First home buyer guide made simple

Buying your first home is a big milestone, but it doesn't have to be overwhelming. This simple guide breaks down the process step by step, helping you understand what to expect, how to prepare, and how to make smart decisions from start to finish.

1. Save for a House Deposit

The first step to buying a home is to get your finances in order, and a key part of that is saving for your deposit.

Assess Your Financial Situation

Begin by reviewing your current financial situation. Track your income, expenses, debts, and savings to understand your cash flow. This will help you figure out how much you can afford to save each month and establish a timeline for reaching your deposit goal.

Determine How Much You Need to Save

In general, most lenders in Australia require a deposit of 20% of the home's purchase price, plus enough to cover associated buying costs (stamp duty, legal fees, etc.). For example, on a $500,000 property, a 20% deposit would be $100,000, plus an estimated $20,000 to $30,000 for other costs. However, as a first home buyer, you may be eligible for government grants and schemes, allowing you to purchase with as little as a 5% deposit under certain circumstances.

Utilise Government Schemes (First Home Owner Grants & Schemes):

In Australia, there are a variety of government schemes aimed at helping first home buyers:

  • First Home Owner Grant (FHOG):
    A one-off payment to help with the cost of buying your first home.
  • First Home Guarantee Scheme (FHGS):
    Allows you to buy a home with as little as 5% deposit, with the government guaranteeing the rest.
  • Stamp Duty Concessions:
    Depending on the state or territory you’re buying in, you may be eligible for stamp duty exemptions or reductions.

2. Work Out What You Can Afford to Borrow

Understanding how much you can borrow is crucial to ensuring you don’t overextend yourself financially. This depends on a combination of factors.

Key Factors Affecting Borrowing Capacity:

  • Income and Employment Status:
    Lenders will assess your income, whether you are employed full-time, part-time, self-employed, or have other sources of income (e.g. rental income).
  • Existing Financial Commitments:
    This includes any ongoing debts such as personal loans, car loans, credit cards, student loans, and other monthly obligations. Lenders will assess your debt-to-income ratio to determine how much you can afford to borrow.
  • Credit Score and Credit History:
    A good credit score indicates to lenders that you are a responsible borrower. Your credit report, which includes your credit score, payment history, and any defaults, will play a role in how much they are willing to lend you.

Be Realistic About Borrowing:

It’s essential to be realistic about how much you can afford. A larger loan amount may seem tempting, but it can lead to financial stress. Take into consideration that mortgage repayments are not just limited to principal and interest payments — you’ll also need to budget for:

  • Home insurance
  • Maintenance costs (which can vary greatly depending on the property)
  • Utilities and council rates
  • Unexpected expenses (like an increase in interest rates)

Consider Future Interest Rate Changes:

Interest rates can fluctuate over time, so it’s important to give yourself some breathing room in your budget for future rate hikes. For example, if rates increase, would you still be comfortable with your monthly repayments? It’s better to plan for the worst-case scenario to avoid financial strain down the line.

Get Pre-Approval for a Home Loan:

Pre-approval from a lender will give you a clear picture of how much you can borrow and your potential repayment amount. Pre-approval typically lasts for 3–6 months, during which you can confidently shop for homes within your budget. While pre-approval isn’t a guarantee of full approval, it strengthens your position with sellers as it shows you’re financially capable of purchasing a property.




3. Find the Right Home Loan Rate

Once you know how much you can borrow, the next step is to choose the right home loan.

Interest Rates Matter:

The interest rate you are offered can significantly affect the total cost of your mortgage. Even a slight difference in rates (say, 0.5%) can add up to thousands of dollars over the term of your loan. It’s important to compare rates from different lenders, as well as consider the loan features and fees.

Different Types of Home Loans:

  • Fixed-Rate Loans:
    The interest rate is set for a specific period (usually 1-5 years). This offers stability, as your repayments won’t change, but it may limit your ability to make extra repayments or switch loans without incurring fees.
  • Variable-Rate Loans:
    The interest rate can fluctuate over the life of the loan, which means your repayments could go up or down depending on the market. These loans often allow you to make extra repayments and can be more flexible.
  • Split Loans:
    A combination of fixed and variable rates, allowing you to enjoy the benefits of both.

Additional Features to Consider:

When comparing home loans, look beyond just the interest rate. Some loans come with features that could benefit your financial situation:

  • Offset Accounts:
    A savings account linked to your loan that reduces the interest you pay by offsetting your loan balance with your savings.
  • Redraw Facilities:
    Allows you to access any extra repayments you’ve made, providing more flexibility.

Get Help from a Specialist:

A Home Loan Specialist can help you navigate the different loan options available and advise you on the best deal for your needs. They can also help you assess the pros and cons of various lenders and ensure you’re getting the best possible deal.

Get Pre-Approval for Your Loan:

Once you've selected a loan, the next step is to submit your application for formal pre-approval. Your lender will review your financial situation, and assuming everything checks out, they’ll confirm how much they’re willing to lend you.




4. Find a House to Buy

With your finances in order and pre-approval in hand, you can begin your property search.

Start with a Clear Picture of What You Want:

Think about your long-term needs. Are you looking for a family home, an investment property, or a place to renovate? Knowing the why behind your purchase will help you focus on the right properties.

Key Questions to Ask Yourself:

  • Location:
    Is the area close to work, public transport, schools, or family? Are you looking for a quiet suburban lifestyle or something closer to the city?
  • Size:
    How much space do you need? Consider bedrooms, bathrooms, and overall square footage.
  • Lifestyle:
    Think about lifestyle features like nearby parks, cafes, and other amenities.
  • Future Potential:
    Is the property likely to appreciate in value? Does it have potential for renovation or extensions?

Create a List of Must-Haves and Nice-to-Haves:

  • Must-Haves:
    These are features you can’t live without, such as a certain number of bedrooms, proximity to work or schools, or off-street parking.
  • Nice-to-Haves:
    These are features that would be great but aren’t deal-breakers, like a large backyard, modern finishes, or a swimming pool.

Stick to Your Price Range:

Once you’ve been pre-approved for a certain loan amount, stay within that range. Looking at homes outside your price bracket can be tempting, but it can also lead to disappointment. If the area you want to buy in is too expensive, be open to other nearby suburbs or even different property types (e.g. a townhouse instead of a detached home).

Research and Visit Properties:

Use online property listings, visit open homes, talk to real estate agents, and attend property inspections. Don’t rush this process—buying a home is a big decision, and you’ll want to feel confident that you’ve made the right choice.




5. Negotiate to Buy Your House

Once you find a property you love, it’s time to negotiate the price and terms.

Auction vs. Private Treaty:

  • Auction:
    If you’re buying at auction, you’ll need to act quickly. Know your limit, as there’s no cooling-off period once the auction ends. Be prepared to pay a deposit immediately if you win the auction (usually 10% of the purchase price).
  • Private Treaty:
    If the property is being sold privately, you can negotiate the price with the seller or agent. Make an offer that reflects the property’s market value and condition.

Make a Conditional or Unconditional Offer:

  • Unconditional Offer:
    Your offer/purchase is not subject to any additional requirements such as a building and pest inspection or finance approval. This is usually the case when purchasing a property at an auction. It is advisable to have these checks done before attending an auction.
  • Conditional Offer:
    Your offer is subject to additional requirements such as but not limited to building and pest inspection and finance approval. If any outlined conditions are not met by the specified date both parties have the right to withdraw from the contract without penalty.
  • Review the Contract of Sale:
    Before making an offer you can request the Contract of Sale or Section 32 from the selling agent. It is essential to have a solicitor or conveyancer review the contract to ensure all terms are fair and there are no hidden surprises. This step can prevent costly mistakes down the line.
  • Building and Pest Inspections:
    You can make your offer subject to a building and pest inspection or have this completed before making an offer. This will identify any issues with the property, such as structural damage, essential repairs or pest infestations that could affect its value and cost you money.
    It is important to remember you can’t make a purchase subject to building and pest inspection if bought at an auction.




6. Settle on Your New Home

The final step is settlement, when ownership of the property officially transfers to you.

What Happens at Settlement:

  • Pay the Balance:
    You will need to pay the remainder of the purchase price, minus the deposit you’ve already paid.
  • Transfer of Title:
    The seller’s solicitor or conveyancer will transfer the property’s title to you, and your lender will release the funds for the mortgage.
  • Get the Keys:
    Once settlement is complete, you will receive the keys to your new home.

Pay Stamp Duty:

Stamp duty is a one-off property transfer tax that varies by state or territory. The amount is based on the property price or its market value. Be sure to use the relevant state calculator to estimate the cost and budget for this expense. First home buyers may be eligible for exemptions or reductions.

Find out how much you have to pay by using one of these calculators:

Final Thoughts and Next Steps

Buying your first home is a major milestone, but it’s important to stay informed and plan carefully at each step. If you have any questions or need assistance, don’t hesitate to contact us. Our Home Loan Specialists are ready to guide you every step of the way to unlocking the door to your new home.

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