REALas Australia’s most accurate property price predictions
REALas - free property price predictions

6 Actionable Home Loan Tips for First-Home Buyers

6 Actionable Home Loan Tips for First-Home Buyers
January 22, 2021 Jayde Walker

Planning to buy your first home in 2021?

It pays to be financially and mentally prepared. After all, a mortgage is likely to be the biggest debt you’ll take on and the process can be a lengthy one.

In fact, buying a home can take a considerable amount of time. There’s a lot involved, from choosing the right home loan to settlement. Without preparation, buyers can experience burnout from the emotional highs and lows.

To help set yourself on track, you’ll need to understand the ins and outs of buying a home. Set out below are tips on how to start the process and to help you make decisions that work for you, your family and your wallet.


1. Seek Home Loan Pre-Approval First

Obtaining pre-approval before you start looking at properties can be a smart way to set realistic expectations.

It helps you understand how much you may be able to borrow. Generally, the application verifies information about your income, expenses, debts and assets to determine your financial position.

A pre-approved home loan indicates to sellers that you’re serious about buying. Applying for pre-approval can also help you weigh up your home loan options. When you find ‘the one’, pre-approval can help to speed up the buying process.

However, pre-approval is likely to be subject to conditions and does not guarantee final approval. For example, if the property is assessed by the lender to be unacceptable or your circumstances change, you may not receive final approval. To help avoid disappointment, speak with your lender and/or broker for anything you should stay away from and to understand the conditions of your pre-approval.

Pro Tip: To help understand your borrowing capacity use a mortgage calculator to estimate your potential borrowing capacity or speak to a licensed broker who may be able to help you manage your finances.


2. Understand Grant Requirements

Check which government grants you may be eligible for to work into your finances. These government grants vary in each state and territory so you should research and understand each grant to weigh up which ones are available and right for you. If eligible and depending on the terms of the grant or incentive, you may be able to apply for multiple grants and incentives.

Subject to you satisfying the eligibility criteria and being awarded the grant, the following government grants that may assist you with your purchase include:

  • First Home Owners Grant – A one-off grant for first-home buyers who meet the eligibility criteria. Check your state’s guide to see if it’s a fit.
  • Stamp Duty Concession – Incentives offered by some states and territories which either reduce or waive stamp duty for eligible buyers.
  • Home Builder Grant – A grant for eligible people building a new house or renovating an existing home. Strict criteria applies.
  • First Home Loan Deposit Scheme (FHLDS) – Eligible first home buyers with less than a 20% deposit can obtain a home loan without needing to obtain Lenders Mortgage Insurance (LMI) (lenders’ criteria apply). There are limited places available in this scheme in a financial year.


3. Budget for Hidden Costs

Careful planning for the future is essential to avoid debt and financial troubles.

Factor all upfront and ongoing costs into your budget. Extra or hidden expenses, such as conveyancing, mortgage insurance and bank fees can add up to a significant sum and increase the size of the deposit you need.

Some costs to consider include:

  • Purchase price (upfront)
  • Loan application fee (upfront)
  • Building, pest and strata inspections (upfront)
  • Government fees, such as stamp duty and transfer costs (upfront)
  • Moving expenses (upfront)
  • Loan repayments (ongoing)
  • Council and utility rates (ongoing)
  • Building and contents insurance (ongoing)
  • Property taxes (ongoing)
  • Interest charges (ongoing)
  • Repairs (ongoing)

Pro Tip: To help you manage risks, consider whether obtaining insurance cover is right for you. Combining your home and contents insurance may be more cost effective.

4. Ask the Right Questions

Communicate your wants and needs to any real estate agent you may deal with so they know what you’re after. However, it’s important to remember they represent the seller and are looking after their needs – not yours. If you want to know more about the property, it’s up to you to ask the right questions and do your due diligence.

Some questions to ask or research include:

  1. How long has the property been on the market for?
  2. What was the original price?
  3. Are the sellers prepared to negotiate?
  4. Why are they selling the property?
  5. Are there any known issues with the property, area or neighbours?
  6. Can I obtain a property sales report?

5. Don’t be Tempted by Over-Budget Properties

Lenders offer a borrowing limit for a good reason. Their decision is based their assessment of your ability to repay the loan and the information you have provided regarding your personal circumstances and financial position.

Looking outside of that limit can lead to let downs. Naturally, more expensive properties can look more appealing, but going above budget may not be in your interests.

Instead, focus on properties in your borrowing limit range. You may also consider going under budget to allow room for renovations or other expenses.

6. Do Your Research on Home Loans

There are so many types of home loans available. Look beyond the interest rate to find the best one for you.

Unfortunately, interest rates won’t give you the full picture.

Whilst the interest rate is important, looking at all the costs and features of a home loan may help you to determine which home loan is most suitable for you.

Some factors to consider include:

  • Variable vs fixed rate, or splitting for more flexibility
  • Redraw facilities
  • Offset accounts
  • Comparison rate

Once you find and secure your first home, make sure you review your mortgage periodically as your needs will likely change over time. Outdated rates and unsuitable home loan settings could be the perfect reason to switch, just remember to compare and research first and seek advice from your financial adviser.


Author Bio:

This article is written by Jayde Walker – a Perth copywriter and small business owner who writes in the property investment industry.


Important information

This article is general information only and contains only the views of the author(s).  It is not financial advice or recommendations, and does not take into account your personal needs, objectives and financial circumstances.  Please carefully consider whether this information is appropriate for you.