How to buy a house in Australia: a 7 step guide

If you’ve decided now is the right time to purchase a home, it’s a good idea to arm yourself with some knowledge of how to go about it. While the exact procedure for buying a house may vary depending on your circumstances, having a plan could help to make purchasing your dream home easier.

1. Decide if you’re ready to buy

Before you sign anything, it’s important to decide whether you’re in a healthy enough financial situation to purchase in the first place. When it comes to buying a new house in Australia, there’s a lot of steps involved and it can take between 3-12 months for the process to be finalised.

For most people, the decision to buy a house ultimately depends on what stage they’re at in life. Owning a home brings with it a sense of certainty, stability and the opportunity to grow your wealth through property price rises. It also entails a greater sense of responsibility and financial risk, so make sure to do as much research as you can into how home loans work before committing to anything.

It’s a good idea to research how the property market is going, to work out if it’s a good time, in general, to buy in your desired location. This might not matter so much if you plan to hold on to the property for a long time. But if the market is on the decline, you borrow too much and you have to sell, you could risk ending up in negative equity.

Rising Stars: Australian Property Market Report

Another thing to keep in mind is the ever-fluctuating state of interest rates. The recent RBA cash rate announcement by the Reserve Bank of Australia, shows a hold of 4.35%. But, as we have seen, they have been on the rise since 2020, and regularly fluctuate. Since home loans are a long term game, it’s highly recommended that first time buyers do as much research as possible before jumping into the market.

2. Determine your budget

A home loan will probably be the largest debt you’ll ever have, so it can be a good idea to take the time to figure out your finances and set up a solid budget before diving in. Part of budgeting is being aware of your income and living expenses, but also your ability to pay mortgage repayments and fees. You might like to take how much of a deposit you need for a new home.

When it comes to the overall cost of buying a home in Australia, a deposit is just the beginning. Make sure to familiarise yourself with the costs of buying a house in Australia, as there are many. When you exclude interest and the deposit, upfront costs on a home can total to as much as $40,000 or more. For instance, Stamp Duty just on its own can cost you several thousand alone. Use Canstars Stamp Duty Calculator to get a better picture of what it might cost you.

Having a realistic budget in place is recommended, regardless of whether you’re fresh to the market as a first home buyer, or a seasoned property investor chasing your next buy. A good place to start would be Canstar’s Home Loan Borrowing Power Calculator, to get an idea of how much banks may be willing to lend you and what your monthly repayments might be. Your borrowing power will depend on a few factors, such as your income, expenses, how much interest you pay and the duration of your home loan.

Keep in mind that since events like the banking royal commission and the COVID-19 pandemic, there has been more pressure on lenders to meet their responsible lending obligations. This has resulted in many lenders increasing scrutiny on regular discretionary expenses (like Netflix subscriptions and Afterpay), which has made it more difficult for some potential homeowners to be approved for a loan.

You may also find it helpful to leave a buffer in the budget to protect you in the event you need extra cash unexpectedly. Having a buffer could help avoid falling into mortgage stress and give you peace of mind. Extra room in the budget may also be important if you plan to have kids any time soon.

3. Compare and find the right home loan for your situation

For most of us, one of the first steps to buy a house in Australia, is to take on a home loan. It could be worth taking the time to compare your options when it comes to applying for a home loan and lender. Some other factors to take into consideration when choosing a mortgage could include the interest rate (and comparison rate), whether to go with a variable rate loan or to fix your rate for a certain number of years, features (such as availability of a mortgage offset account), the term of the loan and any upfront and ongoing fees.

At this stage of your house hunting mission, you could apply for conditional approval on your home loan, which could be useful if you wish to attend an auction or open house because it would give you an idea of how much you are able to spend. The home loan pre-approval process (also known as approval in principle) is when your bank conditionally approves you for a loan of up to a certain amount before you make an offer to buy a house or unit. Most banks can offer conditional approval for three to six months, which could take some of the stress out of your search.

4. Start house hunting

Once you have a bit of an idea of your budget, and perhaps a conditionally-approved home loan or an idea of the type of home loan you need, you can really get stuck into the search for your new house. Of course, this search will depend on whether you want to build or buy, and if you are hunting for a house, unit, townhouse, duplex, fixer-upper or investment property. Canstar’s Rising Stars: Australian Property Market Report for 2024 is a great place to discover the best places to buy in Australia.

With an idea of your borrowing power, it will be easier to make a shortlist of suburbs that fit your price range. Many Australian property websites have useful profiles with general pricing and demographic information. You may also want to take into consideration things like:

• Convenience: is it close to facilities that are important to you?
• The layout of the house and features included .
• Any general concerns about the area, like flooding risks or noise levels.

5. Buy the house

You are now at the stage where it’s time to start making offers on a property or properties that you like. There are two main ways to buy a house or unit – via private treaty or at an auction.

If you choose the private treaty (private sale) option, this means the purchase of the house will be negotiated either directly with the seller or through their real estate agent. Ideally, you would enter negotiations after you have already done some research into property prices for similar homes in the area.

You will usually have the chance to inspect the property again after making an offer, so if you or your lawyer notices that something is wrong after you have signed the contract, you may still be able to amend the terms of the contract. In some states and territories, you may be able to cancel the contract within the cooling-off period.

An auction is very different to a private treaty. Some first-time buyers might find the initial auctions they attend to be an overwhelming experience. Given there is no cooling-off period at auctions, it may be worth visiting a few first without bidding, just to see how they work. If you do end up going to an auction with the intent of making a bid, it could be worth doing the following:

• Ensure your lawyer or conveyancer has viewed the contract of sale before the auction.
• Go in with a set price limit.
• Have a personal or bank cheque on the day to make a deposit if you are successful.

A few other handy tips when buying a house:

• Check that the asking price of the house is in line with what it is actually worth by searching for the property’s sales history on online databases like CoreLogic, Domain and Realestate.com.au, or consulting a professional valuer. If it’s been a while since the house was last sold, you may also want to check the sales history of other properties in the same area.
• Check that the contractual conditions of the property are right for you; but be aware that sellers may be less likely to accept an offer that comes with a long list of conditions. The seller may make you a counter-offer if your price is what they want, but the conditions don’t suit them.
• Whether it’s your first inspection or your last pre-settlement inspection, always pay close attention to the little things like plumbing and electrics.

6. Follow the settlement process

Now that you have signed the contract for your new home, it’s time to turn that conditional approval (if you have one) into a formal loan approval. Most lenders will get you to sign home loan documents in person, although more and more lenders are moving to electronic methods of signing. Many lenders may also require you to take out home insurance.

After signing the contract, unless you bought the property at auction or have an unconditional contract, you may be able to do certain checks and inspections and make changes to the contract. During this time, it could be a good idea to:

• Get the relevant inspections done by licensed professionals: building, pest, termite and pool, if applicable.
• Check compliance of the property with local council by-laws: extensions to the property, fences and pools.
• Have your lawyer or conveyancer check that the inclusions you expected are listed in the contract, and ask for a change to the contract if they are not. Inclusions could include stoves, light fittings and blinds.
• Know the terms of settlement: find out when the balance of money – including the deposit and any applicable fees – is due and the date you can take possession. Phone your lawyer or conveyancer the day before settlement to check everything is ready to go.

Your lender will work with you (and, in some cases, your solicitor or mortgage broker) to finalise the details of your home loan, and draw up the mortgage agreement, which you will need to sign. On settlement day, your lawyer or conveyancer will notify the seller’s real estate agent when the settlement is complete. Then you can pick up the keys to your new home.

7. Move in and start paying off your mortgage

You’re a homeowner, congratulations! The house hunting is finally over and it’s now time to move into your new home, and pay off your mortgage.

To save on interest over time, some institutions may allow you to make repayments more frequently, such as on a fortnightly or weekly basis rather than monthly. It’s worth checking with your financial institution to see if it will charge any fees should you want to pay off the mortgage early.

Other bills will also start popping up, because home ownership will inevitably come with unexpected expenses as the years go on and the property needs repairs. So, as well as your usual savings, it could be a good idea to set up an emergency fund in an interest-earning savings account to cover you if, for instance, your fridge stops working and needs to be replaced. You may also be able to use an offset account or redraw facility for this purpose.

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