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Buying property for the first time can seem confusing. There’s new processes to understand, terms you’ve never heard before, and costs you might not see coming. But with the right information and a smart team on your side, you can be across everything you need to know.
Saving the highest possible deposit minimises the amount you need to borrow, cuts down on interest repayments and avoids paying lenders mortgage insurance.
It’s likely your deposit is going to need to include the other costs associated with buying property. It’s not just the price of the home to consider, but application fees, legal and conveyancing fees, building and pest inspection fees and valuation fees. On average, you need to allow around $10,000 for these fees, not including transfer/stamp duty (which varies depending on the value of your property).
Tip: Try to avoid using your deposit amount to calculate how much you can spend – it’s more important to think about how much you can afford to repay. Use an online home loan calculator to see how your budget measures up.
Your house buying dream team needs to include:
Tip: Ask QBANK about free property reports that include average property prices for an area, suburb profiles, property details and estimated values, sales and rental history.
Understanding how much property is worth is only part of the picture, you also need to understand what’s involved in securing finance to buy.
Do you have a good handle on mortgage basics like stamp duty, lenders mortgage insurance and subject to finance clauses? Building your financial literacy ensures you don’t get any nasty surprises.
Transfer duty (stamp duty), is a tax on buying residential or commercial land. Amounts can vary, and you may be eligible for some concessions.
Lenders Mortgage Insurance (LMI) is a condition of home loan borrowing where the buyer makes a one-off payment to protect their mortgage lender if the borrower fails to make their home loan repayments. If you have less than 20% of the deposit for the price of the property, your mortgage lender is likely to require you to take out LMI.
Loan to Value Ratio (LVR) is the proportion of money you borrow (your loan) compared to the value of the property. Lenders will examine your LVR before approving your loan as a way to assess your risk as a borrower.
Finance clause (also known as the subject to finance clause) is a clause in the Standard REIQ (Real Estate Institute Queensland) Contract. It allows the buyer to terminate the contract if they don’t secure appropriate finance. So, if you make an offer on a property and then your loan isn’t approved, you won’t be held to buying the property.
Once you’ve found some properties you’re interested in, do some inspections (and take notes so you can compare properties that interest you). Some things to look for when inspecting a property include:
Tip: Give it the 5-year test. Think about where you might want to be in 5 years – does this property fit with your plans?
You don’t have to wait to find the perfect property before you shop around for the right home loan. Pre-approval can put you in a good position to move quickly when you find something you love, and help negotiate the price.
There’s three main interest rate structures for your loan:
There are pros and cons to each, so do your research and get smart advice.
Tip: The right loan isn’t just about the lowest interest rate. Look at the home loan features including redraw, offset accounts and whether you can make extra repayments without penalty.
You’ve found a property that ticks all the boxes. So, how do you actually make an offer?
Deciding the offer price
First, you need to decide on your offer price. This is where advice from your team can help. Ask your bank for a property report on this specific address; look at how much the property sold for last time and how much similar properties in the same area are selling for. You can also consider getting an independent valuation by professional valuer (real estate agents are not registered valuers).
Putting your offer in writing shows the seller that you are serious, and avoids any confusion. Your real estate agent will help you with the documentation needed and will present your offer to the buyer (usually via their real estate agent). You may be encouraged to pay a deposit when signing the offer. This shows the seller you’re making a serious offer, but is not a legal requirement.
Conditional v unconditional offers
A conditional offer is an offer made by the buyer that states, in the contract, the sale is “subject to” other events occurring. You agree to buy the home only if specific conditions are met e.g. a condition may be that the building and pest inspection show no major problems.
Unconditional offers are those that include none of these requirements. Effectively, once signed, the deal is done. This is the case for auction sales. This leaves little wiggle room if something unexpected turns up.
Pre-qualification vs pre-approval letters
Many banks will provide an informal estimate of what you can afford to borrow, known as pre-qualification letter. It’s not a statement of fact, but an opinion on what is likely to happen when you progress your application.
A pre-approval letter is a formal statement of the amount of money you can borrow. Getting a pre-approval letter from your bank shows you are serious about buying. Sellers are generally more willing to negotiate with someone who is pre-approved, so it may make the difference if there are multiple offers on the table.
If you’ve made an offer and it’s been accepted on condition of inspections, it’s now up to you to organise a building and pest inspection. These need to be done by qualified inspectors and will look at structural issues (and the dreaded termites!). Your real estate agent may recommend inspectors, otherwise look for established companies with positive feedback from customers and a fast turnaround from inspection to report. In Queensland, inspectors must be licenced by the Queensland Building and Construction Commission. Average costs for a standard, 3-bedroom home are approximately $400–$600.
When you get the report, it will outline any issues and risks. The inspectors can’t tell you whether or not you should buy the property: only you can make the final decision to go ahead.
Tip: If your property has a pool, a licensed inspector must check it meets construction and safety standards. Average costs are approximately $170-350.
Once the negotiations are done, you’re ready to sign on the dotted line. Every contract of sale is different, so it’s important you understand and agree to all the conditions before you sign. Most contracts include conditions around finance, building and pest inspections, and pool safety inspections.
We recommend a conveyancer looks over the contract before you sign to ensure all conditions have been considered and that both parties are protected. A conveyancer (or conveyancing solicitor) takes care of the paperwork (like contracts), property searches (to check there’s no issue with the property title), and the transfer of funds from your bank to the seller.
Tip: Your real estate agent may recommend a conveyancing solicitor, or you can look for one that has a credible reputation, specialises in conveyancing and has a set fee.
It’s a good idea to arrange a pre-settlement inspection (after the property has been vacated) to check everything meets the conditions of the contract.
Normally the solicitor will attend the actual settlement on your behalf – this is the exchanging of the contracts and payment. Once finalised, they’ll notify the real estate agent – and you can pick up the keys!
Tip: Settlement can mean some unexpected costs if your loan amount and the settlement amount with fees doesn't add up. It’s a good idea to talk this through with your conveyancer and your bank, in case you need to access some funds at short notice.
Our mobile banking specialists are your single point of contact to guide you through the process and paperwork. Visit QBANK or call 13 77 28.
QBANK has recently been alerted to fraudulent activity. Queensland Police have today released a warning for members of the public as Automatic Teller Machine (ATM) card skimming devices have been detected on several ATMs across Metropolitan Brisbane.
As these devastating fires continue to engulf our nation, our thoughts are with our emergency services, those helping evacuate and assist on the frontline, and the communities & families that are suffering during this unprecedented disaster.
QBANK is looking forward to helping even more of our members get into the property market for the first time, after being selected as a panel lender under the Australian Government’s new First Home Loan Deposit Scheme (FHLDS).