So you decided to buy a house. Out of all life’s decisions that you may take, buying a house would be one of the most complex and unnerving ones. While buying a property, the one thing that you cannot overdo is research. So before jumping right in, why don’t you go through our comprehensive guide to buying a property?
- Valuate your decision
Since buying a house is probably the largest investment that you’ll make, it will not hurt to think twice. What will your lifestyle be after a few years? Do you have a job security of more than 12 months? High job security will present you as a low-risk candidate to the lender. Are you planning to have kids? You should be aware that each dependent will reduce your borrowing amount by $50,000 to $ 60,000. Will you stick around in the new place for at least the next 5-6 years to build up sufficient equity? If not, then it’s better to wait or rethink.
- What is your budget?
This amount will vary according to the lender you choose and many of them offer online calculators to evaluate your borrowing limit. You can also hire a mortgage broker who will advise you on the amount that you can expect from lenders based on your income, assets, debts, expenses, dependants etc. You could apply for a copy of your credit file to review your financial status. Try to minimise your debts and reduce the limit on your credit cards. This will help you to secure a higher amount. If you have bad credit then you may have to contact lenders who specialize in bad credit loans.
It is advisable to come up with a 20% deposit to avoid paying lender’s mortgage insured. Though there are low deposit mortgages available, the mortgage insurance will be much higher.
- Costs Involved
An accountant or lender will let you know of the actual costs that you will incur. Here is a list of expected costs:
i) Stamp duty – Amount will vary depending on the state you want to live in and the purchase value of the property
ii) Legal charges – Depending upon the legal work involved often amounting $2000-$3000.
iii) Loan application fees – Depends upon the lender. For foreign applicants, this may be up to 4% of the loan amount.
iv) FIRB approval fees – for temporary residents or foreign investors with no Australian visa ( Not applicable to residents)
v) Building and pest inspection fees
vi) Lender’s Mortgage insurance
vii) Building insurance
viii) Other costs such as utilities, moving costs, council rates, mortgage protection insurance, repairs and maintenance – approximately 0.5% of the total property value.
- Location research
Buying a home is an emotional process. However, it is important to stay focused till the final settlement. Listing down your priorities will help you focus on them. Following are some of the questions that you should ask to determine your must-haves:
What is your priority in choosing a location? The location should be a balance between your requirements and lifestyle choices. Would you like to live in some business area or regional area? Would you like to live close to your workplace? Are there good schools around your home? Is public transport easily available?
You may feel staggered by the huge amount of information that you’ll have to digest before making a location-specific choice. But due perseverance will help you make the right choice. It is always better to make a conscious and well-informed choice rather than a hasty one and then regretting it later.
- Property Type
You should have a rough idea of the size of the house that you are going to purchase. How many bedrooms and extra rooms like- nursery, study room, guest room will you need?
Do you want a house or unit?
- Probing Mortgages and Interest Rates
What kind of interest rates would you prefer? Fixed or variable? A fixed interest rate will enable you to know exactly the amount of repayments. If there are chances of interest rates falling in the near future, then it’s better to go for a variable interest rate. Ideally, you will want a home loan with a lower interest rate. This will help to maximise savings. There are many competitive loan features in the market that help to save money. Does your lender offer free redraw facilities?
An all-in-one loan or 100% offset account will help if you have surplus disposable income.
- Getting Approved
i) Pre-approval – This means that the lender will approve your loan when you find the property you want to purchase.
ii) Conditional approval – The lender will verify your documents and perform checks on your income and documents.
iii) Full approval – Once the deposit is paid, you will sign a binding contract with the lender
Since you have so many expenses to handle while buying a house it is likely that you will be tempted to skip building inspections. Believe us, this would be a grave mistake. There are many defective structures out there and you don’t want to end up with one of those. Following are some inspections that you will have to carry out.
- Building inspections(for houses), Strata inspection (for units)
- Pest inspection
- Electrical inspection
- Checks on whether the fittings and structures that come with the house (carpets, furniture) are in good working condition.
These inspections are likely to cost you about $200-$600 each. So it’s better to get them done only if you are going to buy a particular house. Else, you can check for damages or repair works yourself.
- Check the walls and ceiling for cracks or moulds
- Test the doors and windows for any repairs
- Check under the sinks for any defects in the plumbing system
- Have a quick look at the neighbourhood, whether it suits you well.
These checks will help you to make a final decision whether you can adjust the repair costs in the purchase price or drop the deal and look for something better.
- How are you planning to buy your property?
In Australia, you can buy your property through private treaty or auction. When the property owner fixes a price and the real estate agent negotiates the price with potential buyers – it is a private treaty. When the buyers come together at a fixed location and time and bid for the property – it is an auction. The highest bidder gets the house provided he has 10% of the property price available for a deposit.
You have to be cautious while making an offer. Don’t lowball to less 10% of the asking price else you may miss out on the deal altogether. It’s always advisable to verbally inform the real estate agent about your offer.
It is now time to exchange contracts. It is better to have a solicitor or conveyancer to have a look at the contract documents before exchange of contracts. Once you are satisfied with the contract details, you can pay the deposit. Then you’ll have a cooling off period of 6 weeks before settlement day (not applicable if the sale is made by auction). During this time you can arrange finances and get the building insured. Finally, settlement day had arrived!! You will now have to pay the balance purchase price and stamp duty and get the property transferred to your name.
Now, you have a place to call your own- your home !! Cherish this moment because you’ve earned it !! The house is now ready for occupation. You may have made some grave mistakes along the way. But that’s fine. You have come a long way and learnt a lot about the property market. After all, life is about making mistakes and learning from them.