Steps to buying a home
Buying a home is a major decision that takes planning, research and careful budgeting. Here are some tips to help you get started.
How much do I need to buy a home?
There are a number of costs to consider when you buy a home. The biggest upfront cost is usually a deposit.
How much deposit do I need?
A deposit of 20% of the purchase price plus enough to cover ongoing costs is ideal.
The bigger your deposit, the lower your loan to value ratio (LVR) will be. This is the amount of the loan divided by the purchase price (or appraised value) of the property.
If your LVR is higher than 80%, you will usually need to pay lender’s mortgage insurance, and the lender could charge you a higher interest rate. Avoid these extra costs by saving a bigger deposit to lower your LVR.
Saving for a home deposit
Building a home deposit can take a long time. But, by establishing a good savings habit and sticking to it, you can watch your savings grow.
Setting up a dedicated high-interest savings account is a great way to save for a home deposit. You can transfer money into the savings account each pay based on what your budget allows. Or, better yet, set up a direct debit to transfer the money automatically, so you’re less likely to spend it.
See saving for a home for more tips on building a home deposit.
Work out how long it will take to reach your savings goal.
Talk to your partner about saving
If you’re saving with a partner, talk about where you can cut back on your spending. Open communication is really important and you can motivate each other along the way.
See relationships and money for tips on managing finances with your partner.
Sharing the cost
If buying your own home always seems to be just out of reach, you might consider getting help from an equity partner through a shared equity scheme.
What are the upfront costs of buying a home?
When you’re buying a home you need to know what the upfront costs could be.
This is a state tax on all home purchases, based on the property price, location and type of home loan you have. This will be a one-off payment that you need to factor into your budget.
Stamp duty calculators
Find out how much you’ll need to pay in stamp duty by using the calculators on these websites:
ACT – Revenue Office: Conveyance duty calculator
NSW – Revenue NSW: Calculator – for land and property transfers
NT – Department of Treasury and Finance: Stamp duty calculators
QLD – Office of State Revenue: Transfer duty calculator
SA – RevenueSA calculator: Stamp duty on conveyances
TAS – State Revenue Office of Tasmania: Property transfer duty calculator
VIC – State Revenue Office: Our calculators
WA – Department of Finance: Calculators
Legal and conveyancing fees
A conveyancer or solicitor will help you meet all legal requirements involved with purchasing your home. They’ll handle most of the paperwork and can answer any questions you may have about the process and explain the terms and conditions of the contract.
Ask your conveyancer for a written estimate of their costs. This should include a breakdown of the likely payments to the local council, water and electricity companies.
Do your research before hiring a conveyancer. Ask your family and friends if they can recommend someone they’ve used before, or ask your real estate agent for their recommendation.
Removalist and cleaning costs
You need to budget for the cost of moving all your belongings to the new property. Get quotes from a few different removalist companies, or hire a truck or trailer and ask friends to help you move.
Consider whether you want to pay for a professional to clean your old property before you hand in the keys. Your new property may also need cleaning before you move in.
Once you’ve decided on a property, it’s a good idea to get a qualified building inspector to assess it for structural integrity, safe electrical fittings and future maintenance costs. You should also get a pest inspection to ensure the property doesn’t have a termite problem or other pest issues. These checks will help to give you peace of mind and could save you a lot of money in the future.
What mortgage can I afford?
Working out what mortgage you can afford is about striking a balance between the lifestyle you want and the one you can comfortably afford. Make sure you know what ongoing costs you’ll have to manage on top of your repayments once you move into your new home.
Ongoing costs of buying a home
There are a lot of ongoing costs you’ll have to manage on top of your repayments once you move into your new home. These include:
Home and contents insurance
Consider buying home insurance to protect your new property. This is a condition of most home loans, as it covers the cost of rebuilding or repairing your home. As well, if you don’t already have contents insurance, now is the time to consider protecting your possessions if they are lost, damaged or stolen. Homeowners often combine home and contents insurance into a single policy.
Council rates and strata fees
How much you’ll need to pay in council rates depends on where the property is located. Each local council calculates the rates based on land values in the area. The money is used to fund local services and maintain public spaces and infrastructure.
If you buy an apartment, your council rates will generally be lower, but you will also have to pay strata fees. These cover the costs of building maintenance, electricity and water charges for common areas, and the general upkeep of common areas such as a pool, lift or gym.
You might need to do some renovations before you move in, so make sure you know all the costs before you agree to a price for your new home. Then you’ll be able to work out what you can realistically afford.
Utilities and household bills
Once you’ve settled into your new home, your household bills will start to arrive. Services like water, electricity, gas and internet are all ongoing costs that can really add up. It is important to budget for these, along with other everyday expenses.
Create a future home budget
Picture yourself in the home you want and create a budget based on that, including all the expenses you’re likely to have, from rates and utilities to everyday spending at the supermarket and public transport.
Create a ‘future home budget’.
Your budget will show you how much money will be left over each fortnight. This should give you an idea of what mortgage repayments you can afford.
For example, your household budget might show that your income is $2,500 per fortnight and your living costs are $1,000 per fortnight. From the remaining $1,500 you’ll need to work out how much you can comfortably contribute towards mortgage repayments.
Work out how much your repayments will be with different loans.
Build a savings buffer
Maintenance can be expensive when you own a home, so make sure you build a savings buffer so you can cope with unexpected costs, like emergency electrical or plumbing work. Visit our webpage for tips on building an emergency savings fund.
Another thing you can do is choose a loan that allows extra repayments so you can build a buffer and then redraw it later if you need it.
First home buyers
Make sure you know what you’re entitled to in terms of first home owner grants, as these can boost your deposit significantly.
You should also find out if the first home super saver scheme can help you save for a home. From 1 July 2017, first home buyers can save for a deposit by making voluntary contributions to their super fund. You can access the money from 1 July 2018.
First home buyers are also eligible for stamp duty concessions in some states and territories. Check with your state’s revenue office for details.
Before you start looking for a home, do a budget to work out how much you can afford in mortgage repayments. Consider additional costs such as stamp duty and legal costs, as well as ongoing costs such as insurance and council rates.