First-home buyers' checklist

First-home buyers' checklist

Interest rates are at an all-time low and the banks are out in force wooing first-home buyers with competitive home loan packages. If you’re in the market for your first home, you may feel overwhelmed by the constant stream of property speculation being played out in the media and the seemingly herculean task of getting onto the property ladder.

Buying your first home is daunting no matter what. “Buying your first home is one of the most significant events that’ll happen in your life,” says St George head of retail Robert Allan.

The following checklist should help simplify the task.

Prepare your finances and set a budget
“The first thing first-home buyers are interested in is how much they can borrow,” says Allan. “They can seek professional advice to determine their borrowing limit.”

While a lender will look at your your income, assets and outgoings to assess how much you can borrow, you should also set your own budget to ensure you don’t over-extend yourself on your first mortgage. Try using a home loans calculator to determine the approximate cost of repayments on various loan sizes.

Choose the right area
Most of us have clear idea about where we’d like to buy our first home – usually close to family and friends, and work and schools – but if your budget won’t allow you to buy in the area of choice, make a list of everything you like about that area and look for a suitable alternative. Also consider a trade-off that would allow you to buy a cheaper home in your preferred area – for example, living next to a train line or on a main road.

Choose the right home loan
This is just as important as choosing the right home and there are many options to consider. From bank or non-bank lender, fixed or variable interest rate, offset account, redraw facility, fees, the ability to make one-off payments, the list of considerations is long.

The secret to choosing a suitable home loan is to do a lot of research, and you can begin on a free financial comparison website such as RateCity.co.au, which allows you to compare and apply for more than 2000 home loans.

As St George’s Allan advises: “There is no one size fits all when it comes to home loans. Our professional advisers can help first-home buyers assess the different options available to them.”

Budget for additional expenses
In addition to saving enough money for the deposit on your first home, there are other associated costs you should be ready to cover, including legal fees, inspection fees, loan application fees (charged by most lenders to cover loan application documentation, legal fees and one standard valuation) and lenders’ mortgage insurance (charged if you are borrowing over 80 percent of your home’s value).

Stamp duty varies from state to state, so once again do your homework and be prepared for the eventual cost. It is also wise to budget for the cost of connecting utilities, as well as council rates, water rates and strata fees if you buy an apartment.

Consider insurance
“For a lot of people, especially young families, buying a first home is also a time when they are thinking about their future,” Allan says. “Now is the time to think about your potential circumstances, such as illness or loss of job.”

Income protection and content insurance can give you peace of mind and ensure you are not caught out in unexpected circumstances.

Prepare for the move
Once you’ve found the perfect home, start planning your move to coincide with the settlement date. If you are planning to use a removalist, do some research and get several quotes.

And don’t forget to take some time to enjoy the process. You only buy your first home once.

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Learn more about home loans

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

Mortgage Calculator, Loan Amount

How much you intend to borrow. 

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.