If you’ve never purchased a home before, the process can be a little daunting. A step-by-step checklist will help first home buyers get a foothold in the property market while keeping stress levels at an all-time low. Managing Director of LCI, Gerry Incollingo, has prepared a list of checkpoints to help streamline the house purchasing process.
Know your borrowing capacity
Before you start dreaming of the waterfront home with 6 car garage, it’s important to know how much the bank will lend you.
You’ll need proof of:
1) How much you earn and how long you’ve been at your job. If you are self-employed, you’ll need to prove you have enough money to service a mortgage
2) Any credit card balances and whether you have any other personal loans, such as car loans or hire purchase loans
3) Your credit history or credit score
4) How much deposit you’ve managed to save for the house. If the bank agrees to lend you more than 95%, it’s likely you’ll be subject to Lenders’ Mortgage Insurance (LMI), which will up the amount of weekly/monthly repayments
5) A budget showing your spending habits (How much you pay for the gym, petrol, clothing, UberEats).
To get a basic idea of the amount you may be allowed to borrow, you’ll find a variety of different calculators online that let you calculate an approximate amount you may be eligible to borrow. It’s only a rough guideline, as many external factors may come into play such as interest rates, credit scores and the official cash rate.
Are you entitled to any government grants?
As a first home buyer, you may be entitled to help from the government such as the First Home Buyers Grant for building a new home, or exemption from paying stamp duty. Talk to a financial advisor experienced in the property as they will have an in-depth understanding of the different incentives available.
Is this an investment property or do you plan to live in the house?
If you are looking at an investment property, you may be able to finance the purchase by using a self-managed super fund, if you meet SMSF eligibility requirements. Rental properties will have a different
set off pre-requisites compared to purchasing a family home. It may not be the type of house you see as a forever home or located in the perfect suburb. You’ll need to use an investor’s mindset and look at it from the average weekly rental yield, potential growth rate and will it be in hot demand by tenants in the local area.
If it’s a home for your family, you’ll want to consider school catchment areas, commute times to the office, traffic noise, crime rate of the area, proximity to transport and amenities.
Don’t forget before you make your final decision, you’ll need to undertake due diligence on the property by organising a building and pest inspection. If the property gets flagged for any major hazards, you’ll need to weigh up whether they can be easily fixed or whether the cost of repairs could potentially cost thousands and affect the resale value in the future.
Research the best home loan rates
Get independent financial advice on the best home loan rates and ways to set up your mortgage. For example, is it better to pay interest only? Should you lock your loan down to a fixed interest rate and if yes, how long for? Is it better to have a revolving mortgage? And how can you offset your home loan rate to minimise tax? A mortgage broker can help you shop around for the best rates.
Once you have pre-approval you can reach out to a real estate agent.
Reaching out to an agent
Property demand is high and many properties are being purchased site unseen, so you need to be prepared to make swift decisions once you find a property you live, If you are short on time, then a buyer’s agent can use the list of your pre-requisites to find a property that suits your requirements. If you are overseas or interstate, you may find using a buyer’s agent a huge timesaver. However, if you’re a first home buyer, using a buyer’s agent is another expense you don’t really need. It’s easy enough to reach out to agents online.
Conveyancing
This is where things get complicated because it deals with huge amounts of money being transferred between bank accounts. You’ll need a solicitor who can ensure that your contractual obligations are met and figure out a settlement date.
Once everything is signed off and the settlement date is confirmed, the property goes unconditional. There’s no changing your mind. You can organise with the sales agent a time to do a pre-settlement inspection and now it’s over to you to organise movers, electricity, access to the mortgage accounts and get the keys.
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Gerry Incollingo is the Managing Partner of LCI Partners, a firm that specialises in accounting, legal, lending, wealth, property and more.