking institutions or banks, and therefore don't need to be licensed and supervised by APRA. There are generally two types – private lenders or mortgage managers/white-label lenders. Private lenders are able to provide you credit and operate as a lender because they lend their own private money, and they aren’t deposit-taking organisations (i.e. you can’t deposit and save money with them). Mortgage managers and white-label lenders, on the other hand, offer credit and loans, such as mortgages, but do so on behalf of other financial institutions such as banks. Again, they don't take deposits.
Whilst private lenders and mortgage managers/white-label lenders don't need to be licensed by APRA, they do need to be licensed by the Australian Securities and Investment Commission (ASIC) and require an Australian Credit Licence if they engage in lending regulated by the National Credit Code, which includes making loans to buy a residential property. If you do find that a potential home lender is not licensed by APRA, you should check if they hold an Australian Credit Licence via ASIC’s search tool.
Lenders that engage in home lending must be a member of the Australian Financial Complaints Authority (AFCA), which provides access to a dispute resolution process.
At the end of the day, buying a house is an exciting step, and with a number of first time home buyers programs available it’s becoming more achievable. The most important thing is to do your research at the outset and the gather the information you need to help you get started on the path to home ownership with confidence.
GOOD LUCK!
DISCLAIMER – The information provided in this document is intended for general information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to borrowers seeking to enter into loans or repay debt. The information does not take into account your personal financial circumstances. You should seek professional financial, accounting and taxation advice before making any binding decisions.