Whether you’re a fan of the show House Hunters or not, everyone knows it’s a pretty good guide to what not to do.
“Well, it’s $50k over budget, but the walls are that colour you love, so it’s worth it!”
Or as Patrick Monahan put it on Twitter, “HOUSE HUNTERS COUPLE: We need an open concept, 7 baths, we plan to entertain dozens, & we need a football field for our 9 dogs. Budget: $38K.”
But what should you really be looking for? When you’re thinking about taking on the massive debt of buying your first home, it’s important to take the time to get it right.
Step 1: Do your sums
It’s not necessarily a superpower, but knowing your Borrowing Power is the first step in setting your savings goals for a deposit and mortgage repayments. There’s no point setting your heart on a mansion if you can only afford a cottage.
If you’ve never done a real budget before, it’s time to sit down and have a good look at your financial situation. You can find out how to write a budget for your savings goals here.
Use our Home Loan Borrowing Power Calculator to work out how much you could borrow, and what your monthly repayments would be. As a general rule of thumb, your expected mortgage repayments should not be more than 30% of your before-tax income. If you’re thinking of kids any time in the next few years, it becomes wise to look at how just one income would cope with those monthly repayments.
How much you can borrow depends on a few things – your salary income (how much you earn), your expenses (how much you spend), the interest rate on a home loan (how much you pay in interest), and the loan term (how long you spend repaying it). You may be eligible for a First Home Owners Grant if you are buying a new property.
Don’t make the mistake of thinking you’re only saving for the deposit, either. When you add on the extra upfront costs of a loan application fee or establishment fee, stamp duty, legal costs, inspection fees, and home insurance, you can be looking at twice the amount you thought you needed.
Step 2: House hunting
Decide on a plan of action. Do you intend to buy or build? Are you after a house, townhouse or unit?
Since you know your borrowing power, stick to looking in the suburbs you can afford. The state of the market can vary greatly between suburbs and property types, so it is vital to know where to look instead of wasting your time looking around in the wrong suburbs. Make a shortlist of possible places in the right area before you start dreaming about the walk-in wardrobe at one place or the laminated countertops in another place’s kitchen.
When you’re looking at houses, here’s a quick run-down on 10 things to look for in a home and 8 things you don’t need to worry about. The Real Estate Institute of Queensland (REIQ) says you should always check for rising damp in a rotting carpet or mouldy walls; cracks in walls or ceiling that indicate structural damage; light switches that don’t work; water pressure in all taps you come across; water drainage issues outside; and broken tiles on the roof.
Don’t forget to ask the agent what is included in the sale. Don’t let the fancy curtains sway you if they’re going to leave the house with the seller. Fixtures that should be included in the sale (but aren’t always) include anything bolted down:
| Stoves | Clothes line |
| Air conditioner or built-in heating system | Television antennae |
| Toilets and baths | Plants and trees |
| Hot water systems | Ceiling fans |
| Carpets (not rugs) | The letterbox |
Chattels (movable items) that can be included in the sale if they are listed on the contract include:
| Dishwashers | Light fittings (chandeliers, etc.) |
| Washing machines | Pool and spa equipment |
| Sprinkler systems | Potted plants |
It is wise to search out a solicitor or conveyancing firm at this point so they can handle the legal documentation when you’re ready to buy. There are some costs involved – when you find a place, your lawyer needs to conduct searches with the Titles Office, Certificate of Rates, and Zoning. You will also need to pay your lawyer to manage the transfer duty (stamp duty), registration of title fees, and the lawyer’s hourly rate to perform those professional services. Doing the conveyancing yourself is time-consuming and risky, as you could miss a search or not understand the results of the property searches.
Obtaining home loan pre-approval is your next step if you want to stand a chance in such a competitive buying market. Most of the time, there are multiple offers for properties and sellers always go with someone who has a pre-approved offer of finance. Pre-approval costs nothing and most lenders offer this service even before you begin your search.
But where should you get that pre-approval? Now’s the time to get on the CANSTAR website and compare home loans. Work out which institution’s home loans are the best fit for your situation, not just which institution has the lowest interest rate. Think about things like whether you want to use an offset account, redraw facility, or make additional repayments to repay the loan faster.
Step 3: Buying a house or unit
There are two main ways to buy a house or unit – via private treaty or auction.
A private treaty just means you negotiate the purchase of the house, including the price, directly with the seller or their real estate agent. It is a good idea to be aware of the prices being paid in the area and always remember that the seller’s real estate agent has the seller’s best interests at heart, not yours. After you have signed the contract, you normally have a cooling-off period in which you can have inspections done and cancel the contract if something is wrong.
In contrast, an auction can be quite scary so it’s worth attending some auctions without bidding, just to get an idea of how they work. Make sure you have your lawyer look over the contract of sale before the auction and don’t get carried away at the auction. Set your absolute price limit and stick to it. There are plenty of other properties if you miss out. If you are successful, have a personal or bank cheque on the day to cover the deposit required (usually 10%).
Is the price right? You can conduct a property’s sales history search with organisations such as Property Value by Corelogic RP Data, Domain, or Realestate.com.au. This lets you find out how much the property last sold for and compare the seller’s asking price with recent sales of similar properties in the same area. You could also get an independent valuation of the property done by a professional valuer (not a real estate agent).
Are the conditions right? Sellers are statistically more likely to take an offered price if it comes without a long list of contractual conditions, according to REIQ. Be aware that the seller may make a counter offer if your price is right but the conditions don’t suit them. Real estate agents have to submit all offers to the seller that meet their instructions, such as offers over a certain price reserve.
Step 4: Pre-settlement
Once the contract is signed, it’s time to turn that conditional pre-approval into a formal loan approval. Most lenders still need you to sign the loan documents in person, so it’s a good chance to once again check the terms of the home loan of your choice.
Your lender may also ask you to take out building insurance for the period between signing the contract and settlement. This only applies if you are buying a house and sometimes a townhouse, as units, apartments, and flats are insured by the responsible Body Corporate.
You are now in the cooling-off period, the time in which you can still change your mind if you find something wrong with the property. Visit the property in person to check that everything is in the same condition as when you made your offer.
Get the required inspections done – building, pest, and termite inspections – by licenced professionals.
Check the compliance of the property with local council by-laws, especially extensions to the property, pools, and fences.
Ask your lawyer to check that the inclusions you expected – stove, light fittings, blinds – are itemised in the contract. If they are not, you probably will not get them unless you have the contract changed now.
Know the terms of settlement, such as when you have to pay the balance of monies and take possession. Phone your lawyer the day before settlement to check that everything is ready to go, especially if you will not be attending settlement yourself.
It’s now common that on Settlement Day, your lawyer will attend on your behalf and the seller’s lawyer will attend on their behalf. Once the seller’s real estate agent has been notified by both lawyers that settlement is complete, they will let you know that you can now pick up the keys from them.
Step 5: Post-settlement
Congratulations! You’ve done it! When you finally buy your perfect home, kick back and enjoy it. This purchase was an important and expensive one, and at last the house hunting can cease.
From now on, the biggest and most obvious change will be in your finances. Excess funds will now go into your mortgage instead of a savings account.
Set up a direct debit or a calendar reminder so that you never miss a monthly repayment. Better still, divide your monthly repayment into smaller portions – most institutions will allow you to make repayments fortnightly or weekly to save in interest over time.
Now, your “saving for a deposit” days may be over, but you need to keep saving for your Emergency Fund where you can. With home ownership will inevitably come a few major and unexpected expenses over time, such as replacing a hot water system or old screen doors.
If you don’t use a savings account for your emergency fund, you may be able to use the redraw facility on your home loan if an expense comes up – but you should always check the terms of the facility being using it. Don’t get hit with fees on top of your emergency expenses.
After months of house hunting you may wonder, what next? Relax and completely ignore the property market from now on. With a bit of luck, your property will appreciate over time and help you grow your wealth.
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