Top 10 tips for first-time home buyers

For first-time home buyers, navigating the property market can sometimes feel overwhelming. From finding the right house at the right price to securing suitable financing, there’s a lot to do, and it can take up considerable time and effort. However, with the right preparation and a bit of guidance, the journey can be much less stressful.

Here’s a comprehensive guide with key tips for first-home buyers. It’s designed to help you approach your purchase with confidence and avoid some of the common mistakes along the way.

Setting a budget

1. Understand the real cost of buying a house

Understanding all the costs involved in buying a home is crucial. Beyond the purchase price, you’ll need to budget for additional expenses like stamp duty, legal fees, property inspections, and moving costs.

Stamp duty

This is a state-imposed tax on property transactions, with rates varying across Australia. Stamp duty is typically calculated as a percentage of the property’s value, generally ranging between 3% and 5%. This means that the lower the cost of the property, the lower the stamp duty you’ll need to pay.

Each Australian state and territory applies stamp duty differently, with varying rates, thresholds, and exemptions. For example, first-home buyers in some states may qualify for concessions or exemptions, depending on the property’s value and their eligibility. Understanding how stamp duty is calculated and whether you qualify for any exemptions or discounts is essential when budgeting for your home purchase.

Legal fees

Engaging a solicitor or conveyancer to manage the legal aspects of the purchase typically can cost you up to a few thousand dollars, depending on the size of your property and the state in which you buy.

Property inspections

Conducting building and pest inspections is essential to identify potential issues. According to Hipages, the cost of a building inspection depends on the property size and location. For smaller properties, inspections typically cost between $200 and $300. In regional areas, the price for an average-sized home inspection is estimated to range from $400 to $500, while inspections in metropolitan areas can be higher, ranging from $800 to $1,000. These variations highlight the importance of factoring inspection costs into your budget when planning to purchase a property.

Moving costs

Expenses for moving can vary based on distance and volume but may range from $500 to $2,500.

By accounting for these additional costs, you can develop a more accurate budget and avoid unexpected financial surprises during the home-buying process.

2. Start saving for a deposit

Most lenders require a deposit of at least 20% of the property price to avoid Lenders Mortgage Insurance (LMI). For a $800,000 home, this means saving $160,000. However, first-time buyers may qualify for government assistance, such as:

First Home Owner Grant (FHOG): A one-time grant to help first-time buyers, varying by state. For example, in NSW, eligible buyers may receive up to $10,000.

Home Guarantee Scheme (HGS): Allows eligible buyers to purchase a home with as little as a 5% deposit (2% for single parents), with the government guaranteeing the rest to avoid LMI.

Some tips to kickstart your savings:

1. Create a savings plan: Set a clear target for your deposit and break it down into monthly or weekly savings goals. Automate transfers to a dedicated savings account to stay consistent.
2. Consider opening a high-interest savings account: Look for accounts offering competitive interest rates to help your savings grow faster but make sure you can meet any additional conditions for earning the bonus interest rate.
3. Cut back on non-essentials: Review your spending and identify areas where you can save, such as dining out less frequently or reducing subscriptions.
4. First Home Super Saver Scheme (FHSS): Consider using the FHSS scheme, which allows you to save for a deposit within your superannuation fund, taking advantage of lower tax rates and potentially boosting your savings.
5. Track and adjust: Regularly monitor your progress and adjust your budget if needed. Small changes, like redirecting bonuses or tax refunds toward your deposit, can add up over time.

3. Assess your borrowing capacity

Setting a budget for your first home starts with understanding how much you can afford to borrow and repay comfortably. Lenders determine your borrowing capacity by evaluating your income, regular expenses, and existing debts.

To get an estimate, you can use online calculators (like the home loan calculator on the MoneySmart website) to understand your maximum borrowing amount. A good tip is to factor in potential interest rate increases by calculating repayments at a slightly higher rate than the current one. This helps ensure your budget remains manageable even if rates rise in the future.

By understanding your borrowing capacity, you can set realistic expectations and focus your property search on homes within your financial reach.

Finding the right house

4. Location matters

The location of your home plays a big role in its long-term value and how well it fits your lifestyle. When deciding where to buy, consider factors like proximity to work, public transport, schools, and everyday amenities such as shops and parks.

Affordability is another key factor. Suburbs on the outskirts of major cities often provide more affordable options compared to inner-city areas, while still offering access to metropolitan conveniences.

Think about your future plans too. If you’re planning to start a family or change jobs, choosing a location with good schools or transport links can make a big difference. Balancing affordability with lifestyle needs is the key to finding a location that works for both your present and your future.

5. What type of house do you need?

When choosing the type of property, consider your goals – whether it will be your own home, an investment, or part of a rentvesting strategy – along with practical factors like family size and lifestyle needs.
 
If you’re buying to live in, think about how much space you’ll need now and in the future. For example, a house in the suburbs may suit a growing family, offering more bedrooms and outdoor space, but it could cost significantly more than an apartment or townhouse.
 
If your focus is on investment, prioritise properties in areas with strong rental demand and potential for growth, such as apartments in city hubs or houses in developing suburbs with new infrastructure.
 
Rentvesting is a flexible option, allowing you to buy an affordable property in a high-growth area for rental income while renting in a location that aligns with your current lifestyle. Tailoring your choice to your family size, future plans, and financial goals will ensure you make a well-informed decision.

6. Don’t skip property inspections

Thoroughly inspect any property before purchasing. A building and pest inspection is essential to uncover potential structural issues or hidden problems. Additionally, lenders often require these inspections as part of the loan approval process, ensuring the property meets their criteria.

Financing the house

7. Choose the right type of home loan

Home loans come in various forms, such as fixed, variable, or split loans. Fixed-rate loans provide stability by locking in an interest rate for a set period, typically 1 to 5 years, ensuring consistent repayments. This can be helpful for those who prefer predictable payments, though it may limit flexibility if you wish to make extra repayments or take advantage of rate decreases.
 
Variable-rate loans, on the other hand, adjust with market conditions. While this means you could benefit from lower repayments if rates drop, it also carries the risk of increased repayments if rates rise.

Split loans combine elements of both, dividing the loan into fixed and variable portions. This setup balances stable repayments with the flexibility to benefit from rate changes or make additional payments. Understanding these loan types can help you align your choice with your financial plans and goals.

8. Consider additional features

Besides the interest rate on a home loan, it’s worth considering the other factors, like fees and features, to understand the actual value of the loan to you. 

Many home loans in Australia come with additional features that can provide flexibility and help you manage your repayments more effectively. These features can vary between lenders and loan types but may be worth considering as part of your decision-making process.

• Offset accounts
  An offset account is a transaction account linked to your home loan. The balance in this account offsets the loan amount, reducing the interest charged. For example, if you have a $500,000 loan and $20,000 in your offset account, you’ll only pay interest on $480,000.

• Redraw facilities
  This feature allows you to withdraw any extra repayments you’ve made on your loan if needed. It’s useful for emergencies or unexpected expenses while still enabling you to reduce your interest costs when making additional repayments.

• Repayment flexibility
  Some lenders allow you to choose between weekly, fortnightly, or monthly repayments. Paying more frequently can reduce your interest over time, as interest is calculated daily.

• Extra repayments
  Many variable-rate loans, and some fixed-rate loans, allow you to make additional repayments without penalty. This can help you pay off your loan faster and save on interest.

• Loan portability
  This feature lets you transfer your loan to a new property if you decide to move. It could save you from closing one loan and applying for a new one, potentially reducing costs and hassle.

• Interest-only repayments
  Some loans offer interest-only repayment periods, where you only pay the interest for a set time. This can reduce initial repayments, though it doesn’t reduce the loan principal. Investors may sometimes consider this option to manage their cash flow better.

When evaluating home loan options, consider which features align with your financial needs and goals. These additional features can provide significant benefits but may come with higher fees or specific conditions, so it’s important to review the details carefully.

9. Get pre-approved for a mortgage

A pre-approval gives you a clear idea of your borrowing limit and shows sellers you’re a serious buyer. It’s a conditional approval from your lender that simplifies the purchasing process when you find the right home.

Extra tip: Check your credit score

Your credit score is a key factor in determining your eligibility for a home loan and the interest rate you may be offered. Lenders assess this three-digit number to evaluate your financial reliability, with higher scores often leading to better loan terms. A good credit score, typically above 700, can help you secure competitive interest rates, saving you thousands over the life of a loan.

Consider checking your credit score before making a home loan application to get an idea of how lenders might view you as a borrower.

10. Consider working with a mortgage broker

Navigating the home loan process can be daunting, but a mortgage broker can simplify it by providing expert guidance tailored to your financial situation. According to the Mortgage & Finance Association of Australia (MFAA), brokers facilitated 74.6% of all new home loans in the September 2024 quarter, a record-high market share. This demonstrates the growing reliance on brokers among Australian borrowers.

One of the key advantages of working with a broker is that their services come at no direct cost to you – they’re typically paid by lenders for the business they facilitate. Additionally, brokers are legally bound by the Best Interests Duty, which ensures they must act in your best interests. This obligation means the recommendations they make are designed to suit your needs, not theirs or the lenders.

A broker’s access to a wide range of loan products across different lenders allows them to find options that align with your financial goals. Whether you’re looking for a loan with flexible features or competitive rates, a broker can guide you through the process with clarity and confidence. However, remember to do your homework and independent research, too. This ensures you’re well-informed about the loan options available and confident in the decisions you make during your home-buying journey.

By combining the expertise of a broker with your own research, you can navigate the complexities of the home loan market with clarity and confidence.

Looking for help on your home loan journey?

Finding an experienced mortgage broker has never been easier. Browse expert broker profiles on Lnk8 and book an appointment to kickstart your journey. Using Lnk8 to connect with professionals is absolutely free. You can search for brokers in your area, check reviews, and connect with experts who suit your needs – all in one place.