10 top tips for first home buyers in Australia
Buying that all-important first home may appear harder than ever but, if you’re dedicated and savvy, it’s a dream that doesn’t have to die. Here’s our top 10 tips to give you a helpful leg-up onto the housing ladder.
- Outline your objectives
In addition to deciding on your favourite street, suburb or town, also visualise how long you’ll live there for. When do you see yourself going through the costly and time-consuming process of selling up and moving on?
Over the coming years will your new home be just for yourself, or you and a partner, or the both of you and a growing family – either already here or planned? Would you rather be close to your work or are you prepared to commute? What’s important to you in terms of hobbies and relaxation – beaches or countryside, or proximity to an airport for travel? Do you want to live close to your parents, either for free babysitting or to be close to them as they get older?
- Be flexible on location
You may have to set your sights a little lower. Maybe decide on a smaller property, or a different street or suburb. Some Australians are even buying interstate.
- Set a realistic budget
Now that you’ve nailed down exactly what you want, it’s time to work out how much you can afford.
HSBC has a range of online calculators that can help with this:
In the light of these calculations, you may have to revisit the first two steps above.
- Scrape together a deposit
The bigger your deposit, the more comfortable your home-loan lender will feel about your ability to service your mortgage.
You should aim for a deposit of at least 20 per cent of your chosen property’s value to avoid having to purchase lender’s mortgage insurance (LMI protects the lender from loss should you default on the loan).
However, saving a 20 per cent deposit is a mammoth task for many people. You may have to settle for a 10 per cent deposit on a property in the more expensive capital cities.
- Be focused on the goal
Once you’ve made your decision, give yourself a deadline to get your deposit together.
This will make it easier to avoid expensive temptations and also let you visualise the progress you’re making towards collecting the keys and moving in.
- Find a trustworthy mortgage provider
A good mortgage provider will guide you through the bewildering maze of available options. You will need someone who’s more of an educator and adviser than just a sales person.
You’ll get more out of your mortgage provider if you do some basic research yourself first, can clearly explain your needs and get all the details in writing (including the reasons for their recommendations, fees and commissions).
- Decide on the type of mortgage
There are two main decisions to make here: fixed rate or variable, and interest only or principal and interest.
Many borrowers decide that a 50:50 split gives them the best of both worlds.
In general, first-home buyers should give interest-only loans a wide berth. They are usually for a maximum of five years and are better suited for those buying an investment property.
- Make sure you’ll be able to pay your mortgage
Use online calculators to see if you can afford monthly repayments that amount to a maximum of 30 per cent of your before-tax salary.
Don’t be lulled into a false sense of security by current low interest rates. Feel free to use 4 per cent interest as a benchmark but stress test your ability to repay by calculating what would happen if you had to fork out monthly repayments at 7 per cent interest.
- Apply for government incentives
In a bid to help first homeowners, some state governments offer incentives such as grants and stamp-duty exemptions or discounts.
Because these vary not only on a state by state business but also within states (i.e. regional areas) and can be tweaked or abolished at short notice, you should check what’s available when and where you’re planning to buy.
Click here for more information about stamp-duty on a state by state basis.
- Consider renting and buying a.k.a. ‘rentvesting’
It is possible to have your cake and eat it: rent in your desired location and buy an investment property somewhere cheaper. This is known as “rentvesting”.
The beauty of this move is you can get negative gearing to work for you while also renting, thanks to the government’s tax deductions on the property you rent out.
And should you want to be really smart, if you initially move into a property that you then intend to rent out, you may be eligible for a first-home owner’s grant and stamp duty concessions.
If the property market gods smile on you, and subject to tax considerations, selling that investment property could form part of the deposit towards your first home.
This article doesn’t take into account your objectives, financial situation or needs. You should consult appropriate professionals or experts before making any financial decisions. This article’s content or any copy of it cannot be altered in any way, transmitted, copied or distributed to any other party, without the prior written permission from HSBC. Issued by HSBC Bank Australia Limited ABN 48 006 434 162 AFSL 232595.