A step-by-step guide from saving a house deposit to moving in
While it's likely the biggest purchase you'll ever make, you're surprisingly left to yourself to navigate the complex home buying process.
This guide will take you through the steps involved in buying a home in Australia:
As of 2023, roughly 1.5 million Australians (and growing) are in mortgage stress, which is negatively impacting their lifestyle, health and wellbeing.
A good start is not buying more house than you can afford. While this sounds simple, you need to be thinking about what you could afford in a range of scenarios, not just your current circumstances. For example, how much could you afford if:
Mortgage stress is often defined as housing-related costs being more than 30% of your total gross/pre-tax income where housing-related costs include mortgage repayments plus other housing costs. These other costs include council rates, home maintenance, home insurance, water & sewerage, etc., which can quickly add up to $10,000 per year.
You can get a rough sense of how much you can borrow using the online calculators on lenders' website, such as:
While these calculators ask about your current income and expenses, I strongly recommend checking the loan you can afford in the not-so-great scenarios outlined above (i.e., less income, higher expenses, higher interest rates). You may be setting yourself up for stressful times if you take the maximum loan available based on the "best case" scenario (i.e., two full-time incomes, low expenses and low interest rates).
Government assistance is provided at both the national and state/territory level, so unfortunately there's no single Government website that lets you know everything that's available to you. As such, your best bet is the real estate websites that keep abreast of the regular changes in government assistance available, such as:
The transaction costs involved in buying a house can catch people by surprise and can easily add up to over $15,000!
When working out how much you money you need to save, you need to consider both the cost of the property, plus these transaction costs. For a first home worth $600-800k, without any concession, you'll need to consider:
Websites like Mortgage Monster can help you identify the relevant transaction costs and concessions based on your circumstances.
Once you know your borrowing power, government assistance available, your house price range, and transaction costs, then you can figure out how much deposit you'll need to save up. Most lenders expect you to have a 20% deposit to provide them some protection in case house prices go down. If you're saving $1,000 per month towards your house deposit, then it'd take you 10 years to save up a 20% house deposit for a $600k property!
This is when people start to look for ways to get into the market sooner to avoid 10 years of rising house prices while they save up their deposit. If you're looking at a $600k house and the price grows at 3% for the next 10 years, then the price will be more like $800k by the time you've saved up your deposit - that's an extra $200k! Ultimately, it comes down to what you think's going to happen to house prices over the next couple of years. If you think prices are rising fast, then you might want to find a way to buy sooner (e.g., paying LMI). However, if you think prices will be stable, or even fall, then you can take your time.
If you want to get into the market sooner, there are multiple options available:
Each option has pros and cons, so check out our article on how to avoid LMI, so you can decide the right path for you.
As your house deposit grows and you're starting to look at property listings, it's a good idea to get a home loan pre-approval from your lender. It gives you a bit more confidence in your borrowing power and reduces the likelihood of surprises down the line.
Your lender will ask you about your finances, including your income, employment status/history, government assistance, and household expenses by category.
You can waste a lot of weekends driving around open homes if you're not clear upfront on your home buying criteria.
Getting clear on what is a "must have" (e.g., 3 bedrooms), "nice to have" (e.g., master ensuite), or "no go" (e.g., only one bathroom), makes it very easy to rule in/out a property when a new listing pops up in your real estate app. With clear criteria, you'll probably be able to immediately rule out over 90% of properties.
If you're buying with a partner, it's important that you develop and agree on this checklist together. You'll probably keep tweaking it as you inspect properties and learn more about what's important to you.
If a property ticks the boxes on your checklist, then you'll want to inspect the property in-person to make sure the listing photos aren't hiding anything.
If you have time, go for a wander/drive around the neighbourhood too. Is it easy and pleasant to walk around? Do you feel safe?
While you may think "it's OK, if it floods, insurance will cover it", insurers have been jacking up insurance premiums for properties at high risk of flooding to the point some properties are effectively uninsurable.
You can check the property's flood risk using your State/Territory Government or Council's flood awareness map:
There are also Australia-wide maps, such as Climate Valuation, that highlight the key climate-related risks for each suburb, including flooding, coastal inundation, bushfire and extreme winds.
The police in each State/Territory generally provide a heatmap of crime, or at least suburb-level crime rates, so you can check an area before you buy:
Some States/Territories provide more detailed information than others (e.g., QLD shows specific locations whereas NSW just summarises at the suburb-level).
You can get a reasonable idea of potential aircraft noise using Airservices Australia's tools:
However, these tools tend to focus on what they consider loud noise above 70dB (like a vacuum cleaner) and ignore the lower level noise that can still be annoying at 60dB (like a dishwasher). As such, it's worth looking at the actual flight activity on the WebTrak website and assume you'd hear aircraft noise if there are aircraft passing over the property at an altitude of below 5,000 feet.
Check the school catchment for a property by using the relevant State/Territory website:
Once you've determined the property's school catchment, you can then check the school's historical NAPLAN performance using the My School website. Under the NAPLAN Results section, you can see how students at that school performed relative to students at other schools with a similar background (or all Australian students). The green/red colouring indicates whether the students performed well above, above, close to, below, or well below, the average.
NOTE: You'll find plenty of arguments about what defines a "good" school, and whether standardised test results like NAPLAN are a good measure. It's simply the only widely, readily available information for property buyers.
If you're looking at a townhouse or apartment, you'll want to check out the strata or body corporate documents. Ideally, the real estate agent will have already compiled the documents and have them ready to share, but you may have to request them.
When reviewing Annual General Meeting (AGM) minutes and other documents provided, you'll be looking for signs of:
Once you've reviewed all the information, it's really a judgement call on whether you feel comfortable with any risks you've identified and whether the property price is low enough to compensate for the risks.
There's two sides to every property transaction: what the buyer is willing to pay and what the seller is willing to accept. If there's no overlap between the two ranges, then there's not going to be a deal.
Let's start with trying to understand what the seller might be willing to accept. Ideally, the asking price will be clearly indicated on the listing, but unfortunately this is becoming less common (esp. in hot markets). If you get sick of the sea of listings without price guides (e.g., “For Sale”, “Price By Negotiation”, “Auction”, “Expressions of Interest”), then there are a couple sneaky ways to reveal the seller’s price guide:
Sure, the seller could understate their price range, but a rough price guide is better than nothing and saves you from wasting time on properties outside your budget. Also, historical analysis of asking and sold prices suggests it's common for sellers to accept a 5-10% discount on their initial asking price.
A quick and easy starting point for a property valuation is the free automated property valuations provided by banks and real estate search engines, such as:
I hestitated in adding the last point to the list as there are strings attached - you will be subject to marketing emails/calls, but you can tell them to stop.
You’ll notice that every website will have a slightly different value, but it’s useful for triangulating the value of a property. Just remember these valuations can be slightly out-of-date in fast rising/falling markets as there’s a time lag in them receiving and processing new sales data.
If you’re interested in making an offer on a property, it’s worth doing the extra research to prepare your own valuation based on comparable sales.
You can estimate a property's value by:
I would NOT recommend relying on the real estate agent’s list of comparable properties that they'll likely offer to you. Remember, they're working for the seller, not you! Their sales commission gives them a strong incentive to inflate the price and make it seem like a great deal, so they’ll use the term “comparable” very loosely. The high-end, newly built 3-bedroom house down the road with stunning views will be considered "comparable" to the low-end, run-down 3-bedroom house in a gully that they’re trying to sell you… they’re both 3-bedroom houses on the same street, right?!
The seller's real estate agent will typically provide a Contract of Sale that can be used to submit a formal offer on the property. In most cases, this will be a standard contract with standard clauses, but with a space for you insert your particulars (e.g., sale price, settlement date, agreed deposit, name, signature, etc.) and any special conditions (e.g., subject to finance).
You should engage a conveyancer, or solicitor, to review the Contract of Sale for you. They will highlight anything that looks odd, or unfavourable to you, in the contract. They can also explain the implications of any special conditions added by the seller.
In addition to reviewing the draft contract provided by the seller (via the agent), your conveyancer can also help you incorporate your own special conditions into the contract to protect you. Examples of special conditions include:
If including these special conditions in your offer, you need to remember that they will likely make your offer LESS attractive to the seller. You need to assess the situation (e.g., Does the seller have other competitive offers? How hard is it for you to find a similar deal?) and risks (e.g., Is the property run-down with a decent chance of major structural issues?).
Vice versa, if you're very confident that you will be able to get a loan (e.g., solid financial situation, genuine savings, good broker, etc.), then you could submit an offer that's only subject to finance for 7 days (or not subject to finance at all) to make it more attractive to the seller.
It's also worth asking the agent whether the seller would prefer a shorter (or longer) settlement period as this can be a useful negotiating tactic if you're competing with other offers. However, you need to ensure you allow yourself sufficient time to get all your settlement paperwork sorted, especially if your lender is known to be slow, or you're relying on other parties for your settlement funds (e.g., your superannuation fund releasing money as part of the First Home Super Saver Scheme)
Without these special conditions to protect yourself, you may have to forfeit your deposit and/or pay penalties to the seller if you want to terminate your contract after discovering a major issue with the property.
The laws and practices around submitting an offer vary by State/Territory. For example, in Queensland, formal offers are generally submitted using the standard Contract of Sale template, so all parties are clear on the terms and conditions of the offer. If the seller accepts your offer, they would then counter-sign the Contract of Sale you signed when submitting your offer.
At this point, there's often a bit of back and forth with the agent. The agent will be trying to drum up competing offers and pushing you to submit a better offer. You need to be confident in your estimate of "fair value" and willing to walk away, so you don't feel pressured into offering a higher price due to FOMO. I'd recommend familiarising yourself with your State/Territory's rules around multiple offer situations and pay particular attention to the words used by the agent when they mention other offers, so you can call-out any inappropriate behaviour by the agent and understand the real situation. Remember, the agent's job is to obtain the best deal for the seller by increasing competition amongst buyers. The agent will likely mention that "there's a lot of interest", or "we already have interest at the asking price", but how serious is this interest? Is it simply people asking for the draft contract of sale, or is it a formally signed offer?
Remember, your offer has not been accepted until the Contract of Sale has been executed by both parties. If the seller has only verbally accepted your offer, they're still free to obtain more offers and accept a better offer that comes along. Likewise, if the seller hasn't formally accepted your offer, you're welcome to withdraw your offer and walk away.
Things get a bit confusing here as "deposit" is used to refer to two different things:
The deposit on contract is the amount that's at-risk if you breach the contract. For example, if you signed an unconditional Contract of Sale (i.e., no building & pest inspection), then tried to back ouf of the contract because you noticed a major structural issue with the property.
You'll want to submit your home loan application as soon as contracts are exchanged, so you can get it approved within the period allowed in the "subject to finance" clause, or at least in time for settlement.
Most of the time these timeframes won't be an issue as most lenders approve applications in a matter of days. However, it could become an issue, if circumstances have changed and your lender is no longer willing to lend you as much (or at all). For example, they might have tightened their lending criteria, or your personal circumstances may have changed. In this scenario, you'd have to quickly find another lender and jump through their hoops to get your home loan approved at short notice.
If you've decided to include a "subject to satisfactory building and pest inspection" clause in your contract, then you should identify a good inspector in your area, so you know who to call when you finally execute a contract. Be sure to read the review comments as you'll want an inspector that does a thorough job - I'd be happy to pay a bit more for someone that could save me from wasting thousands on issues that wouldn't otherwise have been detected.
Once you've executed a contract, you'll want to contact your chosen inspector, then put them in touch with the real estate agent, so they can coordinate a suitable time for the inspection. It's worth asking the inspector if you can attend the inspection with them, so you can hear/see the issues in-person, as it can sometimes be difficult to fully grasp the issue from the photos alone. Just make sure you're not distracting the inspector while they're doing their work as you don't want them to miss something important! Once they complete the inspection, they'll send you through a formal report, so you can understand the issues they've identified and decide how you'll proceed. Don't expect a perfect report - practically every house will have issues. The main thing is whether there are any major issues that you hadn't considered when making the offer and how much it'd cost you to resolve the issue.
If the sale is subject to satisfactory building and pest inspection, you have an opportunity here to re-negotiate with the seller. You may ask the seller to rectify the issue, or lower the sale price to reflect the cost to you of resolving the issue later. Given every house will have some issues, it's probably only worth focusing on the major, expensive-to-resolve issues that aren't obvious during a short open house. Remember, the seller does not have to negotiate with you and they may simply suggest that you terminate the contract if you're not satisfied with the property's condition at the agreed price.
When you reach the end of the period for your "subject to finance" and "subject to satisfactory building and pest inspection", you need to decide whether you're going to proceed to settlement, or walk away based on these clauses.
If your home loan has been approved and you're satisfied with the property's condition after the inspection (and any negotiations), then you simply communicate to your conveyancer/solicitor that you would like to go unconditional. Your conveyancer/solicitor will then contact the seller's real estate agent to get the ball rolling on settlement.
The risk of property damage transfers from the seller to the buyer at different points depending on your State/Territory. In several States (e.g., QLD), the risk is transferred prior to settlement, which may seem odd as you don't even have keys to the place yet. As soon as the risk transfers, you'll want to have home insurance to protect yourself.
Your solicitor/conveyancer should remind you to book a pre-settlement inspection with the agent as you can't simply show up unannounced to inspect the property. You'll want to do the inspection close to settlement (e.g., the morning of settlement, or the day prior). Your right to a pre-settlement inspection varies by State/Territory, so be sure to check your rights when drafting the Contract of Sale.
The purpose of this inspection is different to your earlier inspections - it's purely to confirm that you're getting what was agreed when the contract was signed. Remember, it can be months between exchange of contracts and settlement, so a lot can change in that time.
During the pre-settlement inspection, you'll want to check:
If there's a major issue, raise it with your conveyancer/solicitor immediately before they proceed with settlement. Most issues can be resolved by the seller addressing the issue (with no/minor delay to settlement), or the sale price being reduced to reflect the issue, without having to resort to terminating the contract.
In the lead-up to settlement, your conveyancer/solicitor should provide you with a statement that indicates the estimated amount payable by you at settlement. This amount will factor in items such as the purchase price, home loan deposit, council rates, strata levies, water charges, stamp duty, legal fees, registration fees, bank cheque fees, etc.
This is only an estimate as the exact amount is confirmed during settlement when all the parties get together. To avoid settlement issues/delays, your conveyancer may suggest transferring a slightly higher amount just in case they underestimated the amount payable.
You'll typically need to transfer your settlement funds into:
Once settlement is completed, you'll usually collect the keys from the seller's real estate agent. I'd recommend arranging to meet the agent at the property and taking your time to confirm you've received working keys for all the access points.
Here's a quick checklist to help make your move easier:
Don't underestimate the cost of owning a home - it's much more than just the mortgage repayments. You'll likely be up for:
Expense | Monthly cost |
---|---|
Home Maintenance | $200-300 |
Home Improvements | $100-500 |
Homewares & Appliances | $200-250 |
Council Rates | $100-150 |
Home & Contents Insurance | $100-150 |
Utilities: Electricity & Gas | $150-200 |
Utilities: Water & Sewerage | $50-100 |
While you won't be paying these expenses every month, you need to be putting this much away every month to be prepared for when the irregular expense hits (e.g. air con dies, roof starts leaking, etc.), or the quarterly/annual bill arrives.
Very easily!
Your house would probably cost at least $400k to construct, so you can expect significant maintenance to keep it humming. If you follow the very basic 1% rule, it suggests budgeting $4k per year for home maintenance.
This feels about right when you consider all the items requiring maintenance:
Item | Cost to replace | Frequency | Cost per year |
---|---|---|---|
Flooring | $10,000 | 10 years | $1,000 |
Bathroom | $20,000 | 40 years | $500 |
Fence | $10,000 | $20 years | $500 |
Roof | $15,000 | 30 years | $500 |
Gardening, Pest Control | $500 | Every year | $500 |
Kitchen | $15,000 | 30 years | $500 |
Air Conditioner | $5,000 | 20 years | $250 |
Windows, Blinds | $5,000 | 20 years | $250 |
Painting | External | $5,000 | 20 years | $250 |
Painting | Internal | $4,000 | 15 years | $250 |
Hot Water System | $1,500 | 15 years | $100 | TOTAL | $4,600 |
If you take out a $550k home loan to buy your first home for $750k, interest rates hover around 7% (long-term historical average), and you just complete the minimum repayments over 30 years - like the bank wants - then you’ll end up paying $767k in interest! This means your $750k house has cost you over $1.5 million in total.
Just because you’ve signed up to a 30-year home loan, that’s simply the longest possible period for repayment, you don’t have to take that long. If you can find a way to put an additional $500 per month towards your home loan, then you can pay off your mortgage 9 years sooner and save yourself over $250,000 in interest!
If you’re thinking where the hell am I supposed to get an extra $500 per month, schedule a free call with us to see what’s possible with support from a financial coach.
Banks often charge existing home loan customers a "loyalty tax" in the form of higher interest rates than they offer new customers. The banks are relying on customers being ignorant, or too lazy to do something about it, or a bit of both.
Research by the ACCC indicated that the "loyalty tax" tends to grow over time (as the banks test how much they can gouge you) starting at 0.3% and then growing to 1.0% if you still haven't pulled your finger out 10 years later. The banks must love it as the Australian Financial Review reported banks are earning $4.5 BILLION EACH YEAR from this lack of action! At the individual level, you could wind up paying an over $50k in extra interest over the life of your loan for no reason.
You can avoid paying the "loyalty tax" by shopping around each year, negotiating with your lender and not assuming your bank will automatically do the right thing by you.