This is how!
Prosper Finance has put together this guide to help you understand the process and make informed decisions as you navigate your first home-buying process from start to finish.
BUDGET: How much can you borrow?
To get a realistic goal, start by speaking to a mortgage broker. They will advise on how much you will need for a deposit for the kind of properties you are interested in. Your maximum loan amount will be calculated based on your income, savings, assets, expenses and credit history.
Knowing your borrowing capacity doesn’t mean you want to borrow up to your limit. Ongoing mortgage repayments are higher for bigger loans and other costs of owning a home, such as council rates, strata fees and insurance can also add up.
Compare your after-tax income with your estimated ownership costs and your general household expenses. If only a small amount is left over for non-essential purchases, consider a smaller loan or cutting back on expenses until your income rises.
Put yourself through a pressure test before determining your financial limits. How high interest rate rise can you handle? How much do you have set aside for your mortgage payments if you lose your job?
GETTING A LOAN: How to go about?
Banks have specific requirements around who they lend to and how much. It is best to apply for a loan before going too far down the track so you know where you stand and can go house hunting with ease.
Pre-approval is an indication of how much you can borrow. You can use this to establish your budget. Ideally you should have your Pre-approval before making an offer.
The pre-approval is based on information about your income, debts and liabilities. It may also depend upon other conditions. Different lenders have different appetites, so it is best to confirm exactly what pre-approval means with your Prosper Finance broker.
A pre-approval isn’t binding and if your circumstances or lending conditions change, your bank might not loan as much, or may not offer you a loan at all.
When assessing a loan application, lenders will ask for information and examine your finances to determine the level of risk posed to them by loaning you money:
- Income: wages, any additional income such as dividends from investments or business income.
- Expenses: bills, groceries, transport and leisure.
- Debt: credit card debt, personal loans, car loans, business loans, student loans. More debt means the bank will be less willing to loan as much.
- Savings: accumulated and held for at least three to six months
- Financial history: recent savings activity, defaults on loans or credit cards in the past.
They will also assess the value of the property to ensure the loan-to-value ratio is within a safe range.
Unconditional approval occurs later in the buying process, normally after your have found your new home. All you need to do is let your broker know your purchase price, send over the signed contract and we will get the valuation ordered right away.
Once unconditional approval is provided, loan offer documents are distributed and your loan application can progress.
GRANTS, SCHEMES, INCENTIVES AND DISCOUNTS
Eligible first-home buyers can take advantage of various government grants, discounts and schemes making it easier to buy a first home.
Most incentives require buyers to live in the property for at least 12 months, and buyers whose partner has previously purchased a home are normally excluded.
There are also maximum price thresholds, and schemes can change from time to time.
First home buyer grants, schemes, incentives and discounts in NSW:
- No stamp duty on property under $650,000, or vacant land under $350,000.
- Discounted stamp duty on properties between $650,000-$800,000, or vacant land between $350,000-$450,000.
- $10,000 grant for new properties under $600,000 and owner-builder/building contracts worth under $700,000.
See what’s available in your state by googling: First home owners grants & schemes
THE PROCESS OF BUYING A PROPERTY
There are different rules for homes bought at auction and homes purchased via private treaty, and rules differ between states.
- Ready to make an offer or bid on a property? You’ll need to have a deposit ready to pay the vendor, as well as loan pre-approval to pay the balance on settlement.
- How to make an offer? Decide on how much to offer considering the market conditions, how many people are interested in the property, and your own personal circumstances. Submit a written offer to the agent specifying your price and conditions. An offer letter template helps with the wording.
- What is a cooling-off period? It is the length of time after purchase in which buyers can back out of house purchase. During this period, buyers can undertake further investigations of the property, and cancel the sale if they decide not to go ahead. The standard cooling off period is between two and five business days. Properties sold at or before auction normally don’t have a cooling-off period.
- How does an auction work? At an auction, all the interested buyers gather together to submit offers in person. The auctioneer encourages bidding to achieve the best result for the vendor. The highest bidder purchases the property unconditionally. Bidders must register at an auction, and offers are binding. It’s a good idea to let us know if you plan to buy at auction
- What are the best techniques for bidding at auction? Set your maximum bid before the auction and stick to it. A strong opening bid can knock other bidders out of the running. Bid confidently and call out the offer in the full amount. Place your next bid quickly to project confidence.
- What happens after you win an auction? The winning bidder will have to pay a deposit on the spot, usually by cheque. The contract will detail the deposit required, but it’s usually 10 per cent of the purchase price.
- What does ‘exchange of contracts’ mean? When an offer is accepted or a property is bought at auction, the buyer and vendor each sign a copy of the contract and keep one copy each, which is known as exchange.
- What is settlement? Settlement is when ownership of the property is transferred from the vendor to the buyer, normally six weeks from the date of exchange. Settlement is managed by the solicitors or conveyancers.
- What is stamp duty? It is the tax paid by the buyer to the state government when purchasing a property. The amount depends on the purchase price and differs in each state.
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