July 1, 2018 | How to Buy a House – A Guide for First Home Buyers

Buying a house is one of the biggest decisions in life and especially when you are a first home buyer, having someone in your corner like a buyers advocate means that you can be confident you are making a good decision and one without the emotion and stress that can often come with buying a house. However first home buyers without experience or relevant help, must prepare the best approach and strategies to guide them through the buying process.

This guide provides first home buyers with a strategy on how to buy a house in Melbourne. This includes answering important questions such as:

• What is my budget? How much can I borrow?
• What kind of loan should is best for my situation?
• How should I structure it so that my property is protected?
• Do I get any concessions for buying a property?
• What are the key factors I need to consider before starting my search?
• How do I conduct my search and research?
• What questions should I ask a real estate agent when buying a property?
• How should I need to prepare before going to auction?

Budget and Borrowing Money

Setting a budget and knowing how much you can borrow is the first critical step in the process for first home buyers. Once you know this, you can then understand what areas you can look in that will fit your budget.

Usually you want to buy a property with no more than 80% LVR (Loan to Value Ratio), which means that you only want to borrow a maximum of 80% of the value of the property. Hence the first question is how much deposit do you have. If you have a $125,000 deposit, then this is 20% of $625,000 so that is the budget that you want to set on a property. Similarly is your deposit is $150,000 then your budget could stretch to $750,000. Given this, you must make a decision as to whether you have enough budget to buy in the area you want now. If you don’t it may be worth saving to have enough deposit to get the budget you need to buy a house in the area that you want.

If you have enough deposit to secure the budget you need on an 80% or less LVR, then next question is do you have enough income to prove that you can comfortably service the loan. This question is best answered by a mortgage broker. We usually a mortgage broker more than a bank as they have access to a number of different outlets and can provide the best loan option for your situation.

If you can have enough deposit and income to service the loan and you are serious about buying, the next step is to secure a pre-approval which is when you receive a conditional approval on your loan. The last thing you want is to find the house which you think is within your budget, but get declined for a home loan right before the property goes to auction.

Home Loan Selection

There are a number of types of loans that first home buyers can get for your property which includes interest only, principal plus interest, then these is floating or fixed interest rates. There have been some recent changes made which make it more attractive for first home buyers to go for a principal plus interest loan. Also considering a fixed loan for a period of time helps to ensure that you know what the interest rates will be next month.

As you set up a mortgage you also want to consider setting up an offset account to minimize the interest paid.

Asset Protection

May people investing in property should consider asset protection as you never know what will happen in life. In saying that, for first home buyers, your principal place of residence should be in your own name to avoid capital gains when you sell (assuming that you will be living in it for a year or more). If you are buying with a partner, you should consider establishing a joint venture which is a formal agreement which confirms what percentage of the property each of you earns and what your respective financial commitments are to paying off the property. As much as you expect it all to go smoothly, each party wants to protect themselves and ensure that they have thought through the specifics of how this will work.

Concessions or First Home Buyers

As a first home buyer, depending on what your budget is you can get concessions on stamp duty and of course you are not exposed to capital gains if you decide to sell your first home as long as you live in it for a year a more. There are additional first home owners grant which you can apply for if you buy or build a new home. However this does not usually apply to the majority of our clients.

Stamp duty concessions for First Home Buyers

Stamp Duty can be as high as 6% which is a significant amount of the property value. Recent laws introduced has meant that first home buyers can receive concessions on stamp duty depending on what they buy their property for. These concessions exist for properties purchased for a value of up to $750,000. You can see examples of these concessions at different levels of investment below:

Property Search

We wrote another article on how to buy a property in a hot market. In this article, we outline the key aspects of a scope which includes elements of the property, position and price. Once you have defined this and your budget, you can then begin the search. Realestate.com.au is the best resource in the market although we also use Domain.com.au. We have paid subscriptions to platforms which provide the most up to date sales and as a member of the REIV we also get access to up to date market data on number of key market indicators such as clearance rates and median house prices by suburb.

When you have narrowed down the target areas you want to search in, you can call the Real Estate Agents that are representing the vendor.

• Why is the vendor selling
• How long has it been on the market
• Would the sellers consider an offer pre auction
• What is included in the sale in addition to the property?
• How many other people have expressed interest in the property?

First home buyers are in a better position to negotiate if it is a distressed sale or if there is less competition. Make sure you develop a relationship with the agent to get them on side. Sometimes this can make all the difference.

Property Auction

• Pre-approved Loan: As mentioned earlier, you want to make sure that you have this in place before going to auction.
• Choose the right time to bid – If you have a good budget for the property, wait until others have bid to see what it starts to peter out at before coming in with a confident bid. If you don’t have a significant budget, you might consider setting the pace with a confident bid to start with.
• Control the pace of the bidding with confident bids– If the bidding is in $5k increments, slow it down, it it’s in $500 increments and you have budget, change it up. Always keep the other parties guessing and try to avoid revealing your hand.
• Do your research to determine what you value the property at: Look at comparable sales and what similar houses have sold for to get a realistic view on the value of the property (this is where a Buyers Advocate in Melbourne can really help). Knowing what the property is worth ensures that you don’t get caught up in a bidding war if other people are overvaluing the property.

Final Words

Before purchasing any house, we recommened first home buyers invest in a pest and building inspection to ensure the house is structurally sound. Also make sure that you have read through the sale of contract before making any bids. Take into account any additional costs associated with purchasing or moving into the property. Remember that a Buyer’s Advocate is also an investment and will help you make a confident decision on the property and ensures you are making the right decisions and employing the right strategies for searching, bidding and acquiring properties.

If you are interested in a free consultation, please call +61-3-9531-1670 to speak to one of our expert agents.