Despite all the support currently available, it’s still quite tough for first time home buyers to get into the market. Record low interest rates and an increased desire for stability have seen more 1st home buyers considering making a move. This has significantly increased competition for entry-level properties, making it even harder to find something suitable within their budget.
This is on top of the traditional challenges for first time home buyers. From saving the required deposit to navigating the sale process, there are plenty of hurdles to overcome. And that’s not to mention the massive learning curve that comes from attending inspection after inspection.
But, as tough as it all is, it’s definitely worth it. Buying your first home is a major life milestone and a real step toward securing your financial future. It also gives you a new level of independence, allowing you to have much more control over your living environment.
As property experts, the Local Agency Co. team are passionate about making the market more accessible. As part of this, we’ve put together the below advice for first time home buyers. In this, we explain some of the steps you’ll need to take and share our tips for each one.
Sort out your finances
For first time home buyers, a mortgage is usually required, and securing sufficient financing is one of the biggest concerns. This will determine how much you have to spend and, ultimately, what kind of property you will be looking for. As such, it’s worth working this out early and arranging pre-approval before you get too deep into your search.
As part of this, you will need to have a sizeable amount in savings to use as a deposit. Generally speaking, this will need to be 20% of your proposed budget (e.g. $160,000 for a $800,000 property). For first time home buyers, this can take a long time to save – often upwards of 10 years.
To help you with this, the government has set up the First Home Super Saver scheme. This lets you make voluntary contributions to your super fund, which you can later withdraw to help fund your deposit. As super is taxed at a lower rate, this can help you hit your savings goal quicker.
Depending on your situation, many mortgage providers will also accept smaller deposit amounts, like 10% or less. However, to offset the financial risk, they will require you to take out Lender’s Mortgage Insurance (more on this below). For first time home buyers on lower incomes, the government’s First Home Loan Deposit scheme may also be an option.
It’s also important to remember that, as part of assessing your mortgage application, a lender will check your credit file. This means they’ll look at your credit history, including any previous loans and – more importantly – loan defaults. They’ll also check any outstanding debts, including credit card limits, so it could be worth clearing these before applying.
In addition to your deposit, there are a few other upfront expenses you will need to factor into your finances. These include:
- Transfer duty (Once known as stamp duty): This is the cost of changing the formal ownership of the property and will be based on the sale price. For first time home buyers in NSW, transfer duty is waived for properties under $650,000 and discounted for under $800,000.
- Conveyancing: This is the cost of the legal professional who helps you review, complete, and submit contracts and other paperwork. While there’s no set price for this, it generally is about $1,500.
- Mortgage fees: Most lenders will charge a one-off fee for processing your application. If your deposit is less than 20%, you’ll also need Lender’s Mortgage Insurance to cover you if you default. How much this will cost will depend on the lender and the percentage of the property price you’re borrowing.
- Inspection reports: Once you’ve found a property you like, you’ll need to bring in the experts to make sure it’s all sound. This usually involves getting strata, pest and building reports completed, which could cost up to $1,000.
Do your research
For first time home buyers, there is no such thing as being over prepared. And, thankfully, there are a wealth of resources available online designed to support 1st home buyers. These will help you understand everything from the buying process to the current state of the market.
One of the first things you need to look into is where you want to buy. There are a range of things that might draw you to one particular area – like local friends, family, or amenities. This is a great starting point for setting your search area, but there are several other things you should consider.
Most importantly, you’ll need to make sure your budget is realistic for the type of property you’re after. Looking at recent sales data for comparable properties will give you the best sense of what places are going for. It should also help you work out what the properties you end up inspecting are actually worth.
If your preferred location is too expensive, take a look at the surrounding area. Even shifting your focus over one or two suburbs could see your budget stretch a lot further. These locations may also offer greater capital growth potential, making them a better long-term option for first time home buyers.
If you are unfamiliar with an area, spend some time there to really get a feel for local life. Grab breakfast at a local café, check out the nearby parks, and have a chat with a few residents. If you buy there, this will be your new community so it’s important it fits your situation and lifestyle.
Be clear on what you’re really looking for
For first time home buyers, working out what’s a non-negotiable and what’s a nice-to-have is especially important. Chances are, you won’t be able to get absolutely everything on your wish list and some compromise will be required. And knowing your must-haves will help you avoid getting too invested in a property that simply won’t work for you.
As part of this, it’s worth considering what your priorities are if a potential trade-off is required. For example, are you willing to have less outdoor space if it means you can be closer to the CBD? Or would you prefer to live further out if it means you can have more space?
There are no simple answers to these questions and it’s really a matter of personal preference. For first time home buyers, it’s often also something you work out as you go along. Generally, the more properties you inspect, the clearer your idea of what you want (and don’t want!) will be.
With that in mind, it’s important not to rush your decision. While it’s tempting to go after the first place you like, this could cost you in the long run. Instead, take your time, consider your options, and try to listen to your head, not your heart. Don’t take too long – in a rising market the longer you take to make a decision, could see you compromise on the type of property you end up buying.
Speak to the professionals
Having the right support around you can make a major difference to your buying experience. This is particularly true for first time home buyers, who are more heavily guided by the professional advice they’re given. Whether it’s a mortgage broker, conveyancing lawyer, or an experienced agent, you need to work with people you can trust.
However, finding the right professionals to work with can be tricky for first time home buyers. We suggest starting with your friends and family and asking them for recommendations of anyone they know or have used. A simple Google search should also provide a few options and you can always check online reviews for more information.
Local Agency Co. also offers a special support service for first time home buyers. If you have questions or need advice, you can book in time with one of our experienced team members. During this discussion, we can help get you closer to buying your first home.