First Home Buyers

On this page we consider the position of first home buyers, and discuss some of the options available.

The buying of a first home may be motivated by a desire to start a family and to secure a place to live, it may be the start of an investment strategy (see also our page on "Investment", or it may be a combination of both of these.

After you have read through the items on this page, click through to our page on "Buying A Home" for general information about purchasing real estate.

• Start with as a big a deposit as possible
• Consider starting with an investment property
• Buy in partnership with someone else
• Buy vacant land and build
• Tips for first home buyers

Start with as a big a deposit as possible

There is a definite advantage in having a full 10% deposit to put down on a home purchase. First, it puts you in a better position when making an offer, as most vendors will insist on a full deposit being paid on the signing of the contract.

While it will not be too difficult to get a loan with only 5% of the purchase price saved, mortgage insurance will be required, and this adds cost of your finance.

In some cases if may be worth considering renting for a period of time, until a full deposit can be saved.

Consider starting with an investment property

If you can secure a property with good growth potential, you could consider an investment strategy that involves renting out the property, and relying on capital growth to build your deposit.

Eventually, will be in a position to decide as to whether you will sell the property, or to refinance it to release equity for use to finance the purchase of your home.

Buy in partnership with someone else

It’s very hard for a single person to save for a deposit and to service a loan at the same time. However, many young singles are adopting the strategy of pooling resources to secure real estate.

The most important consideration in such a strategy is to ensure that the partnership agreement is clearly determined, and put into writing by a solicitor. The agreement should set out each party’s rights and obligations, and provide a formula for settling any differences.

Alternatively, you could consider an investment property in your name only, but allow others to live-in and share the rent.

Buy vacant land and build

An advantage of this strategy is the savings in stamp duty. Stamp duty is payable on the value of real estate as at the date of purchase. This means that thousands of dollars can be saved by purchasing a block of vacant land, and then building.

Vacant land is rather scarce in established areas, so building a new home usually means moving to the outer suburbs. However, if you’re particularly astute (and lucky), it may be possible to demolish an old house on a prime block and build a new house for less than it would cost to buy and renovate.

Tips for first home buyers

Whether you are buying your first home as a place to live, or as part of an investment strategy, the basic strategies are the same:

Be sure to budget for the extras

Stamp duty, Title Office registration fees, legal fees, and costs associated with your home loan can come as a surprise if you have not given them sufficient consideration. See our Purchase Calculator as a prompt for some of the additional costs involved.
Use your personal lending manager effectively

Ensure that you have your finance organised before you go house-hunting. This way you will be more likely to remain within your budget.

If you think that you will not qualify for a home loan, your Real Choice Mortgages personal lending manager can assist with information about non-conforming lenders.
Be wary of estate agents

While there are plenty of pleasant and friendly estate agents in the industry, it is the industry itself, and the system it imposes on all players, that makes the process of purchasing so dangerous.

It is the duty of the estate agent to secure a sale for the vendor. The estate agent may seem to be helping you, but any assistance offered to you is offered only to the extent that it assists the vendor. Remember, the only person who has a duty to ensure that your legal rights are protected is your own lawyer! For more information on this, see the website of Real Estate Lawyers Victoria.
Know your limitations

If you have obtained pre-approval for your home loan, make sure that you know the conditions that have to be satisfied in order to have the loan unconditionally approved. For example, your lender may not accept certain types of property as security, and signing a contract for the purchase of an unacceptable property could have serious consequences.
Think about your deposit

If you do not have sufficient deposit, make sure that your purchase contract makes the appropriate allowances. Perhaps a lesser deposit should be offered, or provision should be made for payment by way of a deposit bond.

In any case, you should ensure that your lawyer drafts the finance condition for you, as many estate agents who “assist” purchasers with finance conditions actually set up an impossible situation. (The “impossible situation” is where the deposit is made payable on the same day as finance approval is to be obtained, with the bank providing the deposit funds. Banks do not normally provide funds for the deposit, and they certainly do not advance funds on the same day as finance is approved!).

For more information about the behaviour of estate agents, visit the web site of Real Estate Lawyers Victoria.
Use experts as much as possible

While your personal lending manager and your lawyer are probably the most important experts in the home purchase process, other experts should be considered in certain circumstances. Among these are building inspection services, accredited valuers (never rely on a valuation provided by an estate agent), pest inspection services, and surveyors.
Take out insurance as soon as possible

While the vendor’s insurance is required to cover the purchaser of a property, the value of this requirement is very limited. If the vendor does not have any insurance, or does not have sufficient insurance, or has somehow breached the insurance contract, there may be no insurance for you to rely upon.

As soon as you make a purchase, you should take out insurance with an insurer acceptable to your lender (most lenders will require that you take out a maintain insurance over the property, and that the insurer should include the name of the lender in the insurance policy).

Ready to talk home loans? 1300 139 284 Just ring us, and let us know your requirements. We will have one of our Personal Lending Managers make immediate contact with you to discuss your specific needs and the available options - Quick, Easy, Personal. You can also CLICK HERE to access our online form.