This advice is just our personal experience, and I'm no way qualified to give anyone financial advice. In saying that, I've learnt a lot a long the way, and I hope our experiences could help other first home buyers in Australia take the daunting but rewarding steps to owning your own home. I thought that I would share a cronological list of things to help first home buyers.
Documents You Will Need
- Divers licence or 18+ card for each loan applicant
- Birth Certificate for each applicant
- 6 months of statements for EVERY bank account you have (including loans, credit cards and debit cards) for each applicant
- Centerlink Statements of benefits for each applicant
- A saving record of at least 6 months
- Your current tenancy agreement
- 12 weeks of consecutive pay slips for each applicant
- A good grasp on what you can afford and a clear budget
- The Certificate of Currency for your new house building insurance
Have a the internet. Also have a printer and scanner. We bought one for $40 and it's been invaluable.
1) Have a deposit of 10% - Most banks will lend you 90% of the purchase price of your home, but you need to provide the rest. I suggest, you actually have about 12% because that will cover you other expenses (which we will get to later). We thought we'd get away with 5% but we were wrong. Do yourself a favour and have at least $3000 more than you need for 10%. It seems like a lot of money, but really save every cent. The process will be so smooth if you have it. If not, there are some ways around, but you're going to need a damn good mortgage broker.
2) The next thing you need to do is know where you want to live. Research the area. Drive there, look at the facilities. Think about schools and day care centres, shops and doctors. After that, use the internet to your full advantage. As well as council websites, I highly recommend On The House. It's a free website that gives you so much information about an area, as well as specific houses. Chris and I found this tool invaluable when buying our first home.
3) I recommend that at this stage, you talk to a financial adviser, or mortgage broker. We went through Aussie Home Loans. Their brokers come to your house, at your leisure for free. They do get paid by the banks, but strive to meet your requirements and they give great advice. They can also do property searches and get you a great interest rate for your home loan.
4) Stick to your budget. Seems obvious, but if you're looking for a house say, under $300 000, then only look up to $310, 000. In this economic climate, we've found the majority of homes being sold HAVE to be sold and they've put the lowest they can afford to take. Don't expect to talk them down much.
5) When you find a house you love, and you know it's the one, you'll need to put in an offer in the form of a contract- subject to building and pest inspection, valuation and finance. Your real estate agent will now become your best friend. They will put your offer into the owners, and then come back to you to renegotiate. They will explain the terms and conditions of the contract and you can ask your questions.
6) The Deposit. When your price has been negotiated, you will need to pay a deposit within two days. A deposit can be anything from $1000 to 10% of the purchase price. This is put into a trust (or secure bank account). The trust holds the money until the sale goes through. The real estate takes their commission (their pay) out of this money, and the rest goes to the owners when the sale goes through.
7) Now the hard part starts. You need to find a conveyancing solicitor and a building and pest inspection guy/girl.
You really need a conveyancing solicitor the next business day. They do the searches on the property to make sure everything is legit. They charge somewhere between $900-$1300 so that's going to be the first major expense. I'm not sure about all companies, but ours bills you at the end, after settlement. We will use the First Home Owners grant to pay for this.
The building and pest inspection needs to be done within 7 days of the contract being taken. This costs about $500. You need to organise with the real estate to be there it's being done, and you will also need to be there. The Building and Pest Inspector will make sure that there is no water damage, termites or structural damage. Take into account what s/he has to say. This is one of the main negotiating points for your loan. If there is fixable structural damage then you have the right to ask the owners to fix it, or to reduce the price. You solicitor will take you through this process. If there is so much damage, that you want to pull out, you will be refunded your deposit.
8) Get cover-note building insurance. This is 30 days of free insurance. In case something happens to your soon to be house before you move in, you want it to be covered. Building insurance is the total cost of your building if it burned to the ground, so it's not what you paid for the property. The land is not insured. Shop around, because prices really vary. We had one quote for $1000 per year, and another for $400. Their PDS were pretty much exactly the same. Don't be afraid to play one insurance company off against another. Also, if you have car insurance or contents insurance with a company, most will offer you a 10% discount on the building insurance.
9) Waiting... Anything to do with the bank is a waiting game. If you've got pre-approval, this wont be long. If you need to start from scratch, this process can take anywhere from 6-12 days. You may even need an extension on the finance clause in the contract. Talk to your solicitor about your concerns and they can organise an extension. There are a few terms you need to know when getting your finance.
Loan Sustainability- This is basically what the bank is concerned about. Does your income allow you to be able to pay the loan repayments? This is how they work it out. They take your income, and deduct an amount determined by the bank for any dependants you have, and other bills like estimated electricity, food, petrol, insurances, rates etc. You have no say to your actual budget. It doesn't matter if your twins cost you nappies and washing powder, they are still going to take off $130 per fortnight for each baby. RIDICULOUS. This is the most frustrating thing, and this is where using a mortgage broker really helps. They know which lenders have the more generous sustainability if you need it.
Conditional Approval- This means that you can have the loan, IF you show them whatever they make the conditions. For example, some conditions might be, if you have no credit card, if you pay off any debts or if you have a specific amount of savings. This means if you don't meet those conditions, you do not get the loan.
Unconditional Approval- This means you've got the go ahead to tell your solicitor, and your solicitor will tell their solicitor and your real estate, and they'll tell the owners. There are usually terms and conditions to the loan, but they are far more lax.
NOTE: First Home Owners Grant.
At the moment, when you are buying a pre-existing house on land, you get $7000 from the government in the way of a "FHOG". This can be included into the loan amount, or paid to you after you settle in cash. It's up to you, but you can use it as a part of your deposit essentially, which is very handy.
10) Once you get your approval the bank will send you out documents. It's recommended you get interdependent legal advice, this is someone different to your conveyancing solicitor. We didn't do this bit, because we had a great mortgage broker. But do it if you want. You'll need to sign the documents either with your legal advice, mortgage broker, or solicitor. Allocate at least an hour to do this, and make sure you have all your documents. You will also need a Certificate of Currency for your insurance with your banks name on it. Ask your solicitor the exact wording that the bank requires. Once you get to this step, you'll know what I'm talking about.
11) Settlement-This is where you hand over the money to the owners, and you get the keys. This usually happens about 2 weeks after you've gotten unconditional approval for your finance. There is nothing that you do really. Your solicitor and the bank deal with that part and you just pick up the keys once the solicitors (both yours and the sellers) have contacted the real estate.
Things You Don't Know Until You've Tried
-There is no such thing as a "guarantor" any more. There are "family equity" deals, which essentially take a partial equity from a parents property to ensure that the mortgage will be repaid. However, this road is complicated and not necessarily going to work.
-The more kids you have, the less chance you have on getting a loan that's "sustainable". - We have four kids, and this was our greatest challenge. If you have many kids, then you would want to earn a serious wage. Some banks take up to $130 per fortnight off your wage per dependant. I feel that this is discriminatory and so inflated, that owning a house becomes unachievable
So that's a lot of information, and I get that no one will probably read this to the end, but I documented each stage of the process just so I remember what we went though to buy our own home. A chaotic, stressful and rewarding experience.