First Home Buyers: Getting Started



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1. Getting Started



Do A Budget



This tells you where your money is going, where you can cut back and where you can save. The budget then helps you work out what you want, need and can afford.



Set Your Goals



How much can you afford? What should you be aiming for? It's best to answer these kinds of questions now so you can work them into a budget. After all, there's no point shopping for a mansion if you can only afford a cottage. As a general guide, your mortgage repayments should not exceed 30 percent of your before-tax income.



Control Your Debt



If your budget needs to get into shape, now is the time to do it. If this means consolidating a few debts, then do it. There is no point in saving hard for a deposit if you're also being charged an astronomical rate on your personal loans.



Work Your Money



Maximise your savings by taking them out of low-interest bank accounts. Alternative accounts such as high-interest e-accounts or bonus savers offer a better return and they are still capital guaranteed. If you have got more time to invest, then consider a managed fund. You should consider these funds only if you don't need the deposit for at least five years.



Check Your Credit Rating



Before approaching a lender, ensure there are no nasty surprises in your credit file. There's nothing worse than being refused a loan because of a silly little debt that you fixed up years ago. Get a copy of your credit history by calling Veda Advantage on (02) 9464 6000 or visit www.mycreditfile.com.au. If you do find something, make sure you talk it over with your Finance Today Broker — they don't like surprises, either.



Do Your Homework



To get the best possible home loan at the right price, you must do your homework. Our find a home loan tool will be a great help. The state of the market can vary greatly between suburbs and between property types. Also, what type of property are you after — a house, townhouse or unit? Consider its location and features, but make things easier by limiting your search to a few suburbs.



Get Your Entitlements



If you qualify, you will receive the federal government's $7000 First Home Owner's Grant. To find out if you are eligible check www.firsthome.gov.au. There are also state bonuses which you can find out about by checking with your office of state revenue.



Buy, But Don't Move In



For some, the only way of buying a home is not to live in it. This is because of tax benefits attached to investment properties. Negative gearing brings a saving because you can claim the difference between rent received and expenses such as interest, rates and maintenance. This may be just the boost you need to get into a home, especially if you can live with your parents rent-free for a while.



2. Cost of Buying A House



The fees you'll have to pay



A guide through the maze of fees and additional outlays you will face When it comes to buying a home there's more to it than just a deposit. To avoid any last-minute surprises, we've listed the most common fees and charges that you should budget for. This is a general guide only, as costs differ from state to state. Some even depend on the amount you're borrowing and the price of the property.


Lenders fees

Approximate cost

Application fee
Application fee generally includes settlement and search fees.		 $600
Valuation fee
Major lenders normally include this cost in their application fee.		 $0-250
Monthly service fee $10
Mortgage insurance
$1500–$3000 The amount depends on the purchase price and the amount you borrow. It protects the lender only and is normally charged if you borrow more than 80 percent of the purchase price.		 $1500-$3000

Government fees

Approximate cost

Stamp duty on mortgage loan
This is calculated on the loan amount. In this case, we've assumed a $180,000 loan in NSW. Rates differ depending on which state you live in. Not applicable to Vic, NT and ACT.

NB. First Home Buyers may be exempt from mortgage stamp duty in particular instances.		 $661
Stamp Duty on property purchase
This is calculated on the purchase price. In this case we've assumed a market price of $200,000 in NSW. Duty differs in some states. Concessions to first-home buyers applicable in most states. (See below.)		 $5490 (owner-occupied)
Land transfer registration
Sliding scale which depends on the price of the property. In this case, it's calculated on $180,000 in NSW.		 $77.25
Mortgage registration
Fee is normally collected by lender.		 $77.25

Other*

Approximate cost

Solicitor and conveyancing fees $500-$2,000
Search and inquiry fees $200-$400
Agency and sundries
Includes settlement fee and disbursements fees.		 $100-$150
Building report $250-$450
Pest report $150-$300
Home building insurance $200-$500

* Deregulated costs. Subject to variation


3. Ways To Buy



There are two main ways to buy a house or a unit.



Private Treaty



This is where you negotiate the purchase of a house, including the price, directly with the seller or more usually a real estate agent representing the seller.


Points to watch:

  • Make sure you know the prices in the area where you are buying. Websites such as residex.com.au are helpful.
  • Don't ever forget that the seller's agent is acting only for the seller.
  • If you are buying in an area new to you, it may be worth hiring a buyers' agent.
  • Understand that even after you have signed the contract you normally have a cooling-off period; take advantage of it.


Auction



This is the process where a number of people gather — either at the premises which is being sold or in an auction room — and bid for the property they would like to buy. In some states you have to pre-register to bid. This rule was introduced to try to eliminate dummy bidding. Auctions can be quite scary for first-timers, so it's worth attending some beforehand so you have a good idea how they work.


Points to watch:

  • Make sure you have your lawyer look over the contract of sale before the auction.
  • Again, be aware the real estate agent is acting for the seller, not you.
  • Do not get carried away at the auction. Set your absolute limit and stick to it. There are plenty of other properties.
  • Have a cheque (personal or bank) to cover the five to 10 percent deposit which will be required on the day if you are successful.

Whichever way you buy, make sure your lawyer carefully checks the contract.


Points to watch:

  • Compliance of the property with local council by-laws, especially extensions.
  • The inclusions you expect — stove, light fittings, blinds etc — are itemised in the contract. If they are not listed you will probably not get them.
  • The terms of the settlement when you have to pay the balance and take possession is as you have agreed.


First Home Buyer Perks



  • NSW: No stamp or mortgage duty on homes to $500,000 (concessions to $600,000) vacant land up to $300,000 (concessions to $450,000).
  • VIC: One-off $3000 bonus on homes under $500,000 up to June 30, 2007.
  • QLD: No stamp or mortgage duty on homes up to $250,000 (concessions to $500,000).
  • ACT: No stamp duty on homes up to $287,000 (concessions to $389,300).
  • SA: No stamp duty on homes or vacant land up to $80,000 (concessions to $250,000).
  • WA: No stamp duty on homes up to $250,000 ($300,000), land up to $150,000 ($200,000).
  • NT: Stamp duty concession of $8015.60 on the purchase of a home or land to any value.
  • TAS: Maximum stamp duty concession of $4000 where home's value is $350,000 or less.


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