Buying a home is one of the biggest decisions of your life as a first home buyer. It’s not like choosing a car or a sofa that you’ll replace after a few years. You are picking a house in which you could potentially live for the rest of your life. Your home is not just a place to sleep at night. It is where you feel safe and happy, raise a family, and connect with the people you love. You need to find a home that is perfect for you.
But it’s not easy being a first-time buyer these days. Young people are finding it increasingly difficult to get a leg up on the property ladder and scrape together enough money to secure a deposit and be approved for a home loan. In addition to these financial hurdles, you also have the challenge of actually finding a home that meets your precise needs while still remaining within your means.
So to get you started on your journey to securing your dream house, here are a few tips for first home buyers to get onto the property ladder.
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Tips for First Home Buyers
A pre-approval is not a promise
Before being accepted for a loan or a mortgage for your first home, the bank or broker you choose will need to go through your pre-approval process. This is essentially an evaluation of you – your financial situation, credit history, and many other factors – to determine whether you meet the required standards to borrow the amount you need.
Most first home buyers in Australia must undergo pre-approval checks before looking for a home to buy. They’ll know beforehand if they’ll be able to afford the purchase and can make an offer on a property they prefer. Some people opt not to receive a pre-approval, putting themselves at risk because they have no way of knowing if they will be approved for a loan.
But it’s important to remember that a pre-approval is not a promise. Many banks have changed the way they offer pre approvals, sacrificing quality for automation and speed. Banks are now taking two or three days to process a pre-approval application, whereas before it would take several weeks. This might seem like a positive, particularly if you are keen to move into your dream home as soon as possible, but these new pre-approvals are less rigorous and in-depth than before. In many cases, your application won’t even be seen by a flesh and blood human, and will be completely handled by an automated system.
No one wants their future to lie in the hands of a computer program, so it’s a good idea to talk to your bank or broker and find out a bit more information. At CAPTA Financial, we pride ourselves on offering comprehensive pre-approval processes that benefit all parties. This way, you will be able to get the mortgage that is most appropriate for you.
Choose the right type of account
There are a number of different accounts you can use to help pay off your home loan, so it’s worth doing some research to decide which is most suitable for your needs. An offset account can be a great way to help you pay off your home loan. In a nutshell, it is a bank account that is linked to your home loan, into which you deposit your salary and additional savings. This amount is then offset against the amount you owe on your home loan. For example, if you have a loan of $200,000 and $50,000 in your bank account, you will only be charged interest on a loan balance of $150,000. It’s important to note that this comes with an annual fee, so make sure you are aware of all the terms and conditions.
Another option to consider is a redraw account, which allows you to withdraw any additional repayments you’ve made to your loan. However, these may not be as flexible or convenient as an offset account.
Things to negotiate as a first time home buyer
When you’re making an offer on a house or trying to get a favourable mortgage rate, negotiating down the listed price of a house is fairly typical. Here are five things you should negotiate when buying your first home:
- When buying brand new properties, inquire about a home warranty. It’s fairly normal for a seller to cover this cost in advance. At least for the first year and inspection-related repairs.
- Flexibility on closing or possession dates. How soon can you move in? Negotiating flexibility in terms of closing or possession dates is actually pretty standard.
- Cosmetic updates, furnishings and household items.
- When buying a home in Australia, be aware of all the other costs involved in this process.
- Negotiating down the house price or looking for a better interest rate.
If you come in armed with all available knowledge, you will be far better equipped to argue for a better deal and avoid overpaying. Do your research into the market, understand the price, and be prepared to walk away.
Be careful when going to auction
Many first home buyers go to auction to try and get a better deal on a house, but the truth is, an auction is less likely to get you the best deal. When you attend an auction with the intention of buying a home, you often end up paying far more than you bargained for. If possible to do so, it is best to avoid auctions and look to other means of securing a property.
However, if you do go to auction, there are some ways you can reduce your chances of spending over the odds. It’s wise to do your research before you come in and really get to grips with what properties are available and what they are worth. Making offers prior to the auction can help you land a more favourable price, as can calling the agent in advance to negotiate.
Don’t borrow over your budget
One of the most common mistakes that first home buyers tend to make is borrowing over their budget. It’s important to remember that your home loan is a long-term commitment, so you need to be thinking about the future and set yourself up for success from the start. If you are paying off a loan over this amount of time, that is three decades worth of interest rates that are coming out of your account and going straight to the bank.
If you’re planning to live in your home long-term, one of the best outcomes to seek is to borrow enough that you can pay a little extra and pay off this loan quicker, say twenty years instead of thirty. Yes, you may need to do some calculations to work out how much you can afford to pay or whether you can make some extra turnover each month, but it is a much more financially viable solution in the long run.
Pay your bills on time
It seems like an obvious piece of advice, but you need to be paying your bills on time. Banks are becoming much savvier when it comes to looking at your payment history, and if you have a track record of paying bills late, then this could be a disaster for your application process. They may judge that you are a risky applicant and may struggle to make the repayments.
Learn how to manage your money and keep your credit score with good conduct, and this will put you in a good light when you come to apply for that home loan.
Attend the inspections
One crucial step of buying a home is to have a building and pest inspection. A professional will come in and look over the property, seeking out any issues like moisture, structural damage or pests. It’s a good idea for you to attend these inspections yourself, as the inspector will be able to walk you through their findings and help you understand exactly how serious each problem is, and how to fix it.
Set up a mock mortgage
A mortgage is a huge commitment. It is a loan you’ll be paying off for the foreseeable future, so you want to make sure you get the right plan. You don’t want to be five years in before you realise you’re incapable of making the next instalment. Plan ahead by creating a mock mortgage. This is essentially a mockup of what your mortgage repayments will be, plotted against your income and savings. This will give you an idea of whether you can afford it, or if you will encounter problems down the line.
Consider buying off the plan
Many people decide to buy off the plan, which means they are committing to buying a home that is not currently ready to move into. Many people have found their dream home this way and it can be a great option if you are able to wait for the perfect property. However, it’s important to note that a lot can change in this period, and we are already living in turbulent times. You’ll be paying a deposit now and tied into a contract but with no certainty about what lies ahead. Although these arrangements do often end well, you should always weigh up the pros and cons.
Are you thinking about buying an off the plan property? Please check our article Buying off the plan: risks and benefits to know more.
You are not alone in this journey
In summary, there are so many things that first home buyers can do to increase their chances of getting on the property ladder and keeping their finances under control. By following the advice above, you can take some of the stress out of your house hunting journey, and look forward to your new life.
Buying a home for the first time doesn’t have to be overwhelming. Wherever you land, it’s you and your loved ones who bring a home to life. If you’re a first-time home buyer, explore your options with the experts at Capta Financial and book a consultation today. We’re here to help you every step of the way!
Get in touch for advice and guidance on buying your first home.