Things to understand before you buy a house

1 June, 2022

So you’ve made the important decision to buy a house. Now what?

Venturing into the real estate market is very exciting, but navigating the purchasing process can also be a minefield - unless you’re prepared. 

It’s not only a significant life decision, but a big financial commitment too. Considering most loan terms last for around 30 years, it pays to make sure you’re ready before you buy a house.

To help you out, here are some tips to ensure you are fully prepared before you try to buy a house.

Carefully consider the types of property you can afford

Before you start looking at property, or even suburbs, make sure you know how much you can actually afford. We’re not talking about the maximum you can borrow, but the maximum amount you’re prepared to pay each month.

Home loan repayments - plus the associated costs of owning a home - impact your monthly budget far more than rental payments do.

Set out to plan your budget with your home loan in mind and live on it for three months - remembering to also put away a sum every month for maintenance.

Examine your current financial situation

Before you apply for a home loan it is important to have a good understanding of your financial situation. There are many aspects that we consider when deciding to give you loan approval.

The indicative figure we will give you will be based on the following things:

Your total income

Your total income is possibly one of the biggest factors lenders look at when calculating how much you can borrow on your home loan. This is because your income directly impacts your ability to make your mortgage repayments each month.

Your total assets

Any assets you have, such as shares, property, vehicles etc. could work to improve your borrowing capacity. They demonstrate your ability to save and invest money over a period of time, and show that you have additional wealth that can be cashed in to improve your financial net worth if needed.

Total personal debts and expenses

Debts and living expenses are just as important as your income and savings when it comes to applying for a home loan. This is because any substantial debts or loans that you put your income towards can affect your ability to make mortgage repayments. These can include things such as credit cards, HECS-HELP, childcare or a car loan.

Your credit history

Credit score plays a significant role in determining your borrowing power. If you can prove that you’re reliable and regularly meet your credit repayments on time, you can potentially borrow a higher amount of money. Alternatively, if your credit history contains frequent missed or late payments, you will find it much harder to receive loan approval.

Your deposit

As a general rule, when talking about deposits, you should aim to have saved around 20% of the total purchase price. A lesser deposit may be accepted with Lender Mortgage Insurance (LMI).

But remember, the higher your deposit, the lower your repayments will be.

It will cost you more than just your deposit

Many people saving for a house get so caught up on reaching their deposit goal that they forget about all the other upfront costs involved in buying a house.

Here are some of the upfront costs you need to factor into your savings goal:

Stamp duty

Outside the deposit, this will be the biggest upfront cost. Stamp duty varies from state to territory and the rules seem very complicated. However, first home buyers may qualify for grants and exemptions.

Transfer fee

This is a fee levied by state governments to cover the cost of transferring the title.

Legal and Conveyance fees

These fees are for a licensed conveyor to review your contract, perform checks on the title, and draft settlement documents. Depending on the complexity, this can cost anywhere between $700 and $2500. Learn more about this here.

Lenders’ Mortgage Insurance

If you have a 20% deposit you generally won’t need Lenders’ Mortgage insurance. But buyers with a smaller deposit will. This is a one-off fee equivalent to between 1 and 3% of your loan amount.

Inspection fees

A thorough building inspection is essential. While it may be tempting to miss this step on account of money, just think, the average termite colony costs around $7000 to remove!

These are just a few of the upfront costs involved in purchasing a home. According to Your Mortgage, these costs can be anywhere between 7% and 11% of the purchase price. On a $400,000 home, that’s an extra $30,000 on top of your deposit.

This can be pretty daunting for a first time home buyer. But remember, most First Home Owner Grants assist with stamp duty and Mortgage Lenders’ Insurance, and only require you to pay a 5% deposit.

Research. And then do some more!

Research, research, research!

Doing your research is key before you buy a house. Understanding market trends, being aware of what houses are selling for in the area you’re wanting to buy, and considering any other global events that may impact the market and interest rates are so important.

Talk to real estate agents to get a sense of what’s happening in the areas you’re looking at. Make sure you understand how properties are valued and how that differs from what the price may be.

Research will help give you an indication of what you may expect to pay for a house and how much you could expect to make in repayments.

Want more advice?

Chat to our loans staff if you’d like to get a better idea of your financial position.

We can let you know where you stand and talk about your future plans to buy a house.