First Home Buyer Guide
This guide will help you learn how to buy your first home in record time.
The best part?
Everything here applies to first home buyers in 2022.
(In other words: you don’t need to worry about reading out of date stuff)
So without further ado, let’s get started…
Don’t have time to read the whole guide right now?
No worries. Let me send you a copy so you can read it when it’s convenient for you. Just let me know where to send it (takes 5 seconds):
Know Your Budget
To start with, we’re going to think about one of the most important questions for first home buyers to consider:
“How much can I afford to pay for my first home?”
Things like bank and mortgage broker websites will give you a simple estimate based on things like your income and your savings, but are they really accurate?
In this chapter you’ll find out.
Let’s Start With A Quick Story
Back in 2009-2010 I (over-optimistically) thought of myself as an up and coming property mogul.
By stretching my budget and settling for a barely manageable interest rate of 6%, I bought my second property – a small flat that I planned on renovating and flipping for a massive profit…
However, within 6 months interest rates started increasing, and I found myself faced with a rate of 7.5%. Now, an increase of 1.5% might not seem much, but it meant that I was paying an extra $875 per month. I couldn’t afford this.
I managed to hold on for a little while, but I ended up having to sell quickly when I couldn’t make the repayments. This alone should show you how important it is to understand just how much you can comfortably borrow without putting your finances at risk.
1. Understand Your Borrowing Power
The first thing you need to understand is the concept of borrowing power. Basically, your borrowing power refers to the maximum amount you might be able to borrow based on your income and your deposit.
We will look at borrowing power in more detail later, but for now you can think of it as something like the credit limit on your credit card – just because you can borrow a certain amount doesn’t mean you have to!
2. You Also Need To Understand LVR, LMI & Genuine Savings
Borrowing power is important, but understand terms like LVR, LMI and genuine savings – banks will use them, and you will become confused if you don’t.
LVR stands for loan-to-value ratio. It is defined as the percentage of a home’s value that you have to borrow. Generally, the lower your LVR is, the easier you will be able to get a loan. If your LVR is higher than 80%, then you need to consider LMI.
Lenders Mortgage Insurance
LMI stands for lenders mortgage insurance, and it is designed to cover the bank if you have to default on your loan. LMI lets people like first home buyers purchase a home with a deposit of less than 20%. The amount of LMI that you will pay depends on the size of your deposit, so it’s in your best interest to save the biggest deposit possible.
Different lenders can charge different LMI fees, so it’s worth shopping around. Sometimes, you can even have LMI waived if you work in a certain profession with a reliable income. Use our LMI calculator (insert hyperlink here) to find out more about LMI and how much you might have to pay.
Genuine savings are something that banks consider when assessing loan applications. They include:
- ✅ Savings held or accumulated over 3 months.
- ✅ Shares or managed funds held for 3 months or more.
- ✅ Equity in real estate.
- ✅ Funds held in First Home Super Saver Scheme (hyperlink?).
Different lenders require different amounts of genuine savings in different situations. Generally, banks like to see 5% of a property’s purchase price in genuine savings if you have less than a 10-15% deposit.
In some cases, you will be able to use the money that you have paid in rent to cover genuine savings requirements. For this to happen, you need to have:
- ✅ A current rental.
- ✅ At least 6 months clean rental history.
- ✅ Be renting via a licensed property manager.
If you fit these criteria, your rent for the last 6 months can be used to show genuine savings, meaning that you will be able to use a deposit sourced from “non-genuine” savings.
Note that you still have to provide a deposit if you are renting. You just might not have to prove genuine savings.
Now that we’ve got that out of the way, let’s go back to borrowing power:
3. Maximising Your Borrowing Power
If you think like a bank, you will realise that the only thing that they really care about when lending money is the answer to the question:
“Can you pay now, can you pay later, and do you have proof?”
The 5 C’s Of Credit
Different lenders use similar fundamental criteria when assessing loan applications. Something called the 5 C’s of Credit is at the core of these assessments. It includes:
- ✅ Character, which refers to your reputation, credit rating and financial history.
- ✅ Capacity, which considers your ability to repay a loan based on your income.
- ✅ Capital, which refers to the size of your initial deposit. Remember, bigger is better.
- ✅ Collateral, the asset used to secure a loan. In the case of a home loan, this refers to the property.
- ✅ Conditions, which refers to things like interest rates, loan amount and loan term.
Improving Your Borrowing Power
You may find that you get better borrowing power by simply switching to a different lender, but there are a few other things that you can do to increase the amount. They include:
- ✅ Improving your credit rating.
- ✅ Removing any outstanding defaults.
- ✅ Getting rid of your credit cards.
- ✅ Paying off personal loans.
- ✅ Trying to increase your income (It never hurts to ask for a pay rise!).
4. Think About How Banks Assess Income
Typically, first home buyers take out loans over 25-30 years. Banks want to be confident that you will be able to continue making repayments into the future. They will assess the stability of your income over the past year or two to help them make their decisions, which means that you will have to be able to show proof of your income.
Note that if you’re self-employed, banks will be more conservative and will require more documentation before approving a loan.
As a first home buyer, you should work on being able to borrow roughly 5 to 6 times your gross annual salary.
Some forms of employment are preferred over others. Permanent full or part-time employment is seen most favourably by lenders. You will find it harder to get a loan if you’re employed casually, but it’s still possible. Finally, contract or self-employment require a significant amount of time in the job before lenders will even consider an application.
5. How Big Does My Deposit Need To Be?
As a first home buyer you need to be aiming for the biggest deposit possible. Lenders generally prefer deposits of at least 20%, but if you have a good credit rating and a steady income you should be able to get away with 5-8%.
It Is Possible To Buy Without A Deposit!
Don’t stress if you don’t have a deposit saved up – you still might be able to buy the home of your dreams if one of the following scenarios applies:
- ✅ Guarantor loans – If your parents are able to act as guarantors, you may be able to borrow up to 105% of the purchase price, eliminating the need for savings. Their property will act as the security for your loan. This option applies if you’re buying your first home and are entitled to the first home owners’ grant.
- ✅ Gifted funds – If your parents or any other person in your life are able to gift you funds to put towards your deposit, you will have to pay a lot less out of your own pocket.
- ✅ First home owners’ grant – As a first home buyer, you may be eligible for Queensland’s $15000 first home owners’ grant. This can be put towards a deposit, and would equate to a 5% deposit on a $300,000 property!
It’s important to realise that it’s a lot harder to get a no deposit home loan, but it’s definitely an option worth considering.
6. Make Sure You Stay Realistic About Your Budget
As we mentioned earlier, just because you have a certain amount of borrowing power doesn’t mean that you have to use it all. Understanding just how much you should borrow as opposed to how much you can borrow is crucial.
You need to consider the other costs associated with buying a house, including things like rates, maintenance and repairs, and the risk of rising interest rates. Borrowing too much can leave you in a difficult financial situation.
As a first home buyer, there’s no sense in sacrificing your mental and financial health for the “perfect house”. Set a budget and stick to it.
7. Work Out The True Cost Of Buying Your First Home
By now you should understand that overextending yourself is a terrible idea. There are numerous additional costs that you need to consider when buying your first home, including:
Make sure that you’re aware of the fact that you will have to pay a range of borrowing fees, such as:
- ✅ An application fee of up to $1000.
- ✅ Document preparation fees.
- ✅ Bank valuation fees.
- ✅ Annual fees of up to $400 per year!
These fees can be waived in some situations, so it’s worth working with someone like Hunter Galloway.
Alongside stamp duty, there are a few other hidden government fees that you need to be aware of. You will have to pay a registration of mortgage fee (typically $187 in Queensland) and a registration of transfer fee (anything from a few hundred to a few thousand dollars).
If you don’t already know, stamp duty is a non-optional state government tax that applies to any property purchase. It can range from thousands to tens of thousands of dollars. However, first home buyers can get stamp duty waived in Queensland under certain conditions.
Council & Water Rates
Every year you will have to pay council rates to cover infrastructure and service costs. This is a part of owning a home, and you should budget roughly $1000 to $2000 per year.
It you are planning on buying a stand alone house then you can ignore this, as it doesn’t apply. However, if you’re buying a unit, apartment or townhouse that’s part of a complex you will need to pay fees that cover the expenses of the building complex, including things like cleaning, gardening and maintenance.
Make sure that you get a strata report detailing these fees before you move in, otherwise you could be forced to pay significant fees that you weren’t expecting.
Home & Contents Insurance
Insurance is an essential non-negotiable that people often overlook. We will look into it in more detail later; right now you just need to be aware of it.
You may need to pay a legal professional for things like title searches, strata reports and arranging settlement details. The average first home buyer should budget for approximately $1000 to $2000 in legal costs.
Building & Pest Reports
Building and pest reports generally cost $500 to $800 and could save you a world of pain in the future. We’ll look at this further later on.
Moving & Connection Costs
Consider things like removalist fees (anything up to a few thousand dollars) and utility connection costs. Even the relatively small costs of things like telephone, internet, electricity and gas connection can add up.
Typically, you should budget around 3% of the purchase price for additional costs.
By now you should have a fair idea of how much you can safely borrow, so let’s look at the next big question: When should you buy?
Buy At The Right Time
By now you should have a good idea about what you can afford and how much you’re going to be able to borrow.
So it’s time to move onto working out how to decide when to buy your first home.
Let’s get started.
When is the right time to buy?
The property market is fraught with uncertainty, and its important to realise that no one’s opinion is 100% right. No one can predict market cycles, and therefore buying your first home sits alongside two main problems:
- Fear of missing our (FOMO), which refers to the idea that people often act because they don’t want to miss out on a potentially good opportunity. It’s important not to succumb to FOMO and buy a property that’s not right.
- Fear of joining in (FOJI), which is lesser known, occurs when you don’t do something you should because you’re too careful.
When it comes to buying your first home, you need to find the balance between FOMO and FOJI so that you aren’t heavily impacted by either.
Here, I’m going to teach you how to look at your situation objectively so that you make more informed, less emotional decisions.
1. Assess Your Situation
Everyone’s personal situation is different, so you need to make sure that you’re thinking about your own in an objective manner without emotion. Some of the things you’re going to want to consider include:
Your Employment Situation
This is a crucial part of any loan application. Try and make sure that you’ve been in your job for at least 6 months (more is better), that you’re not going to need to change jobs until your loan has settled, that you’re income is relatively steady (if you’re casual) and that your records are up to date if you’re self-employed or a contract worker.
Your Spending Habits
Almost all banks will want to look at your last 3 or 4 months of day to day bank transactions. They will look at your spending habits and assess how much it costs for you to live each year.
If possible, try and control your spending habits for a few months before you apply for your loan. Tell your mortgage broker about any one off-expenses like holidays or plane tickets, and prove that you have the capacity to repay your loan.
Your Credit Score
As we’ve already touched on, a bad credit score will make it a lot harder to get a loan. If you do get a loan, you will end up paying higher interest.
Check your credit score using Equifax. Aim for a minimum of a good score (622-725), but try and get an excellent score (833-1200) if possible.
Check any defaults on your credit file and make sure that the information presented is accurate. Likewise, double check your personal info and loan history. Incorrect information can negatively impact your credit rating.
You need to make sure that you’re doing everything in your power to maximise your deposit, otherwise you will end up paying significant LMI.
Aim for at least an 8-10% deposit. If you’re using a guarantor to minimise the deposit you need, make sure you’re aware of any costs you will need to cover.
If your deposit is slightly short, consider asking your parents or another person you’re close to for a gift – this can significantly reduce the amount of LMI you have to pay!
2. Time In The Market vs Timing The Market
As a first home buyer it’s important to take a step back and try not to be influenced by market cycles. Both FOMO and FOJI can become problematic if you start trying to buy when the market is at a low.
Don’t let short term market fluctuations influence lifestyle decisions like buying your first home.
If you’re in the research stage and in no hurry to buy your first home you could consider doing some research into the current market situation.
However, if you’re planning on owning and living in your new home for a significant amount of time then short term market cycles shouldn’t worry you too much.
3. Renting Is An Option
This probably isn’t something you expected to read in a first home buyers’ guide to buying a property, but it’s the truth.
The rise of something called rentvesting allows you to invest in property (or other assets) while continuing to live in an attractive neighbourhood.
In cities like Brisbane or Sydney, repayments and other costs on your own property can equal roughly double what you would pay in rent for an equivalent property.
You would be better off renting and putting the extra towards investing in a cheaper property in a different place.
The rest of this guide will focus on first home buyers who want to live in their new house, but you can find out more about rentvesting here.
4. Remember, You Don’t Have To Live In Your First Home Forever
Buying your first home can become an emotional rollercoaster, causing you to lose sight of the big picture and think that you’re looking for your forever home.
Rather than buying for the future, buy a home that you can afford and that is right for your situation now.
Australians are becoming more mobile than ever, and there’s absolutely no reason why you can’t move if your situation changes in the future.
By now you should understand your budget and financial limitations. Hopefully, you have the confidence to get started on the journey to buying your first home. As you’ve seen, preparing for a loan application can take months, so it’s important to start thinking about things early.
In the next section we’re going to cover loans and pre-approval for loans in a bit more detail.
Councils need to charge rates to raise revenue so they can provide services and infrastructure to their communities. Each year, as part of the budget process councils, decide the rates and charges for the financial year. The level of rates that landowners must pay is at the sole discretion of their council. You may need to pay the person you’re buying the property from the remaining yearly/quarterly rates – e.g. if you are settling in June, but the previous owner has paid until July you need to pay them for that one month – and this is payable on settlement!
- ✅ The person selling the property will have paid any rates owing to the council – generally to the end of the quarter.
- ✅ After purchasing the property, you’ll need to pay the vendor for council or water rates.
- ✅ The person selling the property will have paid any rates owing to the council – generally to the end of the quarter.
Again this is another cost that isn’t negotiable, but worth being aware of to budget into the costs of owning your home.
To give you a bit of an idea, here are a few suburb examples: Source.
|Suburb||2016 Average Rates||2017 Average Rates|
Estimate: $1,000 to $2,000 per year depending on suburb.
Get The Right Home Loan
In this chapter we’re going to explore everything to do with home loans, including:
- What types of loans there are.
- What different features you can get with your loan.
- What your monthly or fortnightly payments really mean.
In this chapter, you’ll find all the details.
Let’s do this.
Although most go through a mortgage broker when they’re getting their first home loan, you should still read and try and digest everything in this chapter.
By the end you should understand everything you need to about home loans, allowing you to make informed decisions about what’s best for your situation.
Do I Have To use A Mortgage Broker?
The simple answer is no, of course you don’t. If you’re confident and know exactly what you’re looking for, you can go straight to the bank. However, mortgage brokers can help you get the best deal, maximise your borrowing power and improve the chances of your loan being approved.
A lot of first home buyers jump straight into the property searching process without even thinking about finance. Ultimately, this can result in stress and disappointment, especially if you miss out on your dream home because you couldn’t secure finance in time.
The solution to this is getting pre approval for a loan. This involves speaking to a mortgage broker or bank before you even start looking for a house, identifying your borrowing power and who is likely to lend you money.
Now that I’ve got you thinking, let’s delve deeper into home loans for first home buyers.
1. Choosing The Right Home Loan
It’s easy to become overwhelmed when you’re looking for your first home loan. There are literally dozens of different types of loans out there, and each different situation requires a different type of loan (In Queensland anyway). It’s important to make sure that you choose the right home loan so that you put yourself in the best financial position possible.
Understand Variable vs Fixed Home Loans
The first thing to consider when you’re looking at home loans is whether you want a fixed rate or a variable rate. Fixed rate loans will give you a fixed interest rate for a period of up to 5 years, while variable loans will have an interest rate that will change according to the current interest rates.
Variable and fixed rate loans have their pros and cons, and ultimately, the choice is yours. However, it’s an important choice that requires research and careful consideration.
Split Home Loans
Variable and fixed home loans have their pros and cons. However, there is a third alternative that attempts to find a balance between the two – split home loans. You can split your loan in whatever proportion you would like according to your situation, but a 50/50 split is common.
Now that we’ve covered the types of loans, we need to look at repayment types. There are two main types of repayments:
- ✅ Principal and interest (P & I), which involves paying off both the interest and a portion of your principal loan. This type of loan will allow you to reduce the amount you owe quite quickly. P & I loans are best suited to people like first home buyers who want to live in their property.
- ✅ Interest only (IO), which involves only paying the interest on your loan, keeping the amount that you owe constant. Interest only loans are usually used by property investors who want to minimise repayments.
Make Sure You Check Comparison Rates
Comparison rates are basically interest rates that include both interest on the loan and any fees and charges related to the loan. They are useful for comparing different lending institutions to determine which is best for you.
Some lenders offer low interest rates, but have comparatively high fees and charges. This means that you can’t always take interest rates at face value.
Think About Extra Features
There are various different features that you can add to your home to help you pay it off quickly, including things like the ability to make extra repayments, redraw facilities and home loan offset accounts. However, these generally cost extra, which means that you need to think carefully about whether or not they’re useful.
Be Aware Of Hidden Fees
Banks charge a wide range of fees for home buyers, and these can quickly add up if you’re not aware of them. Talk to your mortgage broker and ask them to list any fees that you’re likely to have to pay, and use the following techniques to minimise them:
- ✅ Consolidate your accounts into one bank so you’re no paying multiple bank and transactional fees.
- ✅ Avoid going into branch and use internet banking (which is usually free) wherever possible.
- ✅ Use automatic payment services.
- ✅ Avoid phone banking, which usually has fees associated with it.
- ✅ Use your debit card rather than credit cards.
- ✅ Watch out for special service fees.
Home loan fees can add up quickly, so make sure you’re thinking about them.
See If Your LMI Can Be Waived
If you have paid a deposit that’s less than 20% of the home loan amount, you may be liable for lenders mortgage insurance (LMI). However, you may be able to get your LMI waived if you work in a certain field. For example, doctors only need a 5% deposit to get their LMI waived.
You may also be able to reduce the amount of LMI you have to pay by selecting your lender carefully or by using a guarantor.
2. Why Is Pre-Approval Important?
A pre-approval is an indication from a lender that they will approve a loan of a certain amount, assuming your income and circumstances don’t change. Getting pre-approval helps you make offers on properties with confidence because it gives you access to finance much faster.
Without pre-approval it’s hard to know how much you will be able to borrow. With one, you will have confidence making offers and bidding on properties at auctions.
What Do I Need To Get A Pre-Approval?
Getting a pre-approval for a home loan involves an assessment of your financial assessment and eligibility for a loan. As a first home buyer, you need to be prepared to provide things like ID documents, payslips, bank statements and details of any other major assets you have.
It’s important to realise that not all pre-approvals are created equal, and that some have a much higher chance of actually resulting in a loan than others. Some pre-approvals come with conditions which have to be met, ranging from bank valuations to verification of all provided details.
How Do I Know If I’ve Got A Real Pre-Approval?
Asking potential lenders a few questions can give you an idea of the reliability of your pre-approval. Consider asking the following:
- ✅ Has my application gone to the credit department?
- ✅ Have LMI approved my application?
- ✅ What are the conditions of my approval?
- ✅ Can I bid at an auction based on this approval?
Some banks tend to provide quite unreliable pre-approvals, which means that you need to be careful and make sure that you ask the difficult questions.
Common Pre-Approval Mistakes
Most pre-approvals are only valid for 3-6 months, so make sure that you’re aware of this. They are not the same as formal loan approval, so don’t fall into the trap of thinking that they are. However, they are definitely still useful, as they can help you reduce the amount of time it takes to get finance, making your offers a lot more competitive.
3. It’s Not The End Of The World If Your Loan Is Declined
Although you may not realise it, it’s actually quite common for first home buyers to get their loan rejected. Loaning criteria are becoming tighter, and banks are more careful than ever. Don’t worry too much if you’re loan application is declined – there are still options.
Common Reasons For Loans being Declined
Some of the most common reasons for first home buyer loans being declined include:
- ✅ Forgetting to mention things like credit cards or interest free loans.
- ✅ Changing jobs too often.
- ✅ Changing address too often without good reason.
- ✅ Having messy bank accounts that are hard to track.
Ways To Maximise The Chance Of Your Loan Being Approved
There are a few things you can do to maximise the chances of your loan being approved, including:
- ✅ Checking your credit file and working to improve your credit rating if necessary.
- ✅ Check any outstanding credit card limits and make sure that you have all the necessary information.
- ✅ Clean up your bank accounts and try and consolidate them where possible
Remember, it’s not the end of the world if your first application gets declined. Another lender may approve you happily. If your application has been declined, then you should speak to your mortgage broker to discuss your options and your next steps.
Choose Your Mortgage Broker Carefully
You can maximise the chances of your first application being approved by choosing the right mortgage broker for your situation. Consider things like their experience, their specialities, their reputation and any industry certifications/recognition that they have.
With that in mind, let’s move onto the search for your dream home!
Set Up Your Search For Success
Is finding a home as simple as asking Google?
There are so many real estate websites out there so which one should you use?
Luckily for you, you don’t have to spend hours trawling through every website you can find.
In this chapter, we’ve put together a few simple steps to help you narrow down your search and find the right home for you.
1. Figure Out Why You Want To Buy
As a first home buyer, it’s extremely important to think carefully about why you’re buying a house and what you want to get out of it. Consider the following:
- Why are you buying this property?
- How long do you plan on living there for?
- Can you afford to maintain this property?
- If you buy this property, will you be able to sell it if you want to?
Not All Properties Satisfy The Banks
Different banks have different lending criteria, which means that you need to think carefully when choosing your first home. If you want lenders to approve your loan, make sure that the property that you’re looking at ticks the following boxes:
- ✅ It should be at least 50 square meters.
- ✅ For some lenders, the area needs to be less than 2 hectares. However, not all lenders follow this rule.
- ✅ The purchase price should be fair, otherwise lenders may value the property at less than what you paid for it.
Make sure that you get a pest inspection and strata report to confirm the condition and suitability of the property for your lender.
2. Eliminate Emotion
Sure, buying your first home is emotional. However, you need to teach yourself to suppress certain emotions so that they don’t cloud your judgement and lead to you making regretful decisions. Never rush to buy without thinking things over, and never buy because you’re getting frustrated.
Both of these things can mean that you end up with a property that doesn’t meet your needs or which will cause problems in the future. If you feel like you’re rushing or getting frustrated, take a few steps back, relax for a few days and try to focus your perspective.
Buying your first home will probably be one of the biggest decisions of your life, so you need to make sure that you don’t come to regret it! If you’re having trouble setting your emotions aside, consider using a buyers agent to find the perfect property for you.
3. Make Sure That Your Search Isn’t Limited
A lot of people limit their search to places where they think they want to live or where they have lived before. Unfortunately, doing this limits your choices and may result in your dream property not even coming under your radar!
Below, we’ve outlined some of the best suburbs in Brisbane for people in certain situations:
I Want A Suburb That’s Walkable
If you’re a young or independent person who wants a walkable suburb, then go for the city and surrounding suburbs. Fortitude Valley has grown in popularity recently. Bowen Hills and Newstead are also easy walking distance to the city.
I’m A Young Professional
New Farm and Teneriffe are becoming popular among young families and professionals due to their proximity to the city and low maintenance lifestyles.
I Need Family Friendly
Suburbs like Cannon Hill and Morningside are great choices for people looking to buy their next family home. Both are peaceful and offer easy access to the city.
I Want To Be On The Water
Suburbs like Manly, Birkdale, Wynnum and Lota are bayside suburbs that offer the chance to live close to the ocean, within commuting distance of the city and away from the hustle and bustle of inner suburbs.
We Need Room To Move
If you’re looking for a spacious suburb with easy access to the city and shopping centers, then look at Aspley, Albany Creek, Bracken Ridge and Chermside
I’m Looking For A Starter Home
Finding the perfect first home can be hard. Suburbs like Annerley are becoming popular, with the multicultural lifestyle and proximity to the city. You could also consider Buranda, Moorooka, Fairfield Gardens and Stones Corner.
Ultimately, the type of home you want will dictate the suburbs you start looking in. Figure this out, and then start shopping around and doing some research!
In the next chapter we’re going to look at in-depth research and valuation in more detail.
One of the most important (and most confusing) steps in buying a property is house price research.
Working out how much a house is actually worth is hard, and it’s important to realise that listed sale prices are NOT set in stone.
You might be able to buy the home for 8-10% less than the advertised price, but how?
In this chapter, we show you the exact steps to find out.
Let’s dive right in.
1. Compare Apples To Apples
When it comes to working out how much a property is worth, the best place to start is by comparing it to similar properties in similar areas. Make sure that you think about the following:
- ✅ The quality of the build of your property and the ones you’re comparing with.
- ✅ The number of rooms.
- ✅ The size of the block.
- ✅ The location and distance from facilities and amenities.
This information can be hard to find, but it’s essential if you want to get a clear idea about the market value of a house that you’re interested in.
2. Compare With Inferior & Superior Properties
The next step is to find three or four recently sold properties, compare them to the property that you’re looking at and categorise them as inferior or superior. This can help you work out a rough value range.
3. Pay Close Attention To The Market
The market is constantly changing. If you’re using old information to compare prices and value a property that you’re interested in, you will need to make adjustments according to the overall market situation.
4. Research Similar Property Sales
Figure out what similar properties have sold and do some research about them. Consider how long they were on the market (A shorter time means that the property sold easily), how the asking price changed while they were on the market and how many people were interested in them.
5. Research Potential Rental Income
As a first home buyer, being aware of what you could theoretically rent a home out for is important.
Even if you don’t plan on ever renting it out, your situation could quickly change in the future. Look for areas with:
- ✅ Low vacancy rates
- ✅ Stable or increasing weekly rental
- ✅ Good rental yields
- ✅ A supply and demand balance.
You can research potential rental income by comparing the property that you’re looking at to similar properties. Use a website like realestate.com.au (Hyperlink) or RentPrice (hyperlink) for reliable information.
6. Avoid Common Mistakes
First home buyers regularly make mistakes when valuing properties. Some of the most common mistakes include:
- ⛔️ Being influenced by estate agents trying to convince you a property is worth more than it is.
- ⛔️ Completing a poor comparison.
- ⛔️ Making emotional decisions. Like we covered earlier, you need to suppress your emotions!
- ⛔️ Listening to the media, which usually isn’t reliable.
Working out the value of your future home isn’t an exact science, and there are many variables in play. However, the above points will help you get the most accurate estimation possible, especially if you can eliminate emotion from your decisions!
Next, we’re going to go into more depth about the best ways to complete your research so that you can make informed decisions.
Do Your Research
It’s hard being a first home buyer.
You might feel like you’re missing things or that the property has a critical flaw that you’ve overlooked.
Most other buyers will have more experience than you, which puts you in a vulnerable position.
Failing to do your research properly could lead to you buying a home that’s going to be expensive to maintain and near impossible to resell.
Here’s a few of the things that you can do to improve your knowledge of the property that you’re looking at buying.
1. Make Sure You Get Building & Pest Reports
Both building and pest reports are non-negotiable when you’re seriously thinking about buying a new property.
Together, these reports check both the structural integrity and presence of pests. They can help you identify problems that aren’t immediately obvious, such as the presence of termites or concrete cancer.
This can save you a lot of money in the future. Wherever possible, try and use your own pest and building inspector to make sure that you’re getting an honest assessment.
2. Be Aware Of Flooding
A lot of Brisbane properties are susceptible to flooding.
It’s extremely important to get a flood report if there’s any chance that the property that you’re looking at is on a floodplain because flood susceptibility affects both insurance premiums and resale value.
Get a free flood report on the Brisbane City Council website.
3. Check Commute Times
If you’re planning on travelling to and from work every day, you need to be aware of commute times.
Although most property inspections take place on weekends, you should always do a weekday morning and afternoon check that coincide with the times that you will be commuting.
4. Research The Suburb & Its Surrounds
It’s a good idea to do some research into the suburb where you’re planning on living, especially if you’re a first home buyer.
Tools like WalkScore can give you a great idea of how long it will take you to get to places like train stations or supermarkets.
Microburbs is another great tool that can help you understand the local area. It will give you a range of demographic data (that comes directly from the census) to help you understand if the area is right for your lifestyle.
5. WARNING: Real Estate Agents Aren’t Your Friends!
As a first home buyer it’s easy to fall into the trap of believing everything that a real estate agent says, especially if they’re friendly and approachable. However, there’s one thing that you need to remember:
“Real estate agents get paid according to how many properties they sell”
This means that they often sweeten things up a bit, encouraging you to purchase a property by glossing over negative points and focusing on the positives.
Dealing With Reals Estate Agents
Good real estate agents will be working to get the best price possible for the seller.
They won’t waste time on uncertain or unwilling potential buyers, so make sure that you show your interest early.
If you’re friendly with the agent, they will give you more information. Ask questions and find out as much as you can about both the vendor and other buyers. At the same time, keep your position guarded as much as possible.
What Sort Of Questions Should I Ask A Real Estate Agent?
Asking the right questions will help you get a clear picture of the circumstances surrounding the sale of a property, making your decisions as a purchaser a lot easier. Consider asking the following:
- Why is the property for sale?
Understanding why a property is up for sale will help you work out how desperate the owner is to sell and how much you can offer. It will also help you work out strategies to maximise the chances of your offer being accepted.
- How long has the property been for sale?
Generally, the first three weeks that a property is for sale are the most interesting. After about two months, interest stagnates and it can be hard to find a buyer – perhaps due to problems with the property or a price that’s too high.
If you can, try and find out how long the property has been on the market for and why it’s been up for so long.
- What was the original asking price?
Figure out how much the owners were originally asking for the property and what offers have already been made. This will help you work out a fair price to offer – something that’s sometimes hard for first home buyers!
- Are the sellers willing to negotiate the price?
If the real estate agent says yes, then you will be well equipped to make an offer lower than the asking price. As a general rule, Australian properties tend to sell for about 10% less than the asking price.
- What’s the lowest price the owners will accept?
The real estate agent won’t always give you a clear answer to this, but if they do it will help you figure out if you can really afford the property or not.
By now you should know how to research a suburb and the surrounding area, determine rental potential and calculate a properties value. The following checklist should help:
- Research your suburb and surrounding area
- Research rental income per week
- Calculate rental income
- Research recent property sales
- Determine the property’s value
- Confirm value with a free RP Data valuation
- Order a bank valuation with Hunter Galloway
In the next chapter we’re going to start looking at the best ways to work through the actual settlement process once you’ve decided to buy a property.
Make An Offer
By now you might have found the perfect home, worked out how much it’s worth and steeled yourself to make an offer.
This can be a hard time for first home buyers, but it really doesn’t have to be.
Working out how much to offer is hard.
Offer too little and you might miss out. Offer too much, and you will pay more than you need to.
However, there are a few tricks and tools that you can use to help you make the perfect offer.
1. Be Confident With Your Research
If you’ve done the necessary research and have worked your finances out, you can offer with confidence. Before considering an offer, make sure that you’ve got:
- ✅ A pre-approved loan that covers the amount that you’re willing to offer.
- ✅ A knowledge of the properties value that you can base your negotiations on.
- ✅ A building and pest report.
- ✅ An idea of potential rental income.
- ✅ A flood report(if relevant).
2. Negotiation Fundamentals
Negotiation is about finding a balance between what the owners want to sell their property for and what you’re willing to pay. Knowledge of the seller’s situation and why they’re selling can give you negotiating power, helping you get a better price.
3. Ask Open-Ended “What” & “How” Questions
Asking approachable and non-threatening questions can give you information about the seller that can help your negotiations. Remember to ask the real estate agent the questions outlined in Chapter 6.
Likewise, make sure that you remember that the real estate agent is trying to (1) sell the property as fast as they can and (2) get the best price that they can. Use this knowledge to help shape your questions and put yourself in a position of power.
4. Making Your First Offer
Once you’ve made an offer on your first home, the real estate agent will usually ask you to complete a contract of sale. Make sure that you include all of the relevant information:
- Your full legal name.
- The sale price.
- The deposit.
- Finance, building and pest terms.
- Settlement dates.
- Lawyer details.
Consider how to make your contract competitive by offering faster finance or settlement. Make sure that you talk your mortgage broker about these things.
Signing A Contract Of Sale
Contract of sale shows that you’re serious about your offer. It doesn’t mean that the seller has to accept your offer. Again, do whatever you can to make your contract as competitive as possible, otherwise they may accept someone else’s offer over yours.
5. Preparing Counter Offers
Often, the real estate agent will call you back after you’ve made your initial offer and tell you that it hasn’t been accepted. The seller may make a counter offer, in which case you’re in luck! Using a bargaining technique – such as the Ackerman Bargaining technique – you should be able to get a price that you’re happy with.
6. Negotiating A Price After Inspection
If your building and pest inspections show minor problems, you can bring them back to the seller and use them to negotiate a lower price. Things like broken windows, wet rot in bathroom or kitchen cupboards or poor drainage can all net you a lower price, but really aren’t significant problems in the scheme of things.
7. Be Prepared To Walk Away
As I’ve mentioned a few times, you need to make sure that you can distance yourself from your emotions and make informed decisions. Being able to walk away from a property if the seller isn’t willing to lower their price is crucial.
In the next chapter we’ll take a brief look at buying at auction. If you’re not planning on doing this, then you can skip straight to Chapter 9 – settlement!
Buy at auction
Buying at auction can magnify the stresses associated with buying your first home.
If things go pear shaped, you could end up overbidding and being stuck with a new house that you can’t afford to pay for.
Auction results are final, so you need to be very careful and make sure that you stick to your initial budget so you don’t run into trouble.
In this chapter we’re going to walk through the auction process, how property auctions work and how you should approach auctions to make sure you get maximum return.
1. Understand The Auction Mindset
There are two main reasons for properties being put up for auction:
- The property needs to be sold ASAP.
- Creating a deadline can increase the competition for the property, inflating prices.
There are no second chances at auctions, so it’s crucial to set your budget and stick closely to it. If you’re the winning bidder, you will have to pay even if you can’t afford it. If you’re the highest bidder, but the price doesn’t meet the reserve, you will be the first in line to negotiate with the seller.
In Queensland you need to register as a bidder before the auction. However, other states don’t have the same requirements, so do your research.
2. Know The Property’s Value
It’s important to make sure that you know a property’s value before you head into an auction, otherwise it’s hard to set a clear budget.
It’s illegal for sellers to give you a price guide for an auctioned property in Queensland. However, if you’ve got this far you should know how to value a property on your own. Head back to Chapter 6 to refresh your memory!
3. Make Sure Your Finance Is Sorted
You need to make sure that your finance is approved before you bid on a property at auction. You can’t pull out if you win an auction, so it’s important to work with a decent mortgage broker to source finance and get pre-approval before you even think about bidding.
4. Have A Support Team Ready
Since buying a house is expensive, you need to make sure that you’re prepared ahead of time. Think about things like building and pest reports before the auction.
Consider speaking with a lawyer to make sure that the contract is in order before signing anything. Likewise, you need to make sure that you’ve got pre-approval for finance that fits with your budget. Discuss the exact property that you’re thinking about buying with your mortgage broker to make sure that it meets the lender’s criteria.
A lot of people use buyers’ agents to help them purchase their first home. Buyers’ agents can help you source, research and even bid on properties. The cost of a buyers’ agent can be anything from $2000 to $10,000, but they can help you get better prices/save you a lot of time.
Support Team Checklist
- Find a mortgage broker and get loan pre-approval.
- Speak to a lawyer to get the contract of sale checked.
- Get your building and pest inspections done.
- Think about using a buyers’ agent.
5. Auction Terminology
Here’s a quick outline of a few potentially confusing terms that you might come across when trying to buy your first home at auction.
- Reserve price, which is the lowest price the seller will accept. You won’t know the reserve price before the auction.
- Successful bidder, which is the person who wins the auction. A successful bidder will have to sign a legally binding contract immediately.
- Vendor bids, which are bids from the seller that are designed to increase the price until the reserve price is reached.
- Dummy bids, which are designed to artificially increase the price. Dummy bids are illegal throughout Australia.
6. Know Your Competition
Make sure that you arrive early on the day of auction. Get comfortable with the setting and other potential buyers. Make sure that you appear confident, as this can scare other buyers away and help you secure a good price.
7. Don’t Tell The Real Estate Agent Much
Real estate agents aren’t your friends. They work for the person trying to sell a house, and will try and get the best possible price. In some cases, they will lie or twist the truth in an attempt to inflate the price, so you need to make sure that you question everything they tell you.
Similarly, you need to make sure that you don’t give the real estate agent any information that they could use to leverage the price up. As them lots of questions, and only answer their questions when you have to.
8. Bid Slowly
Bidding is a very psychological game. When you’re bidding, say the full price that you’re bidding slowly and loudly. Being confident can help put other potential buyers off.
Don’t bid hard at the start of the auction, because this can excite people and give the auction momentum. Instead, try and wait until the reserve is met or until there’s no other interest.
Don’t Tell Anyone Your Price
Never tell the real estate agent or anyone else your price before you start bidding. Set a budget that’s slightly above a logical number, as this could give you a slight advantage against other people with similar budgets.
Auctions are scary, which means that it can be a good idea to get a friend or family member to bid for you. Alternatively, use a buyers agent.
Finally, if you’re bidding yourself, make sure that you’re in a position where the agent can see you and where you can keep your eyes on all the other bidders in the crowd.
9. Don’t Be Afraid To Walk Away
Auctions take a long time to prepare for, but they are usually over in a matter of minutes. However, you still need to make sure that you stick closely to your walk away price, otherwise you will end up paying more than you wanted to or could afford.
First Home Buyer’s Auction Checklist
- Complete inspection checklist
- Arrange building and pest inspection
- Arrange home loan approval
- Get a property valuation
- Complete market research
- Understand auction results in your area
- Decide on your highest and final price
- Obtain a copy of the contract of sale
- Get legal advice about the terms and conditions of the contract
- Arrange title search and other checks with conveyancer (title search, encumbrances)
- Confirm with the real estate agent how much deposit is required, and how to pay
If you win, you’ll need to pay your deposit on the day. Make sure that you know how much you will need to pay, and make sure that it’s accessible.
Bonus: Make An Offer Before Auction
In some cases, sellers will accept offers before a property goes to auction. The following steps will give you the best chance of having a pre-auction offer accepted:
- Submit an offer in writing to the real estate agent.
- Negotiate over email or in writing.
- Sign the contract of sale.
- Get your finance approved.
With this in mind, let’s look at the last step of the buying process – settlement!
If you’ve got to the settlement stage, then you’ve done most of the hard work.
Buying your first home can be hard work, but you’re almost there!
In this chapter we’re going to look at everything you need to know about the settlement process.
1. Sign The Contract Of Sale
The contract of sale is a legal document prepared by a lawyer or conveyancer. In Brisbane, standardised property contracts are available which make it easier to finalise a sale. Standard contracts include a cooling-off period, but you can customise them to include additional clauses if needed.
What is included in a contract of sale?
A standard contract of sale will usually include:
- Certificate of the title information
- Offer date
- Warnings, such as the necessity for smoke alarms
- Settlement date of an intended property
- The cooling-off period
- Information about furnishing and fixtures
- Improvements to the property
- Property address
- Loan details, such as the terms and conditions of the payment, and initial deposit
- The price of the property
- Name of the seller
- Purchasing party information
- Information about the selling agent
Make sure you speak with your lawyer before signing anything, because a signed contract of sale is final.
Different states in Australia have different rules surrounding contracts of sale. Make sure that you’re aware of the rules so that you do everything right the first time. Speak to your lawyer to clear up anything you’re confused about.
2. Pay Your House Deposit
Once you’ve signed the contract of sale you will need to pay your deposit. However, what you may not know is that deposits in Queensland are paid in two parts. The first part is paid when you sign the contract of sale, and the second is paid upon the completion of building and pest reports and finance approval.
The first deposit is called a holding or initial deposit and is usually only about $500-$2000. It needs to be paid within 3 business days. The balance deposit is larger and is paid later in the settlement process.
3. Get Formal Approval
Once you’ve paid your initial deposit you need to work with your mortgage broker to get your loan formally approved. You will need to:
- Get the contract of sale to your mortgage broker.
- Provide them with any documents that are needed.
- Get your mortgage broker to organise a bank valuation.
- Receive formal approval from your loan provider.
- Let your solicitor or conveyancer know that everything’s gone through!
Once you let your lawyer know that your loan has been properly approved, they can work towards formally finalising the settlement process.
What if my loan is declined?
It’s not uncommon for a first home buyer to have their loan declined, and it’s not the end of the world when it happens. There are other options open to you, including:
- Ask your mortgage broker about applying for a different loan.
- If you signed a contract of sale subject to finance, your solicitor can terminate the contract and get your deposit refunded.
What happens after formal approval?
Once your finance is approved you’re ready to get the property in your name. You and the lender will agree to a date to transfer the property. Once you’ve done this and completed the other formalities, the property becomes yours.
Congratulations, you’ve bought your first home!
4. Get Insurance Straight Away!
It’s extremely important to make sure that you get insurance on your new house as soon as you sign the contract of sale. A lot of people don’t know it, but a purchaser is responsible for insurance from the moment the contract is signed.
In many cases your lender will want some sort of proof that your property is insured, so it’s in your best interest to get it sorted as soon as you can.
How much should you insure for?
It can be hard to decide how much to insure your first home for. Basically, your insurance needs to cover the cost of labour and the raw materials needed to repair your house if it gets damaged. Most insurance companies will assess the value of your property independently, but you need to make sure that you aren’t underinsuring.
5. Arrange Building & Pest Inspections
I know I’ve said this often, but it’s essential to make sure that you get your building and pest reports sorted as soon as you’ve signed a contract of sale. These will help you assess the condition of the property and will help you make sure that there’s no underlying problems that you weren’t aware of.
If there’s an issue with the building and pest inspections you can let your solicitor know and they can terminate your contract.
6. Sign Your Loan Documents
Your mortgage broker will help you organise a time to sign your loan documents. The documents you need to sign include:
- Home loan contract
- Mortgage document
- Direct debit agreement
- Any other forms the bank wants you to sign
7. Get Power Connected & Mail Redirected
If no one has been living in the property before you move in, the power probably won’t be connected. Plan ahead and make sure that things like electricity, gas and internet are connected and working, otherwise you will be in for an uncomfortable few days when you move in.
8. Settlement & Getting The Keys!
Congratulations, by now you’ve sorted out everything you need to!
Settlement should occur on the agreed date, and the property will be transferred into your name. Once this is done you can rest easy – you’re now the owner of your first home!
If you’ve followed the steps above, all your bases should be covered. However, you should think about getting a home loan health check every 12 months. These are a crucial part of smart loan management, and your mortgage broker should be able to help.
First Home Owners Grant
As a first home buyer you may be eligible for a first home owners grant.
In Queensland, grants of $15,000 are available to first home buyers who are buying or building a new home.
The property can’t have been lived in, otherwise the first home owners grant won’t apply.
We walk you through the best, and worst of the First Home Buyers Grant.
What Are The First Home Owners Grant Rules In Queensland?
The most important thing when it comes to qualifying for a first home owners grant is that you can’t have ever owned property or a share in property in your name in Australia.
If you’re purchasing a home, it needs to be brand new and worth less than $750000. If you’re building, the price of the land and the house needs to be less than $750000. You will also need to live in the property for at least 6 months of the first 12 months that you own it.
Can My First Home Buyers Grant Be Used As A Deposit?
The good news is that your $15,000 grant can be used as part or all of your house deposit! However, some banks won’t consider grants as genuine savings, which means that you might still need to contribute some of your own cash.
What Could Make Me Ineligible For The Grant?
Some of the things that could make you ineligible for the first home owners grant include:
- Previous home ownership in Australia.
- Buying an old property.
- Buying or building a property that’s worth more than $750,000.
- Your age and citizenship status.
Stamp Duty Concession
As a first home buyer you can also claim a first home concession for transfer duty. This means that you can save a significant amount on stamp duty, even if you’re buying a property that isn’t eligible for the first home buyers grant.
However, there are additional conditions linked to the first home concession, so you need to make sure that you do your research and are familiar with them. One of the biggest conditions is that you have to live in the home for at least a year without renting out any rooms.
Applying For The First Home Owners Grant
Mortgage brokers like Hunter Galloway can help you complete a first home owners grant application. Basically, you need to fill out a first home buyers application form and make sure that you include all necessary information.
As you can see, the Queensland first home owners grant is relatively straightforward, and could help you get enough money together for a deposit on your first home. Speak to your mortgage broker for more information!
Now It’s Your Turn
If you are looking to build a home in Queensland, or buy a new home using the first home owners grant our team at Hunter Galloway can help.
Our team here at Hunter Galloway helps first home buyers with navigating the home buying process.
To chat about your deposit, lending and first home ownership options book in a time to sit down with us, or feel free to call on 1300 088 065.
More Resources for first home buyers
- First Home Buyers Guide from start to finish
- How to Buy a House 🏘 (Step-By-Step Case Study)
- Using your Superannuation to build your deposit: The Complete Guide to the First Home Super Saver Scheme
- How to save for a house deposit (fast)
- Build a House in Brisbane 🏗 The Definitive Guide
Ready to take the next step toward buying? We’re happy to help. Schedule a call today with a Home Loan Expert from Hunter Galloway, the home of home buyers.
The information on this page is general in nature and should not be considered as advice. Before you act on this information you must seek independent legal and financial advice.