FIRST HOME BUYER GUIDE - Advice for buying your first property in Western Australia.
Your first home is arguably one of the most expensive purchases you will ever make and can be a long process. Here is a guide to buying your first home or investment property.
There’s a lot more to it than choosing a property and putting a deposit down. It is important to understand the process and all the financial components before you begin searching.
The deposit
As a guide to buying your first home, first things first, the more you save for a deposit, the less you have to borrow from the bank, giving you more leeway to take care of any extra costs that come with buying a house.
The deposit is a percentage of the property’s purchase price and accounts for your contribution to the property, giving you part ownership of it.
Deposits can take years to acquire, so it is important to understand this term early on in the buying process. Typically, you will need a five to 20 per cent deposit, however this can depend on your income, budget and whether or not you have a guarantor, in which case you can get away with a lower deposit.
Lender’s Mortgage Insurance (LMI)
If you cannot attain a 20 per cent deposit, you may be required to pay for Lenders Mortgage Insurance which protects the lender if you fail to make your home loan repayments. It is important to note that LMI is designed to protect the mortgage lender, and mortgage protection insurance is a different insurance which protects you, the borrower.
The guarantor
A guarantor can act as extra security when you apply for a home loan. Generally, a guarantor is a third party, usually either a parent or family member. If you cannot offer a big deposit, a guarantor can be your solution by being that extra security – usually the guarantor’s existing home equity on their property will represent this security.
A guarantor is not expected to make any repayments on your loan, but if something was to happen to the borrower, the lender will turn to the guarantor to make the repayments.
First Home Owner Grant
The First Home Owner Grant (FHOG) is a one-off payment that aims to encourage first home buyers into the market. As it currently stands, the FHOG is only available to first time buyers of a newly built properties, it is not available for the purchase of an established property. Eligible first home buyers who are purchasing or building a new home may apply for the $10,000, there are no income or assets tests to qualify.
If you are eligible for the FHOG, a concessional first home owner rate of duty will apply if the value of the dutiable property is below certain thresholds. When you claim a stamp duty concession for land, you apply the concession rate to the dutiable value of the property.
Find out more about the WA FHOG or watch the video below for more information.
Home Buyers Assistance Account
First home buyers who meet a select criteria are also eligible to receive the Home Buyers Assistant Account, a grant of $2,000 which reimburses some of the incidental expenses incurred through purchasing a home.
These expenses include things like;
Mortgage registration fees
Solicitor and/or conveyancing fees
Valuation fees
Inspection fees
Establishment fees
Mortgage insurance premiums
Lending institution fees
How do I get started on my property buying journey?
Choosing a home and suburb
Choosing where to buy and what to buy all comes down to your long-term home ownership goals. If you’re looking for an investment property, your criteria will be different to that if you are wanting a home to make your own.
If you are looking for a long-term home as your first purchase, then choosing the right suburb all comes down to your personal preferences and what you can afford. Do you see yourself starting a family in this home? Then consider buying somewhere close to schools, public transport, parks etc. How far are you willing to travel to work? These are the types of questions you need to answer before committing to a mortgage. Choosing a suburb depends on your lifestyle and long-term goals.
Researching a suburb before buying is crucial, you want to familiarise yourself with the median house price in the area, what other properties are selling for, has there been growth or decline and how many listings are there for sale in the area? This is where reiwa.com’s suburb profiles can give you the insight you need to feel confident when buying in the suburb.
Generally speaking, most people have an idea of the suburbs they would like to buy in, then they begin their search for the property.
When attending home opens, there are many things you should look out for in a house before you start negotiating. Have the property professionally inspected to rule out any hidden flaws that might cost you in the future.
You can explore suburbs and listings for sale on reiwa.com, as well as save your favourite searches, and sign up to alerts so you can get notified when a similar listing gets added or when something changes to the listing you have saved (ie price drop).
To sign up to alerts, register an account or log into reiwa.com now.
What should I look for when buying my first property?
It can be hard when looking for your first home to differentiate what your heart wants from what your head is telling you. Typically, your first home is usually from the lower end of the market, and when you come across a bargain, it is generally wise to consider it.
On the contrary, it is also challenging to say no the houses that may be out of your budget, but you dream of living in.
It’s important to keep this into perspective and ensure you buy smartly, but also that you purchase a property you can see yourself calling home.
During the decision making process, you should be looking for the following:
A property within your budget
A suburb that suits your lifestyle and goals
A property close to all amenities
When it comes to assessing the condition of the property, it is always a good idea to have a professional look at the following:
Water stains, corrosion and mould
Ceilings
Cracks in the walls
External roof lines and roof gutters
Water pipes and drains
Pests/insects
The land (distance from other properties, is the area prone to fires/flooding?)
Should I build a new home or buy established?
While choosing a suburb to live in may be one thing to consider, there are also options to buy brand new or buy land and build from scratch. Ultimately the decision comes down to your preferences, and what kind of government incentives are out there.
While we are beginning to see a shift back towards first home buyers buying established properties over new, there are still advantages of both that you should consider.
Buying/building a new property
The incentives
There are many government incentives for buyers of new homes, the biggest being the First Home Owner Grant, which unfortunately is not available if you buy established property. In WA, eligible first home buyers can receive up to $10,000.
There also better savings options and concessions available to you, such as reduced stamp duty costs. New homes are also easier to maintain, and you can be confident that you won’t have to spend time or money fixing it when you move in, meaning you can save more. If any issues or defects do arise, this is generally covered under warranty.
Newer homes are also more energy efficient, which will also be cost effective when it comes to paying bills.
Can build what you like
Building your own home means everything is tailored to suit your wants and needs. You have the ultimate decision to what goes where and how you want it to look. The home is yours and you have control over all major decisions.
Less competition
Currently there is far less demand for building a home on a block of land and plenty of stock available, which means you won’t have any trouble securing a house and land package. Competition is scarce, as many people are turned off by the process of building, however if you’re patient it will be worth it.
Buying established
Usually closer to the CBD
Buying an established home means you have more control over the suburb you want to live in, meaning you can live closer to the CBD. Vacant land is quite rare to find the closer you get to the city, so if you buy established, you can be close to more facilities, schools, cafes and restaurants and nightlife.
Investment potential
Buying in a good location will have investment potential in the long run, as the land you own grows in value. You might see a house that needs work in the perfect location, and decide to renovate it and turn into an investment down the track. Besides the location, established properties generally sit on larger blocks of land, because land sizes used to be bigger than what current house and land packages offer.
What you see is what you get
Buying established property is a faster process than building, and you’re also committing to what you see. You can visit the home and visualise living there, as well as inspect it for any hidden defects or flaws.
So, buying new or established has strong advantages to each and comes down the buyer’s wants and needs. Recent reiwa.com analysis showed the number of first home buyers purchasing established properties increased 20 per centbetween the December 2017 and 2018 quarters.
In light of this, REIWA continues to advocate for the re-introduction of the First Home Owners Grant for eligible first home buyers who purchase established property, not just new builds.
How do I sort out my finances?
Getting your finances in order is an important part of the property buying journey. You need to make sure you have a good idea of what you can afford, what kind of loan you can get and how you will manage the ongoing costs associated with owning your own home.
Navigating the financial component of owning property can be daunting, so it’s a good idea to seek professional advice.
We spoke to Bankwest Home Finance Manager, Sarah Howard (pictured), for her top tips and advice for sorting out your finances.
Q: How soon before buying a house should you start getting your finances in order?
A: It’s never too early to start getting your finances in order. When it comes to buying a house, as soon as the idea pops into your head, it’s a great idea to touch base with a Home Finance Manager (HFM). This way you can discuss your potential borrowing capacity, which will help establish your maximum budget as well as any deposits required so you can prepare your savings plan. Pre-approvals are valid for three months so once you have your deposit and are ready to actively start looking at houses, this would be the time to lodge the pre- approval application.
Q: When sorting out your finances to buy your first property, where is the best place to start?
A: It starts with getting a better understanding of your financial position. Have an informal discussion with an HFM around your potential borrowing capacity, maximum budget and required deposits as early as possible. It’s during this initial discussion that your HFM can help you to tailor a savings plan towards your deposit requirement. If you need to increase your borrowing capacity, they can advise if any existing credit facilities need to be repaid and closed off before applying for the housing loan.
Q: What are some common mistakes first home buyers make when it comes to organising finances?
A: There are four mistakes first home buyers commonly make;
First home buyers often have a purchase price in mind which may not reflect their actual maximum borrowing capacity. You should discuss your borrowing capacity well before you get to this point to eliminate any surprises.
Many first home buyers aren’t aware of all the options that might be available to them to help them get into a home sooner.
It’s quite common for first home buyers to be gifted funds or perhaps they may sell an asset such as a car in order to cover their required deposit. There are certain criteria that must be met when it comes to the deposit requirement and the criteria may vary depending on each individual scenario. This is something that can be discussed in the initial informal discussion with your HFM.
First home buyers often ignore their protection needs, so it’s important to not only be able to afford to service your loan and keep your house, but to also be able to do it in the event of any accidents, illness or injury.
Q: What are your top three tips for getting your finances sorted in preparation for buying a house?
I always recommend first home buyers start depositing the approximate amount of the proposed mortgage repayments plus other expenses into a savings account. This will help you manage your budget and achieve the five per cent genuine savings deposit that is generally required when purchasing your first home.
Do your homework on the type of purchase scenario to best suit your situation. Each purchase scenario comes with its own set of pros and cons.
If you know the area you want to live in, a good idea is to rent a home there first to understand the cost of living and associated expenses of the area as it can differ place to place depending on local rates and travel costs to and from work/schools. Importantly, it provides you with good insight into the location before locking yourself into an area that may not suit you in the long-term.
Q: What are the benefits of engaging a financial advisor to help sort your finances?
A: Taking out a mortgage is one of the biggest financial decisions you’ll ever make, which is why it’s important to ensure all of your bases are covered. A financial advisor can help tailor an income protection/insurance package to help eliminate any gaps for unplanned events such as falling ill or having an accident where you may not have a sufficient amount of leave to cover you. It’s a scary situation, but a responsible plan to have when taking out a new mortgage.
Financial advisors can also assist with budgeting tips, help you establish your short and long term financial goals and make you aware of additional strategies, such as first home buyers super contributions, which can help you save on tax whilst boosting your deposit.
If you’d like to start organising your finances, speak to a Bankwest Home Finance Manager today.
Where are the most affordable suburbs in Perth?
The good new for WA home buyers is that Perth is Australia's most affordable capital city. To help with your property buying journey, we’ve prepared a list of the 10 most affordable suburbs in Perth as well as the 10 most affordable within 10 kilometres of the CBD.
The 10 most affordable suburbs
SUBURBMEDIAN HOUSE PRICE
1. Armadale $268,0002. Medina $273,250 3. Camillo $283,750 4. Calista $285,000 5. Orelia $290,000
6. Parmelia $291,2507. Mandurah $295,000 8. Greenfields $305,000 9. Coodanup $308,000 10. Leda $310,000
The 10 most affordable suburbs within 10km of the Perth CBD
SUBURBMEDIAN HOUSE PRICEDISTANCE FROM CBD
1. Westminster $374,0009.6km2. Nollamara $395,0008.2km 3. Cloverdale $440,250 8.3km 4. Bentley $449,000 8.0km 5. Redcliffe $465,000 9.7km6. Kewdale $470,000 9.2km7. Belmont $487,500 7.2km8. Morley $500,000 8.7km9. Carlisle $539,000 8.2km10. Rivervale $545,000 6.5km
*Data in the above is for the three months to September 2021.
How do I get the most out of a home open?
While the process of attending home opens can quickly become arduous, it’s worth taking them seriously to ensure you get the most out of the inspection.
Here are three of our top tips for making the most of a home open.
1. Know what you want
When you’ve reached the point in your property journey that you’re ready to seriously consider buying your first home, it’s important to approach home opens with a business mentality.
Before viewing the property, make a comprehensive list of what you want. Start with the non-negotiables. What are you unwilling to compromise on? This could be anything from the number of bathrooms, to the amount of storage space of whether or not the home has ducted airconditioning.
Once you have the non-negotiables sorted out, compose a list of the ‘nice to haves’. The items or features you’d like to see in the property, but that aren’t complete deal breakers. Don’t focus too much on the aesthetics of the home, this can be easily changed, you want to consider the bigger things like layout, size and location.
Having a clear understanding of your non-negotiables and nice-to-haves will save you from wasting valuable time on a property that isn’t the right fit.
2. Ask the agent plenty of questions
One of the best things about attending the home open is that you get the opportunity to speak to the agent who is selling the property in person. The opportunity to ask them questions and find out as much as you can about the property is invaluable and one you should take seriously when you find a home you’re genuinely interested in.
Local real estate agents are experts in their field and will have a unique understanding of the area and what it can offer buyers. Feel free to question the agent about what extra fees may be included in the sale of the home, what the strata implications are (if any), whether the home in a safe area, is it a location that is conducive to your lifestyle and if there are any drawbacks to the property that you should know about.
It’s always a good idea to ensure the agent is a REIWA member too, as they will be required to disclose any ‘material facts’ relevant to the property if so. This means that when buying the property you can feel comfortable that you know exactly what you’re getting.
3. Assess more than just the inside
When viewing a property for the first time it’s important to remember that the inspection is about more than just the interior of the home. You want to properly assess everything, including the gates, fences, brickwork, gardens, roofing, neighbouring properties and more.
When you buy a home you’re buying everything that comes along with it. Thoroughly assess the location, take a walk up the street or a drive around the block to get a better understanding of what the area is like. If you have children, find out where the nearest school is and see if it’s suitable for your family.
Location can also make a big difference to the long-term price growth of your home. While you may intend to live in the property for a long time, it’s always good to keep in mind its re-sale potential and how the street or surrounding area may impact the property’s value.
Home opens provide you with a valuable opportunity to get a thorough overview and insight into the property. Take your time with it and be sure to view the property a couple of times before making a final decision.
How do I make an offer to buy a property?
Making an offer on your first house can seem daunting, especially if you’re new to the property scene. So how do you know if the price is right?
Research the market
Having a good knowledge of the housing market is a good start, in fact it’s pivotal. Research the area you want to buy in, and compare the value of your prospective house to similar ones around it. You can’t put an offer or negotiate the price of a house if you don’t have a ballpark figure of how much the market is indicating it’s worth.
Look at other recently sold properties in the area, what did they sell for? How long were they on the market? Of course, you won’t be able to determine its true value, but doing this research will give you more knowledge and power when it’s time to negotiate.
By also researching market trends in your suburb, you will gain an idea of what to expect in the future. Buying in a suburb with a good annual growth track record is something to consider, should you wish to sell your home later on.
Although the property market is rather difficult to predict, doing the above research should give you the basic understanding to confidently make that first offer.
Use a buyer’s agent
A buyer’s agent can really help with your property purchase as they represent you, the buyer, during the negotiation process to ensure you get the house at the right value.
They can also help with the research aspect, and can give you a more validated estimation of the property’s worth. As a first time buyer, a buyer’s agent can streamline the process and can take the guesswork out of what price to settle at.
A buyer’s will also help you with your house hunt, and suggest properties that meet your criteria, saving you time.
Research the property
A house is a very large asset, which comes with many structural aspects. Researching the property itself is just as important as researching the suburb, especially when it comes to determining its worth.
To avoid buying a house with potential issues, do yourself a favour and ask the below questions:
Why is the property on the market?
How long has it been on the market?
Does the property have any issues, such as building defects or pest problems?
How old is the property and does its condition represent its age?
Will anything need to be fixed in the next few years?
Has there been any other offers made on the property?
By looking at all of the above, you will rule out any hidden problems with the property that could cost you financial fortune down the track. It will also give you the advantage of being able to negotiate a price that reflects the house condition.
What happens at settlement?
The settlement process can sound somewhat daunting if you don’t understand what it entails. With the right preparation and knowledge, settlement day is something to look forward to, as it marks the start of the next chapter in your life.
What is settlement?
Property settlement is the legal and official process of when full ownership of the property is transferred from the seller to you, the buyer.
Generally there is a settlement period which gives you time to organise your finance, paperwork and everything you need to settle the transaction. When the settlement date comes around, the whole property transaction officially ‘settles’.
It is important that you discuss and work out an appropriate settlement date with your lender and settlement agent before signing a contract. Typically, a minimum of six weeks is required for settlement, but you should not rush the settlement date, and ensure you give yourself enough time so that all relevant paperwork can be approved and looked at as thoroughly as possible.
Who attends the settlement?
Generally, in Western Australia the process is facilitated by the following people:
A representative from the buyer’s settlement agent
A representative from the seller’s settlement agent
A representative from the buyer’s lender
A representative from the seller’s lender
Sometimes, the buyer and seller themselves don’t attend – instead, their settlement agents act on their behalf.
By now you should have enough of an understanding to help you better grasp the home buying process. For a first time buyer, the process can be understandingly intimidating, but by doing your due diligence and learning the ins and outs of buying property, this can help streamline the process immensely.
Superstruct Building Surveyors Pty Ltd | Building Inspections WA
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