Buying your first home

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Buying your first home?

The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.

What’s the first hurdle when buying your first home?

For most, it’s working out how big a deposit you’ll need and then saving that home deposit.
  • Work out what you can afford to borrow and still live comfortably
  • Get advice from a financial planner, friend or family member who has bought property before. Arm yourself with as much advice as possible
  • Don’t over commit when buying your first home. Most people will qualify for loans far above what they can afford to pay back. Don’t fall into this trap. You’ll need adequate reserves to cover more than just mortgage repayments
  • Start looking around once you have around 5% of the purchase price and keep saving

Can my parents help me buy my first home?

Saving for a deposit isn’t easy, especially if you want to save enough to avoid Mortgage Insurance. If your parents are willing and able to help you buy your first home, then perhaps a Family Equity Loan is the way to go.
  • A ‘Family Equity Loan’ or ‘Limited Guarantor Loan’ is a great way of buying your house sooner and avoiding Mortgage Insurance.
  • Your parents are able help you without being left out of pocket because they’re using the equity in their property to cover a portion of the loan
  • However, if you can’t repay your mortgage, your parents would be required to pay the unpaid amount of the loan. In a worst-case scenario, this could force them to sell their home to cover your debt.

What are things I need to know when buying a first home?

You need to know:
  • How much you can afford to borrow
  • How large a home deposit you will need
  • What the other costs are that you will incur
  • How to make an offer
Talk to a friendly First National Real Estate agent for advice.

How much money can I borrow to buy a house?

  • A bank or mortgage broker can help you establish a realistic figure
  • If you have less than 20% of the purchase price, you may need to pay Mortgage Insurance. This allows you to borrow a larger percentage of the purchase price but slows the rate at which you pay off your loan
  • Mortgage Insurance can be included either in your upfront costs or in your loan repayments so that it’s spread out over the term of the loan
  • Once you have decided that you are comfortable with the amount your Lender has approved for you, it’s wise to get your lender’s ‘pre-approval’ or a ‘Deposit Bond’. Then you can bid confidently at an auction, or make an offer on a ‘private’ sale, knowing your lender won’t say no

What is a Deposit Bond? Why would I want one?

  • A ‘Deposit Bond’ acts as a substitute for cash and you can use the bond when exchanging contracts, including at auctions.
  • For a small fee (several hundred dollars normally), you and your lender agree a maximum amount that you can use as a deposit to buy and you don’t need to use your cash. The Deposit Bond works like a guarantee. It’s your lender’s way of saying ‘we’ll pay this deposit at settlement, instead of now’
  • It gives you the freedom to concentrate on finding the right property - and keeps your deposit savings earning interest, right up until the day of settlement.
  • Your Lender can arrange this as part of your pre-approval

I’ve inherited a home. What are my obligations if I sell?

There may be ‘capital gains’ tax obligations.  Please seek advice from your financial advisor or a qualified tax accountant concerning the implications of selling an asset you have inherited.

What is Stamp Duty? How much will I need to pay?

  • Stamp Duty is a tax levied by states on various types of transactions such as transfers and agreements for the sale of real estate.
  • The amount of stamp duty you pay is based on the price of the property you buy. The amount varies from state to state.
Visit the revenue office website of your state for further information:

Victoria www.sro.vic.gov.au
NSW www.osr.nsw.gov.au
ACT www.revenue.act.gov.au
Tasmania www.treasury.tas.gov.au
South Australia www.revenuesa.sa.gov.au
Western Australia www.dtf.wa.gov.au
Queensland www.osr.qld.gov.au
Northern Territory www.nt.gov

What’s the difference between ‘Auction’ and ‘For Sale’?

Auction
  • A property is advertised for a set period and a date set by which buyers must have completed their enquiries (legal, building/pest inspections), arranged their finance & be ready to bid
  • On the day of the auction, buyers compete, bidding in an upward direction until no higher bid is offered
  • If the seller’s ‘Reserve Price’ is reached, the property will be declared 'on the market' by the auctioneer
  • The ‘Reserve Price’ is the lowest price the seller is willing to accept
  • If the ‘Reserve Price’ has been reached or exceeded, the property will immediately be sold to the highest bidder
  • If the ‘Reserve Price’ has not been reached, negotiations will commence with the highest bidder
  • If the property has been sold, the highest bidder must exchange contracts and pay the deposit, which is 10% of the purchase price, immediately. There is no ‘Cooling Off Period’.
  • If you plan to bid at auction, it’s a good idea to have a ‘Deposit Bond’, which will act as a substitute for cash if you don’t have 10% deposit in cash or a cheque book

For Sale

‘For Sale’ is the standard term for a Private Treaty sale. It usually has a fixed asking price although there can be slight variations:
  • Sometimes, the seller will seek ‘offers above’ an indicated price
  • Interested parties make offers and negotiate with the seller through the agent
  • The agent may be negotiating with several parties at once and acts under the instruction of the seller
  • When you commence a negotiation, it’s important to be serious and respond quickly, fairly and decisively
  • Be mindful that if you are reluctant to negotiate a fair offer, the owner may accept an offer from another party and sell to another party. The agent does not have to tell you what the other party’s offer is
  • You will be required to pay a refundable holding deposit once your offer has been accepted
  • However, you must sign the contract to buy the property as quickly as possible. Until you do, even if a deposit has been paid, the seller retains the right to sell his/her home to anybody else they choose. If a higher offer comes along, they are free to accept (Your deposit must be refunded, but the owner and agent are not obliged to refund any other costs)
  • Private Treaty sales are subject to a ‘Cooling Off Period’. The ‘Contract of Sale’ will explain how long this is – typically five business days

What is the process of an auction?

  1. The auctioneer starts proceedings with a short explanation of the contract and terms of the auction. Buyers are entitled to ask questions at this stage
  2. The auctioneer will then call for an opening bid. If a genuine bid is not forthcoming, the vendor is entitled to make a “vendor bid”
  3. Once the reserve price is reached, the auctioneer will generally state that “the property is on the market”. This is when bidding can become more competitive
  4. If the highest bid falls short of the reserve, the property may be passed in or the auctioneer may pause the auction while the agent discusses the situation with the vendor
  5. The vendor may choose to reduce the reserve to the highest bid and recommence the auction OR
  6. If the vendor refuses to revise the reserve price, the property will be “passed in”. You may then be approached by the agent and invited to negotiate in an attempt to agree upon an acceptable offer for the vendor

What is a reserve price?

The “reserve price” is the minimum price that the vendor will accept. This is set by the vendor prior to auction and can be changed by the vendor during the auction if desired.
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