Thinking about buying your first home? Arm yourself with the right knowledge and you’ll be in a strong position to land the property of your dreams.
1. Know your borrowing power
Before you even start looking at places, it’s wise to know what your borrowing power is. After all, there’s little point in setting your heart on a property or suburb that’s way out of reach.
Your borrowing power is calculated based on your income, financial commitments and loan details, and typically, lenders will assess the following:
- Annual income
Based on your annual taxable income.
Such as living expenses, debts and medical expenses.
- Number of dependents
Your bundles of joy can lower your borrowing capacity.
- Proven savings
Strong savings reduce your risk as a borrower.
- Your deposit
A deposit of around 20% of the property price is usually required. If it's less than 20% of the property's purchase price, you'll need to pay Lenders Mortgage Insurance (LMI), which covers the lender in case you don't make your repayment. In some cases, the LMI can be included in the mortgage, so you may not have to pay it upfront.
Use our calculator to work out how much you may be able to borrow – it is also smart to get an idea of what the repayments might be. After all, if you’re renting now, mortgage payments are likely to be more expensive.
2. What to look for when viewing homes to buy
Once you know your borrowing power, you can start identifying suburbs you can afford to buy in.
The more properties you view, the better understanding you will have of the current market. While it's a good idea to begin your search online, you'll only really get a feel for a place when you step through the front door.
Once you're out viewing properties, remember to consider aspects beyond the home itself.
Make notes of problems that may lead to expensive repairs, such as missing roof tiles, weak toilet flushing, faulty guttering, damp, rotten window frames and cracks in the walls.
Then be sure to explore the surrounding area, checking the property’s proximity to public transport, schools, shops and services – all of which can significantly influence a property's value.
3. Research different types of home loans
Not all home loans are the same. Different home loans have different features, and it’s important to understand how they vary, and which one will give you the greatest benefit.
Most people take out a principal and interest home loan, where regular payments are made against the principal (the amount borrowed), as well as paying interest.
Another option is an interest-only loan where, as the name suggests, your repayment amount only covers the interest on the loan.
This may be attractive in the short term, but be careful – paying interest only could cost you in the long run. Because you’re not paying down the principal amount, you’re not building up equity in your property or reducing the loan balance you pay interest on.
An offset account, meanwhile, is an option if you have savings. You can use your savings to ‘offset’ the amount of home loan you pay interest on.
Speak with one of Macquarie’s banking specialists or your mortgage broker about the various features different types of mortgages have.
4. Get your home loan pre-approved
At this stage, obtaining pre-approval would be a smart move, as it will enable you to enquire about properties with confidence.
Pre-approval or conditional approval on a home loan means getting your loan approved in principle, which shows that you have met the bank's initial lending criteria.
Remember, final approval will only be granted once your home loan application has been completed and all the information you've provided has been substantiated with your supporting documents, including a valuation on your chosen property.
5. The hidden costs of buying a home
Once you’ve got your suburbs identified, and your home loan pre-approved, you're on the home straight.
But don’t fall at the final financial hurdle! There are a number of additional costs and concessions that you need to keep in mind. These are some of the additional costs you need to account for:
- registration/transfer fees
- stamp duty (a major cost, but as a first home buyer you may be exempt or eligible for a concession)
- lenders mortgage insurance (if necessary)
- conveyance and solicitor's fees
- building/pest inspection reports
As you might expect, costs vary depending on where you are in the country, but the additional costs excluding stamp duty can get into five figures.
And, speaking of stamp duty, be sure to check out the government's First Home Owner Grant to see if you might be eligible.
In addition to the above costs, you’ll also need to factor in ongoing costs you may not have paid when renting. Council rates, water supply and strata fees are now your responsibility as a home owner.
There’ll be moving costs, too.
Buying your first home is both an exciting and emotional time. But make sure you put those feelings to one side – this is a huge financial commitment, so arm yourself with the right knowledge to make the best decision.
Surround yourself with experts, and speak with your mortgage broker or Macquarie home loan specialist for further advice.
Before you start your property search:
- Know your borrowing power
- Identify the suburbs you can afford
- View all properties with a critical eye
- Find out which home loan is right for your circumstances
- Get pre-approval on your home loan before you find ‘the one’
- Know the ‘additional costs’ of buying a home
- Surround yourself with experts and seek their knowledge