Buying a home

houseHome sweet home

Buying your first home is both exciting and nerve-wracking. It is a major decision that takes planning and research, and careful budgeting. Here are some tips to help you get started.

Are you ready to buy?

You are ready to become a homeowner if you have the following things in place:

  • A substantial deposit - The bigger the better when you're saving for a home. A deposit of 20% of the purchase price plus enough to cover costs is ideal. The bigger your deposit, the lower your loan to value ratio (LVR). This is the amount of the loan divided by the purchase price (or appraised value) of the property. If your LVR is higher than 80%, you will need to pay lender's mortgage insurance, and the lender could charge you a higher interest rate. Avoid these extra costs by saving a bigger deposit to lower your LVR.
  • A regular savings habit - A history of regular savings in your bank account and a solid track record of employment will make it easier for you to get a home loan.
  • Pre-approval for a loan - Compare a few different loans before you decide. Ask your lender for a key facts sheet on each home loan so you can compare more easily. Once you choose the loan and have been pre-approved you'll know what the repayments will be and how much you can afford to spend on a property.
  • Some additional savings - These will act as a buffer if interest rates rise and your repayments increase. Alternatively choose a loan that allows extra repayments so you can build a buffer early on.

Video: Scott Pape's top tips on buying a home

Tips for 1st home buyers video

The Barefoot Investor, Scott Pape, gives his tips on buying a home. He explains:

  • How much deposit you should have
  • The best place to save for your deposit
  • Whether now is a good time to buy

Please note that first home saver accounts are no longer available.

Transcript: Scott Pape's top tips on buying a home

Case study: Jane's dream comes true

""'My partner and I had been renting forever and could see house prices getting higher and higher - plus we weren't getting any younger. We decided to bite the bullet and for 4 years we saved every cent we could until we had a big enough deposit to get away with the smallest possible mortgage.

'We found a rundown house in a great street and it has become our labour of love to make it our dream home. Our plan is to put extra money into our mortgage so we can pay it off in 15 years.'

Jane, 33.

Struggling to get into the property market?

Widen your property search

Not everyone can afford to live in their ideal location. If you're trying to get a foot in the market consider moving out of your comfort zone into an area you may not have considered before.

Areas further out from cities or towns can be good value for money and offer a great first step into the market.

Risks of land banking

Land banking is a real estate investment scheme that involves buying large blocks of undeveloped land with a view to selling the land at a profit when it has been approved for development. Land banking may be appealing to investors who are trying to get into the property market but there are many risks with this type of investment. Find out more about land banking.

Consider a smaller property

If you really want to live in a particular area you may have to start small and work your way up. Consider an apartment or a smaller house that you can add to over time.

Compromise on finishes

Properties that are dated or in need of renovation can be a cheaper option for home buyers. Look for a home that is structurally sound and then clean it to your standard. Add a lick of paint here and there to improve the look and renovate as your budget allows.

Consider an investment property rather than living in the home

Investment properties outside capital cities or in smaller towns or rural areas can have decent rental yields, making up for much lower capital gains.

The benefit of a positively geared property is that a tenant repays your loan while you build equity. This allows you to sell the property later and use the proceeds as a deposit on a property closer to where you want to live. Find out more about property investment.

How much can you afford?

A good way to find out how much you can afford to spend on a property is to review your household budget. If you don't already have one, use our budget planner to:

  • Take what you're currently saving toward a deposit and add in what you pay in rent, to work out how much you can afford to repay
  • Work out how much you can comfortably afford to borrow without stretching your budget too far, making sure you have a buffer
  • Include all the costs that come with home ownership: up-front costs like stamp duty and legal fees and lender's mortgage insurance, as well as ongoing costs like land and water rates, house and contents insurance, and repairs

Budget planner

Mortgage calculator

Stamp duty calculators

One of the bigger upfront costs you may have to pay is stamp duty or transfer duty on your property. Find out how much you will need to pay using calculators on the websites below. If you are a first-home buyer, check what stamp duty concessions you are entitled to in your state.

ACT -  Revenue Office: Calculators

NSW - Office of State Revenue: Calculator - for land and property transfers

NT - Department of Treasury and Finance: Stamp duty calculators

QLD - Office of State Revenue: Transfer duty calculator

SA - RevenueSA calculator: Stamp duty on conveyances

TAS - Department of Treasury and Finance: Property transfer duty calculator

VIC - State Revenue Office: Our calculators

Western Australia - Department of Treasury and Finance: Calculators

Video: How I paid off my mortgage

how I paid my mortgage video

Di Motton, a Victorian teacher, explains how she paid off her first mortgage in her 30s in this MoneySmart Teaching video.

Transcript: How I paid off my mortgage

Finding the right property

There's no point looking for a waterfront mansion if you can only afford a boatshed. Once you've set your price range, identify the suburbs that have properties in that range - it will save you a lot of legwork. Go to the Australian Property Monitors: Home Price Guide to see property prices in different suburbs.

Then comes the fun part: finding the house or unit you want. Take your time and consider things like proximity to schools, transport and amenities, and the condition of the property. Does it need major repairs?

Before you buy, arrange for building and pest inspections, and have the contract checked by a conveyancer or solicitor before you sign. Make sure the person inspecting your future home is qualified to do so, such as a licensed builder, architect or surveyor.

In some states you can also have inspections during the 'cooling-off period', or the 5 days after you sign the contract, as long as you don't buy at auction - where there is no cooling-off period. If you withdraw during the period you will lose part of your deposit.

If you plan to buy a property as an investment, rather than a home to live in, read our information about investing in property.

Steps to buying a property

The process for buying a property is slightly different in each state  and territory. For detailed information visit the fair trading office for your  state.

Buying a home for the first time can feel like a giant leap into the unknown, but there are plenty of things you can do to make sure you don't fall into a financial abyss. Keep to your budget, put some money aside for emergencies, and take your time to find a place that feels like home.

Related links

Last updated: 01 Jun 2016