A young couple looking to buy their first home

They say a person’s home is their castle, and it’s true. Even as property prices rise throughout the country, owning a home is still the Great Australian Dream. There’s nothing inherently wrong with renting forever, but there’s just something special about knowing your home is really yours.

When you own your own home, there’s no uncertainty about whether you’ll still be there next year, the year after, or in a decade’s time. And there’s nothing stopping you from putting hooks in the walls, painting the walls, or, for that matter, knocking the walls out completely! You’re totally in control of your own environment, free to create the home you always envisaged.

But apart from the personal benefits of home ownership, buying a property can also be an excellent financial decision. In times of positive capital growth, home ownership provides a tax-free investment and a base from which to create a sound financial future. Keep up with your mortgage repayments and by the time you hit your sixties you’ll have a valuable asset to support you in retirement.

Of course, it’s not all sunshine and daisies. The dream is beautiful, but the reality can be harsh. Property is expensive, especially in Australia. And there are a whole host of upfront costs to consider – the deposit, stamp duty, mortgage insurance, bank fees, government charges, and conveyancing costs, just to name a few. It may take many years of penny pinching before you can even consider purchasing a property.

Even after all those upfront costs are out of the way, there is of course the small matter of repaying that loan and managing upkeep of the property. There’s no getting around the fact that owning property and taking out a loan means making compromises to your lifestyle. You’ll need to budget carefully and get creative with finding ways to keep costs down. For most people, travel is out of the question.

And don’t count on making a profit. While property can be a sound investment, nothing in life comes with a guarantee. No matter how convincingly history may suggest otherwise, property prices do go up and down. And unlike shares, property isn’t easily liquidated. A quick sale often means selling at a discount, yet waiting for the right price can take many months, especially in a soft market.

Don’t let this deter you from buying a property if that’s what you really want. Yes, you’ll need to make compromises. But the pleasure and satisfaction that comes from owning your home is worth it a thousand times over. Happiness is all about who and what we surround ourselves with, and it all starts with the most important environment of all – our home.

So with all that in mind, let’s get into the nitty gritty of what you need to consider before taking the plunge.

Know what upfront costs you’re up for

A young couple researches before buying their first home.

Don’t make the all-too-common mistake of starting to look for a home before you’ve actually worked out what it’s all going to cost. And no, we’re not just talking about paying back the mortgage.

It’s important to add up all the costs, and this can mean doing a bit of research in advance.

Let’s take a look at the most important upfront costs.

The deposit:

Yes, it sounds obvious. But building companies and developers have got people believing that first home buyers can get into the market without one. While this can sometimes be technically true – though it’s getting more and more rare – just because you can doesn’t mean you should. The smaller your deposit, the more costs you’ll be liable for in the long run. You should aim to make a deposit of at least 10% and preferably 20%.

Lender’s mortgage insurance (LMI):

Providing a substantial deposit shows the lender that you are responsible and can be relied upon to meet your repayments. If your deposit isn’t big enough, your lender will want some form of protection in the event that you fail to repay your debt. That’s where lender’s mortgage insurance comes in – it protects the lender in exactly this situation. Usually, LMI is charged when the deposit is less than 20%. LMI premiums can vary depending on the type of loan you are applying for, the size of your deposit, and your individual circumstances (and therefore the risk you pose to the lender). The premium may be charged upfront, or the amount may be added to your loan (which means you’ll be paying interest on that amount as well!). Ask your lender for a quote.

Lender fees:

These include application fees, valuation fees, and settlement fees. You can check with your bank or broker for a fee estimate, but it’s also important to read through your home loan contract carefully so that you have a thorough understanding of what fees you’ll be liable for and what they cover.

Stamp duty:

Also known as transfer duty, this is a government charge that applies to the transfer of property ownership. It can amount to as much as 5% of the property purchase price. Each state has their own method for calculating the stamp duty payable for a contract, as well as individual eligibility criteria for discounts or exemption. In some states, first home owners are eligible for exemption, which we’ll discuss in a moment.

Conveyancing and settlement agent costs:

The final fee your conveyancer and/or settlement agent charges for their services will depend on the individual business, the type of property you’re buying, and (usually) the purchase price. On top of the conveyancing fee, you’ll be responsible for any fees your conveyancer or settlement agent encounters while working on your behalf. These may include:

  • Land registry fees:You will be required to pay the relevant state statutory authority for property and land1 for any costs related to transferring the property into your name. These include fees for:
    • A title search, which confirms the title to be transferred, and ensures that there are no other encumbrances to prevent you from taking full possession or restrict your use of the property.
    • Registration of transfer, to register you as the owner of the property on the title
    • Mortgage registration, which registers your mortgage with the state government to prove the lender’s ruling interest in the property.
  • Government enquiry fees:Your conveyancer will send an electronic advice of sale (EAS) to the local council, the State Revenue Office, and the relevant state planning department2 and water services company3. Each one charges a fee.
  • Rates, services and strata levies:You will be required to pay the appropriate proportion of outstanding fees for services (electricity, gas and water), rates, land tax, building licences, orders and requisitions, and housing indemnity insurance.
  • Strata statements:If your home is part of a strata scheme, your conveyancer will need to obtain the relevant statements from the strata company.
  • Property Exchange of Australia (PEXA) fees:The PEXA fee, which is separate from the statutory lodgement fees charged by the Land Registry, covers lodgement and verification of data, documents, and payments related to the transfer of property.
  • Title insurance:Your conveyancer may recommend paying the one-off cost of title insurance, which indemnifies you against loss due to title-related risks. Your conveyancer will do everything possible to uncover possible risks related to the title, but ‘unknown’ risks will always remain. Risks covered by title insurance include but are not limited to illegal building works, fraud or forgery, defective registration, breach of covenants, and boundary or zoning issues.

Building and pest inspection fees:

As painful as it may seem to fork out for a professional to assess a property for defects before you even know whether you’re going to buy it, it’s a whole lot better than finding out when it’s too late. Major structural issues can be very expensive to address, so it’s important to know about them upfront. A building and pest inspection will alert you to any faults in the property before you commit, protecting you against making a poor investment. It will give you peace of mind – and maybe a bargaining chip – as you enter into negotiations. Always have the property inspected before you make an offer so there’s still time to account for any identified issues when deciding on the price or including conditions in the contract. As with all things, you tend to get what you pay for, so don’t just go for the cheapest option. Do your research and find out exactly what is included in the inspection and report when considering which company you will use.

Appliances, furniture and renovations:

Don’t make the mistake of budgeting only for the costs directly associated with the property purchase. A house isn’t much fun to move into if you don’t have a bed to sleep in!

Keeping costs down

So, is there any way to get around some of these costs? Well… sort of.

The first and most important way to minimise your costs is to wait until you have a substantial deposit before you buy. First, a larger deposit means you’re less likely to be charged for lender’s mortgage insurance, which generally kicks in when you borrow more than 80% of the purchase price. And second, a larger deposit means a smaller loan and less interest. For first home owners, there are additional grants available to reduce out-of pocket costs. Your mortgage broker or conveyancer can help you work out what you’re entitled to, but check the website of your State Revenue Office to find out what the rules are in your state or territory. The main grants you should be aware of are as follows.

First Home Owners Grant

First Home Owners Grant:

This national scheme offers funds to first home buyers that meet eligibility criteria relating to individual circumstances as well as the type and value of property being purchased. While it is a national scheme, the eligibility criteria and the value of the grant vary between states. At the time of writing, in most states the grant covers only newly built homes up to the value of $750,000 in most states, though the threshold can certainly vary, and in parts of WA north of the 26th parallel the threshold is $1 million. The payout can be anywhere from $10,000 to $26,000. Keep tabs on the threshold and payout amounts for your state, as they change frequently.

First Home Owners rate of stamp duty

First Home Owners rate of stamp duty:

Again, this is a discount that varies across the country, but in most states and territories it depends largely on property value, with the threshold for full exemption varying between $430,000 and $600,000 at the time of writing. Concessional rates usually also apply beyond these thresholds.

Home buyers assistance fund (WA only) and household goods grant (NT only):

This grant of up to $2,000 is intended to reimburse some of the incidental costs involved with the purchase of a home (everything we just talked about!). Of course, this too is subject to eligibility criteria.

1 Landgate in WA

2 WA Planning Commission in WA

3 Water Corporation in WA

Budget, budget, budget

A young couple analysing their budget before buying their first home.

You can see how the costs can add up. And that’s to say nothing of the ongoing costs. In addition to the mortgage, you need to be sure you can afford the cost of upkeep. It’s not an episode of My House Rules where the renovation is complete within a week and someone else foots the bill. Renovating and maintaining a home is a costly undertaking. Even if you’re in an apartment, you’ll still be up for owner’s corporation fees and levies. And don’t forget about rates and utilities.

Ideally, you want to sit down and make a complete budget detailing your income and all your expenditures. If you’re not sure where to start, take a look at the Australian Securities and Investment Commission’s free budget planner. You might even want to keep a log of everything you spend over a couple of months to make sure you’re not forgetting anything. Completing a budget will tell you just how much ‘surplus’ is available to you each month to put towards the mortgage and property upkeep. From there, you can decide what repayment you’d be comfortable with. Don’t fall into the trap of buying a property that requires you to use the maximum the bank will lend you just because you can. Always give yourself a buffer for the unexpected, and be sure that you can meet the monthly repayments without any stress.

Remember, you don’t have to go for your dream home straight off the bat. There’s a good chance your first home won’t be your last. (For that matter, the one after that may not be either.) And this can be a good thing. In a rising market, it’s easy to trade up to another suburb down the track, and maybe even make a profit. But that’s far from a foregone conclusion, and in a falling market it’s not always that easy. Even if your property does maintain its value, selling can still leave you with a net loss because of the expenses involved in the selling process. So you need to find the middle ground – don’t aim too high, or you’ll be living by the skin of your teeth for the next thirty years. But by the same token, do plan ahead so that you don’t have to move any more often than is necessary.

Make sure you have pre-approval

A young couple signs their settlement paperwork after buying their first home.

By getting pre-approval for your loan, you can look for a home with a clear idea of which homes (and in which suburbs) you are in a position to buy, and which ones you aren’t.

Working out what you can afford on an online mortgage calculator is all very well, but it doesn’t guarantee any bank is actually going to go ahead and offer you the loan. Pre-approval will greatly reduce your stress throughout the process of looking for a home and save you from wasting your time on homes you can’t afford.

But more importantly, pre-approval reduces the risk to the seller and agent of accepting your offer. Nothing is more painful to a seller than a deal gone sour. They may as well be back to square one in terms of selling the property. By the time the deal falls through, other interested buyers have probably already bought elsewhere. And even if they haven’t, a savvy buyer will take advantage of their strong position and adjust their offer downwards. In a slow market, the chance a seller will get another offer as high as the first is remote. And I can tell you from firsthand experience, the seller often ends up bitter and twisted when this happens.

What this means for you is that any seller worth their mettle will look far more favourably on you as a buyer if you have pre-approval. You’ve done all the leg work to confirm your eligibility for finance, so they (and their agent) can rest easy knowing you will come through with the payment. Your offer could easily be accepted over another offer simply because it’s more of a sure thing. The seller can confidently make plans for the future, the agent knows they’ll get their commission on time, and you’ll be the happy owner of a new home, complete with finance.

Don’t just find your home, find your castle

A happy first home buyer couple

When it comes to real estate, knowledge is power. The more you know about a property and a suburb, the more confidence you’ll have when it comes to negotiating. It should go without saying, but even if you fall in love with the first property you look at, it’s not in your best interests to jump in and buy it. You’ll need to look at many properties before you really get to know the process and start to get a sense of what you’re looking for and what properties are worth. But knowing your property and suburb inside out isn’t just about negotiating, of course. It’s about knowing that, when all is said and done, you’re going to love your new home.

When inspection time comes around, don’t just focus on the inside of the house. Do a thorough check of the outside – the sides, the front, the back. Look up – are there any high-voltage power lines overhead? Are you under a flight path? Listen – is the property quiet? Are there busy roads, freeways, trains, or anything else that will create noise pollution in the vicinity? And if so, is this an issue for you? (Even if not, you might be able to use it as leverage to negotiate the price down!)

Make an effort to look beyond the styling. People pay for a stylist for a reason – a nicely presented home can draw much higher offers. But when settlement comes around, that lovely vase in the hallway will be gone, and you’ll be left with just bricks and mortar. Make sure you’re judging a home on its true merits, not what lies within.

If you can, find out why the owner is selling – and be wary of vague answers or answering a question with a question. A whole range of situations can leave a seller anxious to move the property. Deaths, creditors, relationship separations, and the arrival or departure of children all create strong motivation for a seller to part with the property as soon as possible. An anxious seller will often accept a lower offer than someone who’s not in a hurry.

Find out what you need to find out, but be careful of how you word your questions. Something as innocent as ‘When are the sellers moving?’ is a strong indicator of your interest, and might ultimately make the agent push you to pay a higher price. Never betray how interested you are!

You should also consider the pros and cons of the property from a financial perspective, even if this isn’t your first priority. As tempting as a discounted property can be, remember that there’s always a reason behind the discount (and if you do end up buying a discounted property, make sure you know what that reason is). In the long term, buying a property with good potential for capital growth is often a better choice than buying an average property at a discount. When you’re talking about tens or even hundreds of thousands of dollars, it’s important to consider long-term returns and your exit strategy as well as the initial investment.

A young couple sitting on the floor in their first home

If you’re thinking of renovating, work out how much that’s actually going to cost and mentally add that to the purchase price. Seek advice as to whether renovations are actually going to add as much value as you think they will, and consider whether the time, effort and stress involved is really worth the savings you might – emphasis on might! – make.

After your first inspection, think long and hard about the property and what you need from it. Decide what’s really important, and do what you have to do to find out whether the property meets those needs for you. Walk the streets, and walk them again. Come back to the neighbourhood and suburb at different times of day and different days of the week.

Visit local cafes and parks. Meet the neighbours and local business owners and ask them for their views on living in the area. Find out what the crime statistics are. Check out what local amenities will be available to you. Is there easy access to schools, day care, a supermarket, a doctor, a chemist, a vet, shopping, parking, cafes and restaurants, markets, sporting fields, gyms, churches, dog parks…?

And don’t forget to take into account those very personal aspects – where your friends and family live, where you work, and what you love to do. If you can’t get through the week without a quiet spell in the park, moving into a buzzing metropolis could leave you feeling constantly drained. If you’re prone to road rage, signing up for an hour’s commute won’t help. If you’ve always lived close to your friends, moving away could be lonely. And if you have young children or are planning to, being a long way from your parents may take a heavy toll! No matter how perfect a home might seem at first, always think long and hard about whether it truly is perfect for you.

If, after all this, you think you’ve found the right property, it’s time to get serious. When you come into the second inspection, be prepared with a list of questions and checks. Be as comprehensive as you can, because this should be the last inspection you attend. Why? That’s what we’re about to cover.

Have a game plan

A happy young couple outside their first home.

Real estate agents are taught how to read body language and emotions. Everything you do and say is being watched! So don’t give anything away, least of all the maximum you’re willing to pay. The more interest you show, the more likely you’ll end up paying top dollar. After the second inspection, don’t attend again unless you absolutely have to. It could make you come across as too eager, and reduce your bargaining power.

Once you’ve made up your mind about the property, increasing your chances of securing it all comes down to convincing the seller that your offer is the best one. Many people mistakenly believe that this all comes down to price. But as we covered in the section on pre-approval, the security of that offer is just as important. To that end, your job is to reduce uncertainty for the seller in any way you can. In most cases sellers like larger deposits, shorter finance approval dates, and faster settlements. If you can give them those, especially the last two, you’ll be a much more appealing prospect.

Make your first offer a strong one, and make it clean by avoiding special conditions where possible. Especially don’t ask the seller to leave furniture, swing sets or cubby houses. Frivolous contract conditions create doubt and uncertainty and reduce the likelihood of the seller accepting your initial offer. And make no mistake, every day the seller stews on your offer is one more day that another buyer can make a better offer.

Have a professional in your corner

Goodness knows, the real estate agent isn’t in it. Unless you’ve specifically appointed a real estate agent to act on your behalf, they’re acting for the seller. It may feel as if they’re on your side – if they’re doing their job right, it should feel that way. But they’re only interested in you in as far as you can be of benefit to their seller – and therefore to them. When they offer to find you a property, they’re acting for the seller. When they say they’ll help you get a great deal, they’re acting for the seller. The fact is, no matter what they say or do, they’re acting for the seller.

So keep that in mind when you speak to them. Don’t get me wrong, most real estate agents do provide honest advice. But that advice is necessarily coloured by their legal obligation to act for the seller. The agent is obligated to present the seller’s property and the suburb in the best possible light. They’re obligated to obtain the highest price with the fewest problems in the fastest time. That’s their job.

This also means they’ll write the contract in a way that suits the seller. All the terms and conditions will be stacked in the seller’s favour. The finance clause, the building inspection clauses, the special conditions, you name it. They’re all designed to reduce risk and uncertainty for the seller. Sure, they do provide some protection for you as the buyer but, wherever there’s uncertainty, the benefit falls to the seller. So, unless you’re 100% confident you know what you’re doing, hire an experienced professional to represent you before entering into a contract.

You have three main options when it comes to finding someone to represent you: a licensed settlement agent, a lawyer, or a buyer’s agent. As with everything, there are pros and cons to each.

In most states, licensed settlement agents are legally allowed to assist you with preparing your offer. They won’t provide you with legal or negotiating advice, but they can help you write conditions that are in your favour, not the seller’s. They are also in an excellent position to help you decide on what constitutes an appropriate offer.

On the other hand, a lawyer will give you solid, secure legal protection well beyond what a settlement agent can provide. They can write custom terms and conditions specifically designed to protect your interests. But their expertise doesn’t extend to property-related advice. A lawyer can make inquiries about zoning and the legal description of the title, but that’s about as far as it goes. They are not qualified to advise you on the value or any other aspects of a specific property. Another key difference, of course, is that lawyers can be prohibitively expensive.

A great hybrid option is a buyer’s agent, sometimes known as a buyer’s advocate. While a seller’s agent works to achieve the highest price and the best terms and conditions for the seller, a buyer’s agent does the reverse. They will act on your behalf to protect your interests and provide assistance with identifying the right property, negotiating the price and conditions of sale, writing the contract, and employing legal assistance where necessary.

They will work with you closely from start to finish to help you secure a great property as cheaply as possible and on the best terms. They make the whole process simpler and less stressful. Buyer’s agents are a great resource because they know how the industry works and how to turn a negotiation in your favour. Their commission is an investment that returns instant dividends.

The fee to secure a property varies from approximately 0.5 to 2% of the purchase price, depending on the level of service required. However, some agents charge only for services rendered. If this is the case, you might choose to employ a buyer’s agent only for a specific part of the purchasing process, such as conducting research on properties, or bidding for you at auction. To find out more, contact the Real Estate Buyers Agents Association of Australia.

And Finally...

A happy couple celebrate outside their first home

Have fun with it! Use inspection days as an opportunity for exploration and discovery. Try a new café or bar. Take your kids to the adventure playground. Meander through a local park or walking trail. When you find a house you love, give yourself permission to be excited. Maybe it won’t work out, but if it doesn’t, then it wasn’t meant to be. I won’t pretend there won’t be days when you want to tear your hair out, but when things get tough, remind yourself that it’s all for a reason. Finding the home of your dreams was never going to be easy, but the harder the journey, the sweeter the rewards. If you’ve put in the work and you’ve got the motivation, you will get there. And when you do, there won’t be a doubt in your mind that it was all worth it!