It’s just the biggest investment of your life. No big deal.
Whether you’re a first time home buyer or whether you have had previous experience in buying a house by private sales or though a real estate agent, there’s still a tried-and-true home buying process to follow. Some of the steps to buying a house for the first time (or second or third time) may vary slightly, but it’s still important to get your ducks in a row before diving in.
As you’re getting everything in order, there are many ways you can save money and optimize the process along the way. We’ve pulled together the key steps to buying a house while not blowing your budget here:
Step 1: Get Your Budget Straight before Buying a Home
You might be surprised to learn that many people do not track their monthly income and expenses on a regular basis. Not knowing where you are starting from when it comes to your assets and liabilities puts you at a major disadvantage.
Calculate your total monthly income (after taxes, taking into account all income from assets) and take out your regular expenses. Armed with that number, you should have an understanding of how much you can put towards your mortgage on a monthly basis.
Understanding this number is critical before signing on the dotted line for a mortgage. You do not want to default on your loan from the bank.
Also consider how your savings factor into this equation. You’ll want to have some sort of emergency fund in case you or your partner loses their job. You will still need to make those mortgage payments so ensure that you’ve got a backup plan as you make that budget.
Lastly, be sure to give some forethought to the following key costs as you prepare your budget:
Step 2: Figure Out How Much You Can Borrow to Buy a House
Once you know how much you can put towards your mortgage on a monthly basis, it’s time to determine the other critical part of the equation: how much you can borrow.
This will differ from lender to lender. Many lenders offer online calculators to help you with your research. Often, mortgage brokers themselves will have a good sense of what lenders in their network are lending given your financial vitals (debts, assets, dependents, co-signers, etc.).
Also consider when to find this out. Are you long- and short-term debts paid off? How is your credit? Any other high-interest loans you could knock out before taking on a new mortgage? Put yourself in a good position to maximize what you can borrow.
Having a solid sense of the range within which you can borrow is another critical piece of information you’ll need to understand the landscape of homes you can even consider.
Step 3: Find the Right Loan for You
Figure out what kind of loan terms work best for you.
Do you need to know the exact amount of your monthly payments? Then a fixed rate loan is probably right for you. If you think interest rates will fall in the future, then consider a variable rate loan.
Need the flexibility to pay more when you’re flush or pull money out when things are tight? Some lenders offer (free or with a fee) redraw facilities that allow borrowers to pay more than the monthly minimum while also affording them with the ability to withdraw extra payments made.
Have some extra disposable income? Consider a 100% offset account or an all-in-one loan. Such accounts allow you to put your savings and income to work in order to offset the loan principal and reduce the interest paid on the loan. Over the term of the loan itself, this can save thousands of dollars.
After you’ve settled on the right type of loan for you, shop around for the best mortgage.
Be sure to bring your proof of income (pay slips or tax returns), proof of savings, and other documents that your specific lenders may require.
Step 4: Seek the Best Deals in Your Market
Is it a buyers’ market or sellers’ market? What do these terms even mean?
Usually relevant to your location, a sellers’ market suggests that those selling homes are at a slight benefit. On the flip side, a buyers’ market suggests that homes are more affordable than average and it’s a good time to buy.
Depending on the home loan market in your area, benefits like lower interest rates, frequent flyer points, zero establishment fees, and other benefits might be available to you.
Negotiate for these added values to your loan product. The only way you’ll get more is if you ask for it. Remember that the home loan market is extremely competitive and that lenders want your business and will haggle for it.
Step 5: Get Approved to Buy Your House
At this step, you’ll be looking for either a “pre-approval certificate” or a “home loan guarantee certificate.” The process will vary across lenders, but these documents mean that your home loan has been (or will be) approved, subject to a few conditions. When you find the property you want, you’ll often need a valuation of the property to ensure that you’re not paying too much for it.
Keep in mind that such approvals are only valid for around six months (sometimes up to one year). Get in touch with your lender if you need to extend the term of your pre-approval.
Step 6: Choose the Right Home for You
Whether you’re using an app like Domain or searching the newspaper classifieds, it’s time to search for the perfect next home for you and your family. Make sure you’re answering some key questions as you go about the process:
- Do you like the neighborhood?
- How close will you be to important conveniences (kids’ school, gyms, supermarkets, etc.)?
- What will your commute to work be like?
- How much house do you really need?
- Is your property value likely to rise with this particular property in this location?
Contact a few local real estate agents and let them support you in the process. Remember that they work for the vendor (not you), so be sure to follow up with your own research and choose an agent with your best interests at heart.
Step 7: Inspect the Property
Once you’ve found a home that you like, get it inspected. This is an important step to avoid future costs and make sure that you’re not being overcharged. Consider the different types of inspections you’ll need to have done:
- building inspections
- pest inspections
- electrical inspections
- strata inspections and
- a land/property survey
Be prepared to dish out anywhere between $200 and $600 per inspection.
This cost may seem high, but you’ll be thankful when you find out about that crumbling foundation or the hazardous wiring that could’ve caused you headaches down the road. Also consider the future cost of repairs in the purchase price as you think about your overall deal.
Step 8: Make an Offer
You’ve made your inspections and everything checks out. You’re comfortable with taking the next step, arguably the biggest in the process: making the offer.
Consider the different types of offers you can make in the home-buying market:
Step 9: Do the Legal Legwork
Once you’ve found the property and you have the contract, it’s important that you check the contract carefully to ensure that everything about the property is understood and that there will be no legal surprises after you have purchased it. Signing a contract without a lawyer looking at it first is not advisable. If you want to make any changes to the contract, now is the time to do it.
Conveyancing
You may require some assistance with transferring the property title from the seller to the buyer, in which case you’ll want to hire a solicitor or conveyancer. Such services can cost up to $1,500 but could be as little as $600. The services typically include building reports, pest reports, and survey. Such fees should cover all the costs involved with the transfer of the property, minus the stamp duty. Most conveyancing firms will offer a free quote.
After this paperwork is complete, step “9.5” is essentially to wait.
At this point, the legal team goes to work. For approximately six weeks (sometimes more or less), government agencies will be coordinated with, orders will be inspected, council checks will be performed, and survey and drainage diagrams will be reviewed. This is important work that is essentially out of your hands.
Step 10: Finalize Your Settlement
This last step is more of a formality and a celebration, but it’s a big one.
On settlement day, you or your legal representative will meet with the vendor to exchange your check for the title of ownership.
Ideally, you’ve followed the above steps closely and saved yourself some money and stress along the way. Congratulations! You’re a homeowner.
