Owning Your First Home Guide

Getting Started: Your First Home Journey

Buying your first home is exciting—but it can also feel overwhelming. To help you prepare, we’ve created this guide to walk you through the process step by step.

Understanding Your Deposit

Most lenders want to see consistent savings over 3 to 6 months. This shows you can manage the financial commitment and make regular repayments once your loan begins.

How Much Do You Need?

Deposit requirements vary. Some lenders let you borrow up to 95% of the property’s value, meaning you only need to save 5%. However, borrowing more than 80% usually means you’ll need to pay Lenders Mortgage Insurance (LMI).

What Is LMI?

LMI is a fee paid at settlement. It protects the bank—not you—if you default and the property sells at a loss. It doesn’t cover illness or job loss. To avoid LMI, aim to borrow less than 80% of the property’s value.

Alternatives to a Standard Deposit

If you haven’t saved the full 5%, you still have options. Here are three common alternatives:

1. Family Guarantee

Your parents or close family can offer their property as extra security. This lets you borrow up to 100% of the property’s value without paying LMI.

Important: If you default and the sale doesn’t cover the loan, the guarantor must pay the shortfall. Most banks require guarantors to get independent legal or financial advice.

2. Rent Instead of Genuine Savings

Some lenders accept rental history as proof of financial discipline. If you’ve been paying rent consistently, you may qualify to use a cash gift (usually from family) as your deposit.

3. First Home Buyer Grants and Incentives

State and federal governments offer grants and incentives to help first-time buyers. Your mortgage broker can guide you through the options. You’ll find links to these programs in Appendix B.

The True Cost of Buying a Home

Your deposit is just one part of the equation. You’ll need to budget for several other expenses to complete the purchase.

Common Upfront Costs

Bank Fees: Includes application and valuation fees.
Stamp Duty: You may qualify for a waiver depending on your state and situation.
Government Fees: Covers mortgage registration, title transfers, and searches.
Legal Costs: Fees for your solicitor or conveyancer.
Property Checks: Includes building inspections, pest reports, or strata reports.

Additional Costs to Consider

Beyond the purchase, you’ll face setup and moving expenses. Plan ahead to avoid surprises.

Removal Costs: Will you move yourself or hire professionals?
Utilities: Connection fees apply, and some providers charge for two months in advance.
Appliances: You may need to buy essentials like a fridge or washing machine.
Furniture: If you’re leaving your parents’ home, you’ll likely need to furnish your new space.

Tips for saving For Your First Home

Your Mortgage Broker can assist you in comprehending where you are allocating your money.
Examine your discretionary expenses to identify areas where you can curtail to increase your savings. However, ensure that you remain realistic to maintain your lifestyle.
Collaborate with your Mortgage Broker to determine the amount you need to save.
Establish minor objectives and save the money in an interest-generating account that is distinct from your daily transaction account to keep the funds separate. You will be amazed at how fast it accumulates.
Instead of spending it, save your tax reimbursement.
Analyze your subscriptions to services like mobile plans, subscription TV, and other memberships. Reducing some of these expenses can significantly increase your savings.

Boosting Your Savings Before Buying

Working with a Mortgage Broker can help you understand where your money goes. Together, you can identify areas to cut back and set realistic savings goals without compromising your lifestyle.

Smart Ways to Save

Review Your Spending: Look at your discretionary expenses. Small changes—like fewer takeaways or cutting unused subscriptions—can make a big difference.
Set Achievable Goals: Break your savings target into smaller milestones. Keep the money in a separate, interest-earning account to avoid spending it. You’ll be surprised how quickly it grows.
Save Your Tax Refund: Instead of spending your tax return, add it to your savings.
Audit Your Subscriptions: Check your mobile plan, streaming services, and memberships. Cancelling or downgrading some of these can free up extra cash.

How Much Can You Borrow?

Your borrowing power depends on several factors. That’s why it’s smart to involve your Mortgage Broker early in the process. They’ll help you understand what lenders look for and how to present your finances in the best light.

Key Factors That Affect Borrowing Capacity

Income: This includes your base salary, bonuses, and allowances. Be upfront about all income sources. Lenders assess different types of income differently. For example, essential service workers may have 100% of their overtime counted, while others might only have 80% considered.
Financial Obligations: Lenders look at your debts—credit cards, car loans, personal loans, HECS, and Buy Now Pay Later services. Even unused credit cards must be disclosed.
Living Expenses: Brokers and lenders must ensure your loan won’t cause financial hardship. They’ll review your spending habits using your bank and credit card statements from the past 3–6 months.

Why Early Planning Matters

By working with your Mortgage Broker early, you can adjust your spending habits to improve your borrowing profile. Cutting back helps, but don’t go overboard. Your budget should be sustainable—not something that feels like a sacrifice.

How Much Should You Borrow?

Once your broker reviews your income, debts, and expenses, they’ll tell you the maximum amount you can borrow. But just because you qualify for a certain amount doesn’t mean you should borrow it.

Borrowing Wisely

A mortgage is a long-term commitment. Think about your future plans—starting a family, travelling overseas, or changing jobs. You don’t have to borrow the full amount. Your Mortgage Broker can help you choose a loan size that fits your lifestyle and goals.

Choosing the right home loan for your First Home

Collaborating with a Mortgage Broker proves to be highly beneficial in this aspect. Unlike banks, which can only suggest their own loan products, Mortgage Brokers have access to a plethora of loan products and can assist you in selecting the ideal one.

The Mortgage Broker will evaluate your circumstances and recommend whether a variable or fixed rate loan is the best fit for you, as well as the features you require in your loan product. Among the factors they will take into account are:

Would an Offset Account suit your needs, or would Redraw be a better option?
Which would be more suitable for you, a basic or a packaged product?
Should you opt for a Variable rate, Fixed rate, or a combination of both?
Do you prefer to pay off both the principal and interest or only the interest?

Pre-Approval or Conditional Approval

After determining your deposit amount, borrowing capacity, and the loan product that suits you best, it’s time to consider obtaining a Pre-Approval or Conditional Approval. This initial step in the loan process provides confirmation from the bank that they would consider approving your loan based on the evidence you provided them. They evaluate your income, liabilities, expenses, and credit history to determine your eligibility, subject to finding a suitable property.

Important Things To Note

It’s important to note that a Pre-Approval is not an unconditional approval, and there are still various factors to consider. Therefore, it’s crucial to speak to your Mortgage Broker before signing a contract to purchase a property or making any significant life changes such as acquiring additional credit cards or a car loan, or changes to employment or income.

Engaging a Conveyancer or Solicitor

Another crucial person to assist you in your home buying journey is your solicitor or conveyancer. They act as your legal representative and perform tasks such as property searches, reviewing contracts, calculating government fees, and coordinating settlements. If you’re unsure who to engage, you can seek recommendations from friends and family or ask your Mortgage Broker for advice.

After obtaining your pre-approval, it is time to start your property search! Choosing your first home can be a daunting task, but here are some helpful tips to guide you.

Choosing Your First Property

1. Stick to your budget: With your pre-approval in place, it is important to focus your property search within your price range.

2. Have a clear idea of the property type you desire: Are you looking for a house or a unit? How many bedrooms do you need? Do you want a garage? Is it essential to be close to schools or public transport? Create a list of “Must Haves” and “Nice to Haves” to narrow down your search criteria.

3. Start your search online: Check out property websites, where you can set up alerts for new properties that meet your requirements.

4. Engage with Real Estate Agents: Reach out to local real estate agents and discuss your requirements. They are always happy to assist in finding the perfect property to suit your needs.

5. Negotiate the price: It’s okay to negotiate on the property price. If you feel uncomfortable, ask a friend or family member to help.

6. Conduct checks: Before finalizing the purchase, it’s essential to consider getting a building and pest report. Sometimes, a fresh coat of paint can conceal underlying problems. Ensure that there are no structural or pest issues that could create problems in the future.

Buying At An Auction

Purchasing a property at an auction can appear intimidating, but it is a popular way of selling properties. It need not be overwhelming if you adhere to a few guidelines:

Make sure you are aware of your budget and adhere to it!
Conduct research on the property before the auction and arrange for pest and building inspections beforehand.
Prior to the auction, have your conveyancer or solicitor scrutinize the contract.
Ensure that you have received pre-approval for your loan.
Organize for your deposit. In case you are the winning bidder, you will be required to sign the contract and pay your deposit on the same day.

Discuss with your Mortgage Broker regarding deposit bonds if you are unable to provide the cash deposit.

Unconditional Loan Approval

After you’ve selected your property and made an offer, your Mortgage Broker will work with the bank to secure unconditional loan approval. This process involves a property valuation and a review of all the information provided during the pre-approval stage. The bank may request additional information, which must be promptly provided to avoid any delays in securing the approval. To assist with gathering the required documents, a Home Loan Application Checklist is included in Appendix A.

A Note on Lenders Mortgage Insurance (LMI)

It’s important to note that the lender may need approval from the Lenders Mortgage Insurer during the unconditional approval process. This insurance protects the lender in the unlikely event that you default on the loan and the property must be sold at a loss. It does not provide any protection for you in case of illness or job loss. Your Mortgage Broker will discuss any necessary insurance considerations with you.

Signing Contracts

Once your loan is unconditionally approved, it’s time to sign the contracts. Two sets of contracts are involved: one for the property purchase, which your conveyancer or solicitor will assist with, and one set of loan contracts from the lender. Your Mortgage Broker will review the loan contracts with you, including details like product type, interest rate, fees, and special conditions. However, it’s important to note that your Mortgage Broker cannot provide legal advice. If you have questions about the contracts, it’s recommended to discuss them with your conveyancer or solicitor.

Preparing For Settlement

After completing the contract signing process, it’s time to prepare for the big day! The settlement typically takes place between 4 to 8 weeks after signing the contract, depending on the location.

However, there are several tasks that must be completed before the settlement day:

Building Insurance: To avoid any delays during settlement, it’s essential to organise your building insurance policy early and provide a copy to the lender. Your Mortgage Broker can assist you with this process.

Giving Notice if you are Renting: If you’re currently renting, you’ll need to notify your real estate agent and cancel your utilities and mail forwarding services.

Utility Connections: Make sure to arrange for electricity, gas, internet, and phone connections well in advance of your move-in day. Your Mortgage Broker may be able to assist you with these arrangements.

Removalists: It’s recommended to book removalists with sufficient notice to ensure availability on your preferred moving day.
Funds for Settlement: Your conveyancer or solicitor will inform you of any shortfall of funds required for settlement. To avoid any delays, ensure that the necessary funds are available in your nominated bank account at least two full days before settlement.
Final Inspection of the Property: Organise your final inspection of the property a day or two before settlement to ensure that there have been no changes or any issues of concern.

Settlement Day

Your conveyancer or solicitor will coordinate with the vendor’s solicitor and the bank on settlement day to complete the transaction. Once completed, you’ll be advised to collect the keys to your new home. For further assistance, a useful checklist is provided in Appendix D.

What comes after this? Here are some tips to help you navigate through the first year of your home loan:

Make sure you’re aware of the amount and due date of your first payment.
Set up all direct debits for your utilities and insurance payments to your new account, including things like mobile phones and streaming services.
Stick to your budget during the first year to avoid stretching yourself too thin. It may be tempting to purchase new furniture and appliances, but it’s important to prioritize financial stability.
Making extra payments from the beginning can significantly reduce the time it takes to pay off your loan and save you money on interest.
Don’t hesitate to reach out to your Mortgage Broker for any questions or concerns you may have.

Appendixes

Basic Loans: Discount home loans with a lower variable interest rate than standard variable rate loans. However, these loans offer less flexibility and fewer features, such as no option for extra repayments, fixed repayment levels, or redraw facilities.
Break Costs: Fees that apply if a borrower pays off their fixed-rate loan partially or fully before the fixed-rate period expires.

Conditional Approval: Initial approval given by a lender, usually subject to property valuation and other factors, such as mortgage insurance or submission of further documentation. Conditional approval is typically valid for three months.

Fixed Interest Rate: An interest rate that remains locked in for a specified period of time. Some lenders may allow extra payments during the fixed term, but overpaying or paying off the entire loan may incur break costs.

Government Charges: State and government charges, including transfer of land stamp duty, mortgage stamp duty, and transfer and mortgage registration fees.

Interest Only: A repayment option where the borrower only pays the interest on the loan for a specific time, usually between one and five years. This option is commonly used by property investors to maximize cash flow and tax benefits, and the size of the loan remains unchanged during the interest-only period.

Low Doc Loan: A type of mortgage suitable for self-employed buyers or those who cannot provide evidence of income. Instead of providing proof of income, the borrower makes a statement that they can afford the loan. Low doc loans carry higher interest rates than conventional loans due to the increased risk for the lender.

LVR (Loan to Value Ratio): The percentage of the property price that the borrower is borrowing from the lender. For example, if a property is worth $500,000 and the borrower is borrowing $400,000, the LVR is 80%. Lenders may offer loans up to 105% LVR for some properties, but loans above 80% LVR require Lenders Mortgage Insurance in Australia.

Lenders Mortgage Insurance: Insurance that the borrower must pay when taking out a loan with an LVR over 80%. The insurance covers the lender if the borrower defaults on payments, and it is a one-time payment.

Mortgage Stamp Duty: A state government tax payable by the borrower when taking out a new or refinanced mortgage. The amount varies by state, and some states offer concessions for first home buyers. Mortgage stamp duty is separate from standard stamp duty, as it involves registering the mortgage itself, not the property or land being purchased.

Offset Account: A savings account linked to a mortgage, with interest earned applied to reduce the interest on the mortgage. Offset accounts can help reduce a tax liability.

Principal & Interest: A loan where both the principal and interest are repaid together on a regular basis.

Redraw Facility: A feature that allows the borrower to make extra payments into the loan, temporarily reducing the amount on which interest is charged, and then withdraw the money later for personal use.

Stamp Duty: A government tax on the purchase of land or property, paid by the buyer. Stamp duty varies by state, and first-time homebuyers may be eligible for concessions in some states.

Unconditional Approval: Final approval given by both the lender and mortgage insurer after the property has been valued and the buyer has made a formal written offer on a property or piece of land.

Variable Interest Rate: An interest rate that fluctuates during the term of the loan based on the marketplace rates and is not locked in for a specified period.