Are you eligible for a home loan?
How much money can you borrow from the bank? That’s the single most critical consideration for first homebuyers. After all, there’s no point in house hunting if you can’t get a loan.
NAB’s Greg Harris says there are many variables that can influence your home loan eligibility. “Your lender will need an accurate picture of your current financial situation, such as evidence of your assets, income, budget and existing debts,” he says.
Get your finances in order
In assessing a loan application, banks will look at your ability to meet the repayments.
Harris says borrowers who can demonstrate a good savings record will be looked on more favourably.He also advises potential borrowers to “pay down your debts”.
“Try to clear them and close the borrowing accounts. If you have ongoing debt, stay on schedule with payments to maintain a strong credit rating,” says Harris.
“One of the most important factors in acquiring a home loan is proof of income. The higher and more consistent the income, the easier it will be to make repayments.”
Banks will consider employment security and will also ask for proof of regular earnings such as payslips, PAYG summary and bank statements.
“Self-employed applicants will need to provide their most recent individual tax return, business tax return, profit and loss statement and balance sheet,” says Harris.
Get into the market as soon as possible
Domain chief economist Dr Andrew Wilson says Australian capital city housing markets “are robust and reliable over the longer term with significant financial advantages for home ownership, particularly through taxation benefits”.
“To get into the market expeditiously, be prepared to compromise on location, property type and condition,” he says.
“It’s important to put your first step on the ladder, then as your journey continues you can broaden your choices over time.”
Think affordability first
Wilson says: “Buying decisions should reflect affordability considerations and compromises without concerns over the prospect for house price growth or interest rate movements, either up or down. “Established suburban units also represent good entry-level opportunities for first homebuyers.”
Understand the sales process
Real Estate Institute of Australia president Neville Sanders says first-time buyers need to work out “which process – auction or private sale – will serve them best”.
“Find out how each model works in your state and make sure you understand the process as well as your rights and responsibilities,” he says.
“There’s a lot of focus on auctions in the media because the auction arena is where the theatre is. However, private treaty is by far the most common type of property transaction.”
Get independent expert advice
“First homebuyers should seek legal advice before signing the contract of sale,” says Sanders. “Everything you need to know about the property you are purchasing is disclosed in the title and contract of sale so you need a lawyer or conveyancer to look over the documents for things such as easements or covenants. These are things you want to know before you sign the contracts, not after.”
Do your own research
Cohen Handler managing director and buyers’ advocate Simon Cohen says:
“Don’t rely solely on prices agents tell you when you attend open-for-inspections. The agent might only mention the best prices achieved for similar properties sold in the area. There may be six other lower-priced examples.”
Strike while the iron’s hot
Cohen says: “You need to have your finance approved and deposit ready so you can swoop in ahead of the competition when the right opportunity arises.”
Don’t buy a lemon
First homebuyers should think logically to avoid being “caught with a lemon”, says Archicentre architect Robert Caulfield.
He says 30 per cent of all homes inspected by Archicentre have “serious problems” including rising damp, structural faults, cracking, plumbing and electrical faults.
“Any one of these could cost up to tens of thousands of dollars in repairs. Add them all together and it’s not uncommon to see homes with $50,000 to $100,000 of faults that the home buyer didn’t expect,” says Caulfield.
He says buyers should look for faults, or hire a building inspector to look for them, and find out what it would cost to repair the faults before making an offer.
“In real estate, the term that applies is ‘buyer beware’. In other words, when you buy a house you buy it in the condition it is sold in. If subsequently you find problems with it, you can’t take it back to the vendor. That’s your house and you’ve unfortunately bought a lemon,” says Caulfield.