Buying a home is likely to be one of the most exciting and rewarding things you will ever do, but it is also one of the biggest financial decisions you will make in your lifetime.
For something so important, it is vital you do your homework and take your time to understand every aspect of the home buying process.
Here at Australian Mutual Bank we have been helping people to get into their first home, second homes and investment properties since 1953, so we can make the whole process a lot easier for you!
This is a step by step guide, giving you valuable information you will need throughout the home buying process from start to finish. Of course you may still have questions along the way and that’s ok, that is why we have Credit Specialists in this area ready to assist you on 13 61 91.
STEP 1: GET YOUR FINANCES TOGETHER
When you make the decision to buy a home, the first thing you will need to do is get your finances together. This will include saving for a deposit, money for stamp duty and some funds for other additional costs.
Saving for a deposit
One of the most important steps of the home buying process is saving for your deposit.
But how much do you need? This will depend on how much you would like to spend. If possible, the aim is to save 20% of the purchase price of a property (and we will then lend you the other 80%.) Having the full 20% deposit will help you avoid some additional costs (including Lenders Mortgage Insurance LMI.) However, if you have not been able to save the full 20%, don’t worry, we can lend up to 95% of the property value (it just means that Lenders Mortgage Insurance can be added to your loan.) (Lenders Mortgage Insurance is a one-off premium which protects the lender if you default and there is a shortfall. A shortfall can happen when the funds from the sale of your home are not enough to cover the amount you owe the lender).
Stamp Duty is a mandatory tax that the state and territory governments levy on a home buyer whenever they purchase a property. The amount of stamp duty payable will depend on the purchase price and it varies from state to state. You will need to save extra funds to cover Stamp Duty costs on top of your deposit. To estimate this amount you can search online or contact us to help guide you.
NB. First home buyers may be eligible for stamp duty exemption.
Some other costs to consider include legal costs, bank fees and funds for a building and pest inspection. Australian Mutual Bank provides a range of calculators that are able to assist you in budgeting, creating a savings plan and calculating your repayments. Check our Home Loans section and take time working out your budget with our available tools, this can help when researching the type of property you can buy.
STEP 2: DO YOUR RESEARCH
The Property Market
While you are in the process of saving for a deposit, it’s a good idea to start looking for the right property. The more research you do, the more likely you will find a property which best meets your needs.
Look at what suburbs and areas would suit you. The internet is one of the most convenient ways to scope out the market, alternatively you could also contact some local real estate agents directly or even attend open inspections and auctions to get a feel for the property market. Decide what is important to you. Buying a property should be considered a long term investment, so you want to choose a piece of real estate with healthy growth potential.
Here are some things you may wish to consider:
1. Am I buying this property to live in or as an investment?
2. Is the property in close proximity to transport, schools, parks, cafes and shops?
3. Is the property in a desirable suburb?
4. Does the property have many of the features I am looking for?
It’s great to have a plan of action and know what you want so you aren’t spending time looking at places which don’t fit your criteria, but be prepared to compromise on some things, as it’s unlikely that you will find a house where everything is “perfect”.
When you are buying a home, especially if you are buying or building for the first time, you may be eligible to access a Government initiative/scheme available to first home buyers.
As these offers can change from time to time, it is important to do your research and see what is currently on offer and if you meet the criteria.
These can differ state to state so checking online can be a good place to start. Again, for more guidance in this area feel free to contact our Credit Specialists to point you in the right direction.
STEP 3: OBTAIN PRE-APPROVAL
Once you have an idea of the type of property you are looking for, and have your finances prepared, it’s time to come and see us.
Whilst a loan repayment calculator will give you an idea of costs, chatting to a Credit Specialist will help you get an understanding of exactly how much you can borrow as well as estimating your repayments.
Obtaining a pre-approval gives you peace of mind when you attend open homes and auctions knowing that much of the paperwork and finances have already been processed. Final approval will depend on the suitability of the property. For pre-approval, you will need to complete our loan application that can be found on our website.
Once we receive your application we will contact you and ask that your email us some documentation to support your loan.
Depending on whether this is your first home, second home or investment the paperwork may vary. To give you an idea, this is some of the paperwork you may be asked to supply:
- Recent payslips.
- Tax return.
- 3-6 months’ worth of bank statements on all of your accounts.
- 3-6 months’ worth of statements for any loans, store cards or credit cards you have.
- Superannuation statements.
- 6 months’ worth of rent receipts/rates notice.
If you would prefer to do this in person you can get your paperwork in order and come and see one of our friendly branch staff.
We also offer experienced mobile lending specialists in some areas who will visit you at a time and location suitable to you! To arrange a mobile lender to come to you, call us on 13 61 91.
Let’s look at the different loan types and see what is best for you
Variable Home Loans: The rate for Variable home loan products moves up or down with the official cash rate, set by the Reserve Bank of Australia (RBA). When the RBA changes the cash rate, the majority of variable home loan interest rates change by the same or similar amount. This means that if rates go up, so will your required repayment amount, but conversely if rates go down, your required repayment amount will drop. A variable home loan is usually fairly flexible allowing things like additional payments without penalty and the ability to redraw any extra repayments you have made.
Fixed Rate Home Loans: This type of loan means that your repayment is set at a fixed rate for an agreed period of time. This type of product is ideal if you like to budget your repayment amount, as it won’t be affected by fluctuating interest rates. The down side of this is that if rates go down, your repayments will remain at the rate your loan is fixed at.
First Home Buyers Loan: This type of loan has been designed to help first home buyers enter into the property market by offering a discounted rate resulting in excellent interest savings that you can take advantage of.
Split Loan: If you can’t decide on whether you are better suited to fixed or variable, why not do both? There is also the option to fix a portion of your loan and leave the remaining amount as a variable loan.
Family Support Option: A Family Support Option is a home loan feature available for borrowers, especially first home buyers with no deposit, who have an immediate family member that is willing and able to offer security, e.g. their own property, as Guarantor on the loan to secure a portion of the loan. The Guarantor's financial position should be such that they are able to meet their obligations under the guarantee. Non-Resident guarantors are not eligible.
Mortgage Line of Credit: A mortgage line of credit facility is secured by a mortgage allowing you to withdraw funds to a set limit at any time. As long as you make the minimum repayments, you can also use your Mortgage line of credit loan to pay for other expenses.
STEP 4: CHOOSE A LEGAL REPRESENTATIVE (Enlist in a Conveyancer/Property Lawyer)
Before you make an offer on a property, you will require a legal representative such as a Conveyancer or Property Lawyer to assist you on your journey.
They will assist you in handling all the legal aspects of purchasing a property. They handle matters to ensure your rights and funds are protected and that things go smoothly. Some of the many areas they will assist you with are things like the preparation, lodgement and clarification of legal documents, holding deposit funds in a trust account, carrying out relevant searches and organising settlement.
STEP 5: MAKE AN OFFER OR BID AT AUCTION (The time has finally come!)
Once you’ve found a property within your price range which meets your needs and you have pre-approval for a loan and have a lawyer on board, the next step is to make an offer on the property, or bid at auction.
Review the contract – The vendor (or seller) must have a contract of sale prepared and available for review before offering a property for sale. You can request the contract from the sales agent, and it will usually include:
- A zoning certificate;
- a copy of the title; and
- copies of documents outlining any other registered interests over the property.
Property for sale - Make a verbal offer to the real estate agent. They will take this to the vendor who will either accept your offer or try to negotiate further with you. (If you would prefer, you can have your property lawyer or conveyancer help you prepare a Letter of Offer to send them instead. Once both parties have agreed on an amount, you will go and sign contracts. You will most likely be asked to make a small deposit at this time (usually 0.25% of the purchase price).
Property for Auction - Get ready to bid! Set yourself a limit to ensure you don’t get carried away and end up paying more than you can afford. If you get too nervous, or think you may be tempted to bid over your limit, you can nominate someone to bid on your behalf. You have to register to bid at an auction, so make sure you get there 10-15 minutes beforehand to register. If you are the successful bidder at an auction, a 10% deposit in the form of a cheque will need to be paid at the fall of the hammer. Also note that with an auction, there is no cooling off period so any checks like pest and building must be done beforehand.
Be prepared to walk away with empty hands if it means you have to go above your budget. There will always be more properties listed for sale!
STEP 6: ORGANISE A PEST AND BUILDING INSPECTION
Once you have signed the contract and are in your cooling off period it is time to order both a Building and Pest inspection.
These inspections will usually give you an assessment of roof space and sub-floor. It will check things like structural damage, guttering, footings (the base of foundation walls), doors, ceilings, framing, plumbing, wiring, dampness, rot, window space (to ensure your windows are adequately sealed), report any features of the house that do not meet current regulations, including illegal extensions or alterations to the property; presence of wood destroying insects, such as borers and/or termites; and any existing and potential damage they may have or will cause.
Depending on what is found you may wish to make some further requests or negotiations before exchanging contracts or even pull out of the sale.
NB: If the contract has no cooling off period or you are buying at auction these checks will need to be performed prior to signing the contract to help you make an informed decision.
STEP 7: VALUATION TO BE ARRANGED
While you are busy getting your pest and building checks organised, the bank will be arranging a valuation on the property.
The price the real estate place on a property can be influenced by many variables and may not always reflect a property’s true value.
For the bank to feel confident that the asset you are offering as security on your loan is suitable, a valuation is conducted. A property valuer will take into consideration the features and benefits of a property, current market conditions as well as supply and demand factors to determine the value of a property. The result of the valuation may impact the amount the bank is able to lend you (as they will only lend between 80% to 95% of the value of the property), so if you settle for a home at an inflated figure and the valuation comes back lower than the agreed purchase price, they may not lend you as much as you originally thought or you will need to come up with the extra funds to cover the difference.
STEP 8: EXCHANGE CONTRACTS
When you exchange contracts, you will need to pay the full deposit (which is usually 10% of the purchase price.)
Once you have a signed copy of the contract (signed by both the vendor and you, the purchaser), send a copy to your lawyer and a copy to us at Australian Mutual Bank. You will now need to arrange for home building insurance, as you are the owner of the property from the date contracts are exchanged. Your contents insurance can begin from the time you move in.
Your conveyancer will get in touch with us and this is when we will finalise your loan application process to ensure that everything is ready for settlement day.
STEP 9: WAITING FOR SETTLEMENT
Settlement time is determined by the vendor but can be negotiated. Usually it’s around four to six weeks after you exchange contracts.
By now, you will no doubt be eager to get the keys, but there are some things you can do to keep yourself occupied while you wait for settlement.
There will most likely be documents for you to sign from Australian Mutual Bank or your lawyer, or both. You can also do things like packing up your belongings where you currently live, or arranging for a moving company to come in and help you, or if it’s going to be an investment property, this time will allow you to find a suitable tenant to move into the property, after it has settled.
Other things to think about or arrange during this time might include, mail redirection and utility providers.
On the day of settlement, you will be notified when settlement has taken place and when you can collect the keys from the real estate agent. Your lawyer will take care of the actual settlement process and this is when your home loan is used to pay the balance of the property, including Stamp Duty.
STEP 10: CONGRATULATIONS! IT’S TIME TO CELEBRATE!
Settlement has taken place and now the fun really begins. Pop the champagne (or Ginger Ale), perhaps organise some yummy take away and give yourself a high-five! YOU DID IT! Well done on purchasing your first home, second home or investment property! Good luck with unpacking and enjoy your new surroundings!
Learn the lingo
A fee that the bank charges for processing the loan due to the costs and time involved.
A corporation of the owners of units or town houses within a strata building. They form a self-elected council to manage and maintain common areas.
Capital Gains Tax
When you sell an investment or asset, you pay a tax on the profit you receive. This is calculated on the difference between the sale price and the original cost.
The comparison rate includes the interest rate as well as most of the fees and charges payable during the life of the loan, expressed as a single percentage figure. This gives you a more realistic figure in terms of the true cost of the loan. Beware that the comparison rate doesn’t take certain fees and charges into account – such as government charges and early repayment fees.
Where you have submitted your application and supporting documents and your loan has been approved subject to outstanding items (also known as pre-approval).
Conveyancer and Property Lawyer
They perform the legal process of transferring the legal title of a property from one person to another person.
This report outlines your credit history information and is referred to by the lender during the loan assessment process.
Interest calculated on your loan on a daily basis and charged to your loan at a set time.
An amount of money saved to put towards your mortgage as a promise of the payments to come.
People talk about having “equity in their home”. Basically the equity is the difference between the value of the home and the amount that is owed on the home loan. For example, if your home is valued at $500,000 and you owe $320,000, you have $180,000 in equity. You can use some of the equity in your home as security and borrow against it.
A set repayment that is made over an agreed term due to the interest rate staying the same.
Grants are Government initiatives/schemes available to first home buyers. Availability and eligibility will need to be researched by the purchaser.
Lenders Mortgage Insurance (LMI)
LMI is short for “Lenders Mortgage Insurance”. This is in addition to all the other costs of buying a home. It is a one off payment which can be added to the loan (but then you’re paying interest on this) and it is worked out as a percentage of how much you borrow - but you only need to pay LMI if you want to borrow more than 80% of the value of the home. LMI is paid by the borrower to ensure that the lender is covered if the borrower defaults on their repayments and they are unable to meet the commitments of the loan contract.
Line of Credit
A transaction account that has a credit limit attached to it. The borrower can generally withdraw funds at any time, up to the credit (or facility) limit. There is usually no fixed repayment schedule, however, the borrower is usually required to make payments to at least cover the interest and fees on the loan.
Loan to Value Ratio (LVR)
“Loan to Value Ratio” or LVR is the amount you are borrowing, represented as a percentage of the value of the property. For example, if you are purchasing a property valued at $650,000 and you are contributing $130,000 of savings to the purchase, you will need a loan amount of $520,000.
Which means... $520,000/$650,000 = 80% LVR
A pest and building inspection should be done when exchanging contracts to make sure there are no issues as to why you should not purchase the property. (Inspections may need to be performed earlier if there is no cooling off period on the contract.)
This is when you pay the interest amount of the loan only and none of the principal. This will make your repayments less, however, you will not be paying down any of the loan amount itself.
The organisation who is providing you with the loan
This is the name that is given of the loan that is used for the purchase of property
An offset account lets you link the loan to a transaction or deposit account. The balance in the transaction account “offsets” the loan principal. Interest is calculated on the loan principal minus the balance in the savings account so you end up paying less interest on your loan.
Just like conditional approval, this is where you have submitted your application and supporting documents and your loan has been approved subject to outstanding items.
This is the amount of the loan. You will be charged interest on this amount.
This is the person buying the property.
A redraw facility allows you to make additional contributions to your mortgage and then “redraw” these extra funds. A lot of people use a redraw facility to pay for large expenses like renovation costs, school fees or overseas holidays. Generally, a redraw facility works best for borrowers who need to redraw against extra repayments infrequently. A redraw facility may not be the most appropriate product if you will need regular access to funds.
This is when you have an existing loan which you are changing to another loan product. This may happen for many reasons, some of these might be that you are adding more funds, you are changing to a loan with a lower interest rate or you are taking your loan to another institution.
An asset that a lender holds as protection against the possible loss if a loan is not paid back.
This is when the ownership title on property changes from one party to another.
This is a state and territory government tax paid when you purchase a property.
The amount the property is worth as assessed by a professional valuer.
A repayment that may increase or decrease due to the interest rates that can fluctuate and are influenced by the Reserve Bank of Australia (RBA).
The seller of a property.
Home Buyer Wish List:
Write the details of your ideal property as listed here so that you can keep your goal fresh in your mind while you are working hard to save. Your wish list can be a mix of your must haves and the things you dream of. You can list how many of an item you want (i.e. Bedrooms) or a description (i.e. Kitchen to have an island bench).
Car space: ______________________________
Living areas: ____________________________
Storage Options: __________________________
Outdoor areas: ___________________________
Other “must haves”: ______________________
Do you have a question for us? Come see us in one of our branches, call us on 13 61 91 or send us an email at email@example.com.