Thoreau touches on our most basic needs as humans. He refers to the most fundamental needs of warmth, safety and shelter. He also refers to what Maslow labels higher level needs such as love, intimacy and esteem. When you step back and look at the reasoning why we want to buy our first home, it would be surprising if you couldn’t identify several, if not all of these needs.
With so much at stake (consciously or not), buying a first home is both extremely exciting and also very nerve-wracking. It takes patience, knowledge and planning. Securing the funds to make such a large purchase can seem overwhelming but at Moneybright we are here to lend a hand.
Planning Your First Home Purchase
Before you apply for a home loan you need to work out a budget. Once you determine the difference between what you earn and what you spend, you’ll soon have a clear picture of the home you can afford. Let’s say your borrowing capacity calculation came back at $350,000. On a principal and interest loan at a 6% interest rate for 30 years, the repayments will come in at $2,098.43 each month.
If your budget reveals that you’re only saving $2,000 per month after all the regular bills and expenses are paid, you should look at where you can make savings, or reduce the amount you’re looking to borrow.
Whether you choose to buy a home or an investment property to rent, your ability to do so will largely depend on affordability.
Your income needs to cover your home loan repayment (and costs) PLUS funds to allow you to live comfortably. A useful guide is to ask yourself if your debts will total more than 40 per cent of your income. If they do, consider a smaller home loan or saving a larger deposit.
Your borrowing power is typically based on your income, debts, financial commitments, credit history, loan type, employment history, savings, stability of residence and assets.
- Genuine Savings over several months indicate an ability to make regular repayments
- Investments held for several months or equity in an existing investment
- Genuine gifts of money supported by a statutory declaration that repayment is not required
- A history of regular rental payments over a 12 month period may sometimes also be acceptable to some lenders
When you meet with a broker, they’ll take into account the amount you need to borrow to purchase your home as well as all the associated costs, to come up with the total funds you require. It’s important to factor these costs into your plans when saving for your home loan deposit and to consider what your maximum property value will be when you are looking at houses. These associated costs can include:
- Stamp duty (varies on price)
- Application or establishment fee (from $0 up to $700)
- Property Valuations (allow $300)
- Settlement fees
- Legal fees (typically $500 to $2,000)
- Mortgage registration ($110 to $200)
- Property inspections (pest/building – $400 to $800)
Amount of money needed = (House price + costs) LESS (Deposit + Grants if any).
We will give you a comprehensive breakdown of all the associated costs in purchasing a property to make sure you are borrowing within your means and borrowing enough to purchase your home.
- How quickly do I want to pay the loan out?
- Am I good at sticking to a budget?
- Do I want the certainty of a set repayment amount?
- Will I want to draw any extra repayments back out at a later date?
- Am I planning on having kids in the future?
- Have I allowed for things like school fees or similar expenses?
- Will this be a long term home or converted to an investment property?
The role of a solicitor or licensed conveyancer is to take responsibility for the conveyancing process, as well as advising you along the way. Getting the right advice before and during the conveyancing process will minimise the risk of problems arising.
Purchasing Your First Home
Once you’ve sorted your finance and organised the inspections and other necessary inquiries, you’re ready to make an offer. you can make an offer before you receive formal loan approval and the inspection reports etc, so long as you specify the offer is conditional on finance, the results of the inspection or any other matters to be resolved.
The vendor will then decide whether or not to agree to a conditional offer. Even if the vendor is agreeable to your ‘conditional’ offer, it’s not legally binding on either of you until the contracts have been exchanged
By now, you should have pre-approval for your home loan. In order to get formal approval, you need to give your broker the details of the property (and any other outstanding information they may require). Final approval is likely to take a few days as the lender may organise such things as an independent valuation of the property.
You should have building and pest inspections carried out. If you’re buying a unit, townhouse or villa, you’ll also want a strata title search. Even if you’re madly in love with the place and determined to buy it no matter what, knowing its flaws could help you knock the price down. Having the property surveyed is also a smart idea. A survey will set out the property boundaries.
A building inspector will look at the property inside and out and examine issues of fire-safety upgrading, noise transmission and waterproofing. Some faults that might be identified could include cracks in the walls, rising damp, leaking roof, asbestos in the building or drainage problems.
Once you receive the building inspection report, read it carefully. Generally, the report won’t include quotes for fixing any problems.
A property sale isn’t formalised until the exchange of contracts that sets out the terms and conditions of the sale including the price and settlement date. Doing such things as having your loan finance pre-approved, seeking a copy of the contract for sale as soon as possible and having the contract reviewed by your legal team moves you to settlement quickly.
There will be two copies of the sale contract: one for you and one for the vendor. You will each sign one copy of the contract and your paperwork is swapped or ‘exchanged’ with the vendor’s. This can be done by hand or post and is usually arranged by your solicitor or the vendor’s, in consultation with the agent.
It is at this time that you are required to pay a deposit of at least 10 per cent of the purchase price. The contract will include a settlement date, which is the date that the property becomes yours. If the property was bought at auction, the exchange of contracts will occur on the day, where the auction is conducted.
The time between exchanging contracts and settlement is the time to conduct the inspections if including subject to building and pest inspections.
On or prior to the settlement date (date you take legal ownership of the property), you’ll need to ensure that you have organised relevant insurances, signed the mortgage documents, obtained funds to pay stamp duty and the balance of the purchase price. A bank cheque for the balance of the property will be handed over to the vendor’s solicitor in return for the title of ownership.
You will receive a copy of the property title and a set of house keys.
Settlement usually takes about 30 days in Queensland from the time contracts are exchanged. It can be changed as long as the vendor and purchaser agree and it is reflected in the contract for sale.