8 steps to buying a house for the first time:
Step 1: Save a deposit
It sounds really obvious, I know, but it is the hardest thing to do if you’re buying a house for the first time in Sydney.
Ideally, you’ll save 20% of the property’s value and that way you can avoid paying lenders mortgage insurance, and you’re also going to need 5% for the cost of purchasing. If you are buying a $500,000 property for instance, that means saving up a $100,000 deposit plus 5%, which is another $25,000 in costs.
If you’re only going to save a 10% deposit, you need to be aware that you’ll have to pay lender’s mortgage insurance, and that can vary from lender to lender.
Step 2: Get a good mortgage broker
Ideally an investment-savvy mortgage broker because regardless if this is for your home or for an investment, getting the structure right and getting good advice at this stage is absolutely crucial.
Step 3: Put together your wish list
Write down absolutely everything you want. Trust me, it’s the last time you’re going to get everything you want on a piece of paper. You’re going to have to compromise, but the starting point is everything that you want because then you’re ready for step four, which is to go out and do some research. Get out there, look at property, basically pound the pavement, look in the areas in which you want to buy. You’ll find out very quickly whether you can afford what you want or not. So then you might need to go back and revise that wish list.
Step 4: Get advice from the experts
Now obviously I’m a buyers agent, and I welcome you to come and ask me for advice. You’ve got to be careful when you’re getting advice from your parents, because as well-meaning as they can be, I’ve often seen parents, particularly at auction, inadvertently help their kids pay way too much.
Step 5: Review your expectations
Once you’ve been out researching the market, you know how much money you’ve got to spend, and you know what your wish list is, see if they all line up.
Step 6: Know what your money will get
Inspect the property in person because now you’re educated and you actually know what you’re going to get for your money.
Step 7: Due diligence
Once you’ve found the property you want to buy, do your due diligence. That includes working out what it’s worth, but there’s a whole list of things you need to check out. Click here if you’d like a due diligence checklist.
Step 8: Negotiate
I just want to quickly talk about some principles that are essential for first home-buyers to understand. This is your first run on the property ladder. If you don’t get this right, you basically can ruin your entire future, and I’m being serious here. Get it right. Take the time to get this property purchase right. Don’t buy brand-new just because the government is giving you a first-time buyer grant. Be really, really wary of brand-new. A lot of people lose money this way. Go and look at existing stock, watch out for affordable locations outside the cities, be on the lookout for capital growth, and make sure there’s an easy commute and employment opportunities. Don’t believe the hype. Check your mindset. It’s not really hopeless.
The hardest thing to do is save the deposit. After that, interest rates are lower than they were 20 years ago, and yet the average age of the first-home buyer is still the same, beware the bank of mum and dad. As I’ve said earlier, well-meaning parents often encourage their kids inadvertently to pay more money than they should. I’ve seen parents at auction override their kids, saying no, no, no, it’s gone over my limit. No, I’ll help you. What they’re actually doing is helping you pay too much. So be very weary of that.
There’s four options that first-home buyers have if they’re struggling to get onto the property ladder:
- Rent-vesting: This is where you rent where you want to live and you buy an investment somewhere else. Just make sure that that somewhere else is where plenty of other people want to live.
- Share: Maybe with a really good friend or a family member. It probably works a little bit better for those who are investing rather than living in the property themselves, but one thing I do recommend here is get a co-ownership agreement if you’re going to do this.
- Don’t be scared to buy small: If you’re buying in a great area, a small property can perform better than a big property in a bad area.
- Be honest with yourself: Are you really making the sacrifices that you need to make in order to be able to afford to buy your first property? Once you’re on that ladder, you will look back and you will be glad you did it.
Published 8 May, 2018.
DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.