Congrats on your first steps on your journey to fulfilling the Great Australian Dream of buying your first home! It is not an easy milestone to achieve, yet something that every Australian deserves a genuine shot at – as it’s a human right to have a roof over one’s head to call home. At the time of writing, with rising interest rates, inflationary pressures, increased living costs etc – it remains a very challenging time to buy in a cooling market, but not impossible!
Assuming you are well and truly on your way to saving for a deposit, I’d recommend educating yourself as much as possible about the process. I live in Melbourne, Victoria and I recently bought my first apartment (after looking for 1.5 years), so relevant laws and examples will refer to Victorian state laws. Read on about my experience on how I navigated this process to become a first time home owner!
Determine your budget and get pre-approval
Saving a 20% deposit is obviously not easy. With median house property prices hovering around $1.4 million in Sydney and just above $1 million in Melbourne and Sydney units being $750,000 and $560,000 in Melbourne (source: Dec 2022, domain house price report) – that means you’ll need to save a deposit between $112,000 – $280,000. Typically, banks require potential buyers to have at least a 20% deposit saved. Having this amount saved means you’ll forgo paying lenders mortgage insurance (LMI).
Houses
| Capital City | Dec-22 | Sep-22 | Dec-21 | QoQ | YoY |
|---|---|---|---|---|---|
| Sydney | $1,413,658 | $1,443,265 | $1,586,171 | -2.1% | -10.9% |
| Melbourne | $1,032,903 | $1,025,355 | $1,094,051 | +0.7% | -5.6% |
| Brisbane | $801,449 | $815,874 | $810,102 | -1.8% | -1.1% |
| Adelaide | $783,705 | $781,948 | $711,156 | +0.2% | +10.2% |
| Canberra | $1,095,587 | $1,098,361 | $1,165,892 | -0.3% | -6.0% |
| Perth | $658,270 | $651,207 | $623,061 | +1.1% | +5.7% |
| Hobart | $737,650 | $732,986 | $736,776 | +0.6% | +0.1% |
| Darwin | $646,835 | $626,035 | $640,175 | +3.3% | +1.0% |
| Combined Capitals | $1,008,988 | $1,015,893 | $1,061,929 | -0.7% | -5.0% |
| Combined Regionals | $566,732 | $560,892 | $546,850 | +1.0% | +3.6% |
Source: Domain
Apartments
| Capital City | Dec-22 | Sep-22 | Dec-21 | QoQ | YoY |
|---|---|---|---|---|---|
| Sydney | $748,422 | $757,626 | $800,422 | -1.2% | -6.5% |
| Melbourne | $561,463 | $562,556 | $596,139 | -0.2% | -5.8% |
| Brisbane | $444,623 | $449,980 | $432,021 | -1.2% | +2.9% |
| Adelaide | $422,080 | $407,183 | $370,481 | +3.7% | +13.9% |
| Canberra | $567,888 | $586,220 | $589,490 | -3.1% | -3.7% |
| Perth | $367,186 | $368,598 | $370,954 | -0.4% | -1.0% |
| Hobart | $542,970 | $560,291 | $562,333 | -3.1% | -3.4% |
| Darwin | $386,678 | $365,196 | $380,739 | +5.9% | +1.6% |
| Combined Capitals | $596,771 | $601,367 | $623,831 | -0.8% | -4.3% |
| Combined Regionals | $429,985 | $426,740 | $432,414 | +0.8% | -0.6% |
Source: Domain
There are some government initiatives which only require buyers to have a 5% deposit saved, with the Victorian government lending up to 25% of the cost of the property, which means no LMI required to be paid. Although these initiatives help some people overcome the initial hurdle of saving up for a hefty deposit, when it comes to selling the property, as the government initially stumped up 25% of the deposit, at the time of selling, they will get back 25% of the property value. So if your property has increased in value at the time that you sell it, from the initial price you bought it at, the government will claw back a chunk of the profit too. Each state and territory has slightly different initiatives, so look them up to see the exact details.
Before even considering going property shopping, it’s vital to talk to a mortgage specialist at a bank or a mortgage broker to understand how much you can borrow and getting pre-approval from a bank/lending institution. Without knowing how much you can actually borrow, you may end up wasting time and effort looking at properties that you can’t even afford. You’ll discuss with them your financial and employment situation and they’ll determine what your maximum borrowing capacity is and how much your monthly repayments will be. At the time of writing, typically banks build in a 3% buffer to account for increases in interest rates to test if you’ll still be able to service your loan at that higher level. Depending on your financial situation, it may be more prudent, not to borrow up to your maximum. This is all general advice, based on my own personal experience, so for advice more closely aligned with your situation, please speak with an expert who can advise.
Once you have pre-approval, you can finally go property shopping! Pre-approval typically lasts for up to 90 days and having it, means you have a reasonable comfort level, that if your financial and employment situation does not change, you can reasonably expect to be able to borrow up to the amount that you’re pre-approved for. Of course, there are many variables at play that may alter the final amount you can borrow during the settlement period, so of course, always consult your bank lender or mortgage broker for specific advice. Knowing how much you can spend will play a huge part in what properties and locations you can buy. Do your future self a massive favour and start the journey off by having your finances in place. Save yourself the stress – by knowing up front, how much money you can comfortably spend, rather than rock up to an auction, bidding, winning then later realising you cannot borrow the amount you bought at, as there are steep financial fees when you back out of a sale – especially at auction.
Using a mortgage broker versus approaching a bank directly
From my experience, using an mortgage broker means they do most of the leg-work – in terms of approaching different banks to see which one can provide you with the best loan most suited to your needs. The mortgage broker will ask you for some financial and employment information, which they submit to various banks and determine how much you can borrow. They will typically come back with a document outlining various options from different banks. They will also complete on your behalf most of the paperwork involved in the loan application process. They typically earn both an upfront commission and a trail commission for the life of the loan, as a percentage of the size of the loan. This commission is typically paid for, by the bank.
Or if you prefer to do the leg-work yourself, you can approach different banks to see which bank would offer you the most appropriate loan.
How big should your home be
When considering what you want to buy – a house, townhouse, apartment, or studio – how much space do you need for your immediate and near future’s needs? With such high costs to get into the property market, it doesn’t make sense to buy something that only fits your immediate needs and something you will grow out of quickly. Depending on your current circumstances, consider:
- If you’re a single person, do you need an extra room to work from home? Will you have guests stay over frequently? Or can you manage with a bigger living space and having a pull out sofa bed/work from home desk etc there? Do you want a flatmate to share that will also help cover the costs towards the mortgage?
- If you’re a couple, can you manage with just 1 bedroom, or will it be too small? Do either or both of you work from home? Do you plan to start a family soon and hence the second room will become a nursery? If the second room will become a nursery, what will happen to your work from home arrangements?
- If you have a child already, do you plan on having more children in the future? How many bedrooms/work rooms do you need? Can they still share a bedroom?
- Do you own a car? If so, how many spaces do you need or does the property have on street permits available from council? If you don’t own a car, can you rent out your car space and use the money to put towards your mortgage?
- Do you have pets? Will they need space in a backyard? Depending on what type of pet, will a courtyard or balcony suffice?
- If you have a backyard, how much yard maintenance do you want to put in? Do you have the capacity to hire help?
Interested suburbs
Where do you travel to for work/study, to see family and friends? The closer you are to the centre of the city, typically the more expensive it is. Although your heart might be set on a specific suburb, keep your options open and look at 5-10 suburbs to really widen your net in your search including surrounding suburbs next to your preferred suburbs. Sometimes these “bridesmaid suburbs” offer much more value, cost less and may only be a couple of minutes further up the road.
- What kind of amenities do you need close to your future home? Primary and secondary schools? Parks? Supermarkets? Shops? Cafes/restaurants/bars? Public transport (trams/trains/buses)?
- Are these amenities within easy walking distance or will it require some driving? How far are you prepared to walk? Keep in mind, a typical person can walk about 1km in about 10 minutes if they walk fairly briskly. E.g. Say it takes about 10 minutes to get to the train station, do a practice walk. Sometimes when you imagine a walk takes x minutes, you tend to underestimate the time and energy it’ll take when you do it for real. Can you imagine doing it most days – if that’s your main mode of transport? If it requires some driving, will it be easy to find parking at the destination? Is it only paid parking or is there free parking around?
- Is the property close to a police station, hospital or fire station? Bear in mind, these essential service workers may be dispatched at any time of the day for their work. Is it noisy? Will you be able to live with this unpredictability?
- Is the suburb in question filled with lots of highways and other busy roads? Can you imagine coping with the noise/air pollution and traffic?
- Does the suburb have social housing towers? Industrial zones or factories?
- How dense is the housing currently in the suburb? i.e. Are there lots of high rise apartment blocks being built? Is it mainly standalone houses? Are they heritage protected? What’s the mix for townhouses and medium density apartment buildings?
- If you live near a school, be aware of increased traffic and noise during drop off and pick up times and for Saturday morning sport.
- Something else to consider – if one day, you do plan on selling your home, properties that are more scarce will typically command a higher resell value. E.g. If you buy in a high rise apartment block, the resell value will typically not increase that much from what you originally bought it at (if at all) – given there are so many apartments with the exact same layout in the building (Sometimes, depending on market conditions, you may sell it at a loss.) Compared to, if you buy an apartment in a small art deco building, there may only be 5-10 apartments. As these types of buildings are not being constructed anymore, rarely come up for sale, there’s limited supply. The architectural features, spacious and generous layouts in those older buildings are highly sought after and therefore, often resell at a premium.
- What’s the demographic of people who live in that suburb? Students? Professionals? Blue collar workers? Young families? Older people?
- What are the crime rates like?
- Will there be future infrastructure built there? E.g. Construction of highway? Expansion of train line (new train station)? Hospitals? etc?
Searching for a property and attending inspections
Domain.com.au and realestate.com.au are good places to start your search. New listings typically get listed most weekdays, with inspections occurring mainly on Saturdays or the occasional weekday. Sometimes, if you contact the real estate agent (REA), they may be able to accommodate private inspections at a time not publicly listed. Attending inspections requires a big time and effort commitment, week in, week out. Not only are you trawling through the listings each week, but you might be zipping from suburb to suburb on weekdays and definitely on Saturday searching for your future home. I looked for the better part of 1.5 years before I found my home.
Some things to look for when inspecting but not limited to:
- Layout of home, size, placement of windows etc
- Orientation (North/South/East/West facing – how much sunlight does each room get?) In the southern hemisphere, north facing is the most desirable orientation. East facing can be OK – this is the side where the sun rises, so you’ll get morning sun, but then it will get dark from midday onwards. West facing is typically the least desirable, as the afternoon sun means this room will get quite hot.
- Age/quality of home/building – if the building is under strata, is the owner’s corporation active and maintains the building well, is the garden well kept, common areas clean, are there structural issues with the building, cracks on walls, leaks, water stains etc
- Flammable cladding?
- Will there be much maintenance involved in the garden/courtyard?
- Are common fences with neighbours well maintained?
- Do kitchen appliances work as intended?
- Do bathroom fixtures work as intended?
- Condition of carpet/floor boards/tiles etc?
- Location of hot water tank
- Location of gas/electricity meter
- Will the home need renovating?
- Is there a reverse cycle aircon/heater/ceiling fan? Are these energy efficient?
- Is there adequate built in storage?
- Is the size of the bedrooms enough? Does it just fit the bed and that’s it? Do you need to fit a desk in there? Is there enough storage, or will you need to also put a dresser in?
- Good water pressure from tap fixtures?
- Evidence of vandalism around vicinity?
- Developer/Builder’s reputation
Doing proper due diligence
Buying property is the biggest financial decision you’ll ever make you in your life. So it’s essential that you do the proper due diligence to make sure you’re not buying a dud property, otherwise you risk being in financial ruin. I’ve heard and read stories of people not even actively looking to buy property, one day walk past a live auction, bid and won – all without even knowing if the bank will lend them the amount required and doing zero due diligence about the property. That is scary, as there are no cooling off periods with auctions and there are massive fees associated with breaking a contract.
Things to consider but not limited to:
- Is flammable cladding present or suspected?
- Review owners corporation/AGM minutes – any disputes between neighbours, any big capital works recently completed or coming up, any structural or other issues identified where they are pursuing further expert advice on how to proceed, asking owners corporation manager any follow up questions
- Speaking with the local council to ask about upcoming building permits in nearby vicinity that might impact the home (obstruct view, cast shadows, future construction noise etc), zoning etc
- Pest and building inspections (these inspections are typically limited to your apartment only and not the entire building – so there are limitations of what may be uncovered – discuss limitations before you engage and the findings (if remarkable) during your debrief with the inspector)
Determining what is a reasonable range for the price of the property
In recent years, the industry has been rife with REAs underquoting. Typically this means, quoting a lower range in order to attract a larger pool of potential buyers, when realistically, the vendor had no intention to sell it at this lower range, nor was it a realistic price range. On the day of the auction, the selling price goes way over what you expected, hence if you were serious, you’ve wasted money on getting pest and building inspections completed etc and wasted your time, when the property was never going to be in your budget anyways.
Looking at past sold places that have similar specs (comparable size, orientation, location etc) will give you an idea whether or not, the price range of the home is realistic.
Find a lawyer/solicitor/conveyancer
Once you’re at the pointy end of your search, it’s important to have already organised a lawyer/solicitor/conveyancer ready. They will review the contract and may recommend particular clauses to be added/removed. Depending on the time of the year, sometimes they’re unable to take on work due to their current workload, so it’s a good idea to get a few quotes, to understand what is included in their fees and what isn’t, turnaround time, whether you will receive a written letter or just a verbal phone call following the contract review etc
Once you’ve completed your due diligence and had the contract reviewed and amended with clauses (if applicable), you’re ready to put in an offer!
Put in an offer
The difference between successfully buying property and losing out to another buyer, could be timing. A written offer is always stronger than a verbal offer. The written offer may take the form of an email, form or the signing of the contract – depending on the vendor and selling agent’s preference. Putting in your best offer, early on during the 4 week marketing campaign may put you in a stronger position to negotiate. It cuts off the opportunity window for other prospective sellers to pop up as the campaign progresses. After you’ve submitted the offer, it’s a matter of waiting for the agent to present it to their vendor and see what their response is. Typically there is a 48 hour expiry window to put pressure on the vendor to make a quick decision.
If the vendor accepts your offer and signs the contract, (assuming all/if any of the conditions have been met and the cooling period has elapsed, congratulations you’ve just bought your first property!
It’s time to pay the deposit. A common deposit amount is 10% of the purchase price, that gets deposited into the selling agency’s trust account.
Getting help from a buyer’s agent/buyer’s advocate
If all of this sounds utterly confusing and stressful – you can always engage a buyer’s agent. Just as the selling vendor engages a real estate agent to sell their property, a buyer’s agent is a real estate agent working for you and guides you through each step of the buying process.
Typically they offer different levels of services with different fees. If you’d like the full she-bang, the agent will organise a meeting to discuss what you’re looking for, potential suburbs you’re interested in, budget (whether you have pre-approval) etc. Once you have signed on, they will begin ringing through their network of agents to see what pre-market or off-market opportunities there may be for you to inspect. These properties are not yet publicly listed for sale. The vendor may be in the process of refurbishing with the intention to sell in the future, wanting to test the waters but not yet fully committed to selling, still has a tenant, so not “styled”, no tenant and not yet “staged”, but in the process of finalising the contract etc
Your buyer’s agent will organise private inspections for you to view. Being able to access properties through pre-market and off-market channels, virtually doubles your pool of potential homes and puts you in a good position of getting first dibs before it publicly goes on the market.
They also assist with:
- Completing due diligence including organising pest/building inspectors,
- organising trades people (plumber/electrician etc) to review issues,
- organising lawyers/solicitors/conveyancers to review the contract and other paperwork related to settlement,
- speaks with owner’s corporation manager to clarify anything that may have arisen after review of minutes,
- putting in a pre-auction offer (if applicable),
- If the property goes to auction, your buyer’s agent bids on your behalf, taking out the emotion and nerves from the process. If the auction passes in, they can negotiate on your behalf.
- Pre-settlement inspection to check all items are just as they were at the time you bought the property
Pre-settlement inspection
A few days before settlement is scheduled to take place, you’re invited to do a pre-settlement inspection to check that the property is in the same condition as it was when it was sold. You can personally attend to inspect that appliances are still working as they should, no damage to windows etc. If you have engaged a buyer’s agent, they can also be present to inspect alongside you.
Settlement
Settlement is the process conducted by the legal and financial representatives of both the buyer and seller that transfers ownership of the property. In the lead up, depending on what you have negotiated, it is typically 4-8 weeks where both sides have enough time to complete the relevant legal and financial processes and you have time to arrange removalists, pack and move. Prior to settlement day, you need to ensure all your remaining funds needed to purchase the home are already in your bank account. Your lawyer/conveyancer will provide a complete breakdown of the exact amount required. This will be withdrawn on the day of settlement and automatically transferred to the vendor’s account. The amount of your loan will officially be drawn down and your mortgage becomes active. Other fees such as for your lawyer/conveyancers services, stamp duty etc will be taken from the your account.
After settlement has been finalised, you should receive written confirmation from your lawyer/conveyancer that settlement is complete and you can arrange to pick up your keys!
As a buyer, there’s not much you need to personally do during this period (especially if you’ve engaged with a mortgage broker) – as much of this work happens in the background. Any paperwork prior to settlement will be prepared by your mortgage broker on your behalf. If you have engaged with a bank directly, submit the paperwork early and check they have received everything they require in the correct format. The most vital thing is to have all the relevant monies already present in the nominated bank account well before the day of settlement.
After you’ve picked up the keys, typically the selling agent will also gift you a little box of goodies as a congratulatory present. It’s time to move in and celebrate with a bottle of bubbly. Congratulations!
Here are some resources I’ve personally found helpful:
- How to buy a home: from debt to a deposit by Emily Power
- Smashed avocado: how I cracked the property market and you can too by Nicole Haddow
- Real Estate’s Buying an apartment guide
- A podcast for first home buyers
- Consumer affairs Victoria: buying an apartment/unit checklist
- Victorian Government’s plan to help first home buyers
- What to look for when buying older apartments
- Ignore the price guide: How to work out exactly what a house is worth before auction
- Buying a new high-rise apartment is a risk best avoided
- How home buyers are spotting a motivated vendor
- Buying an apartment: Why strata inspections could save you money
- Avoiding common real estate traps and taking the emotion
- What is a pre-purchase inspection report and how much does it cost?
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