Buying your home may be one of the biggest financial decisions you will ever make.
You need to work out what you can afford and what features you'd like in your new home. You also need to consider the up-front costs, and if you can take advantage of the First Home Owner Grant. There's also plenty to think about when you choose a home loan.
Remember, you'll probably be living in your home and making repayments for many years to come, so make sure you shop around and do your homework.
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The bottom line
- Remember to include up-front costs like stamp duty in your budget.
- Shopping around for the best deal on your mortgage is as important as finding the ideal home.
- The more you can save for a deposit, the less you will have to borrow and the more you will save on interest payments.
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Working out what you can afford
You will need a deposit when you come to buy a home. If you haven't thought about it before, now is the time to start saving. See Saving for tips and advice.
Before you buy a home, you need to think about how it will impact on your money over the long-term. It will help if you work out your budget and decide whether you can afford to cover all the costs involved with buying a home as well as your regular expenses.
You will need to consider whether you can meet your home loan repayments and how these repayments will fit into your budget.
You also need to think about other expenses associated with home-ownership such as land rates, water rates, house and contents insurance, house repairs and for some, strata levies. Paying these extra expenses may mean you have less money for other things.
A budget will help you work out how you can meet these expenses and plan how to buy a home. See Budgeting.
What you need to look for in a property
When you are in the market to buy a home, you should:
- work out what you need, want and can afford
- do your homework about the market, look at properties that have recently sold in the area and how much they sold for
- have the contract checked by a solicitor, and get building and pest reports
- work out a price limit and stick to it.
Thinking about the up-front costs
One of the biggest initial outlays you will have is the deposit, which is usually 10% of the purchase price. Some lenders offer low-deposit or no-deposit loans. These can carry special conditions, such as higher interest rates and additional fees, insurance and security.
You will also need to budget for other up-front costs that include:
- stamp duty
- solicitor's fees
- removalist's charges
- building and pest inspections
- searches and surveys
- insurance
- electricity, gas and phone connections.
Some states and territories offer reduced stamp duty for first home owners. This may save you a significant amount of money. See More information.
When you insure your home, you need to think about cover for the building as well as your contents. It pays to shop around for the best deal for you. See Insurance.
The First Home Owner Grant
Information about the First Home Owner Grant is available from the government in your state or territory. See More information.
Choosing a home loan
There are many places where you can go to arrange finance for a home loan including credit unions, building societies, banks, finance companies and mortgage brokers.
Take the time to compare different home loans. Most lenders have loan calculators that let you compare the different mortgages they offer. Ask them to show you. Even a small difference in the interest rate can make a big difference to the amount you pay over the life of the mortgage.
You might also consider whether a loan with a fixed or a variable interest rate will suit your needs. There may be benefits or costs to either of these options depending on several factors including your personal situation, and the market interest rate over the life of your loan.
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Make it happen
- Collect newspaper and magazine advertisements for home loans to compare interest rates and other features.
- Banks, building societies, credit unions and other lenders usually have information about their home loans on their websites.
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Applying for a loan
In order to qualify for a loan, you will need to provide evidence of your income, your savings record, the deposit you have available and any other loans you may have. You may also be asked how much you usually spend on day-to-day expenses.
The amount of documentation you will be required to provide will depend upon the terms and conditions of the particular loan you are seeking.
Some lenders offer low-documentation (or 'low-doc') loans that don't require you to provide as many documents to prove your income, assets and liabilities. These may be an attractive option but they do come with conditions that can include higher interest rates and harsh penalties for missed payments. It is important that you understand what you are getting into before you take out a 'low-doc' loan.
The lender will check your credit history and may not approve your loan if you've had problems with missed payments or unpaid bills in the past. You can check your credit history for yourself to make sure that it is correct and up-to-date. See Understanding credit.
Using a mortgage broker
A mortgage broker may be able to help you find out about suitable loans and arrange special deals. However, as with any adviser, do some checking and shopping around yourself. Make sure your broker is finding a competitive loan package or you could end up paying more than you need.
Ask your broker what loans they offer and make sure you're comfortable with the commission and/or benefits they may receive. Be prepared to ask your broker questions about other home loans on the market.
More information
There's a lot more that you can find out about buying a home. See More information.