How to buy your first house

Buying your first house can be a long and daunting process, so having a roadmap is helpful. Let’s go through every stage of the home-buying process and lay it out in simple steps, including:

• Home loan costs to know
• Who can help
• What traps to avoid.

Everyone’s property journey is different, so your experience may mix up, skip, or combine a few of these steps. The purpose is just to give you an idea of what to expect when getting a first home loan.

So, without further delay, here’s how to buy your first house.

Before looking at properties, you must prepare your finances for a home loan commitment. Every home-buying step is crucial, but this one is essential.

There are five crucial things to know.

1. Borrowing power. Your borrowing power or borrowing capacity is how much you can safely afford to borrow before you risk mortgage stress. Calculate the maximum you can afford in monthly mortgage repayments, then taper it back from there. As a rule of thumb, make sure your payments are no more than 30% of your income. 
2. Deposit. Your home loan deposit is the first major expense of a home loan. To avoid paying Lenders Mortgage Insurance (LMI), you should aim to front up at least 20% of the final sale price. Note that the final sale price is not necessarily the home’s value.
3. Debt-to-income ratio. How much debt do you already have? This includes credit cards, personal loans, and student debt like HECS-HELP. Generally, you want low debts and high income to have an ideal debt-to-income (DTI) ratio.
4. Credit history. Check your credit score – are you green, or in the red? Your credit history tells a future lender how reliable you are as a borrower. If you have bad credit, don’t worry: you can take steps to improve your credit. 
5. Stamp duty and other fees. Buying a home comes with big and small fees, including ongoing homeownership costs, stamp duty on the land title transfer (if applicable), and lending fees. Is your budget flexible enough to absorb them all?

Paying off a home loan is a major financial commitment, so getting in control of your money gives you the best shot at getting your home loan approved and buying your dream home. 

One of the biggest hurdles for many first home buyers is saving enough for a home loan deposit. This is where first home owner grants (FHOGs) can come in. 

These government schemes are designed to help eligible Australians get on the property ladder by helping finance part of their deposit. Some grants let first home buyers get in with a deposit as small as 5%. 

Recently, eligibility criteria for first homeowners has expanded in many Australian states and territories. Before, only singles and couples could access them, but now any two individuals, such as friends, siblings, or partners, can apply for FHOGs so long as they meet other conditions. 

Even people who have not owned property in ten years now count as a first home buyer – depending on the scheme.

Research the home buying grants available in your local state or territory to see what programmes you may be eligible for, and what you need to do to apply.

Even first-time home buyers can negotiate their home loan. The key is to compare home loans so you know the market and can see what works for you. 

Comparing home loans:

• Tells you what interest rates are competitive.
• Shows you what features are available to you.
• Lets you compare costs, including your borrowing power, with different lenders. 

After all, spotting a good deal is easy when you’ve already spot-checked a lot of bad ones.

Once you’ve chosen a lender, getting home loan pre-approval is a good next step. Most lenders will give eligible home loan applications conditional pre-approval for a home loan up to a certain limit, based on their borrowing power. It's means, "We think you're good for this home loan, but it's not official yet."

Home loan pre-approval lets you compare properties with more confidence. If you find your dream home, you can make an offer fast. 

Conditional approval for a home loan typically lasts between three and six months – if you haven’t found a property to buy during this time, you’ll need to reapply. This could mean paying multiple application fees.

A solicitor or conveyancer helps first home buyers become the legal property owner when they purchase it, particularly during the home loan settlement process. They do this by:

• Ensuring your ownership rights aren’t restricted by caveats, easements, or covenants on the certificate of title. 
• Checking any local government rules on what can be done with the property.
• Discharging mortgages on the property before you take possession. 

A solicitor or conveyancer also guides you through the contract negotiation process. Unless you’re well-versed in Australian property law, it helps to have an expert in your corner. 

How do you find a property solicitor or conveyancer? Most can be found online these days, so do your research and ask friends and family for recommendations. 

To find the best deal on a solicitor or conveyancer, be sure to compare:

• Fees or commissions
• Qualifications and experience
• Value of offerings (such as included services). 

Both solicitors and licensed conveyancers are qualified to undertake the legal work involved in buying property, so which professional you use is up to you. 

Once you know your buying power and have your finances in place, it’s time to find your first home in your ideal location.

In Australia, there are several ways to find properties:

• Off-market
• Property websites
• Property newsletters
• Agency newsletters
• Online marketplaces
• Word of mouth

Most homes for sale in Australia these days are listed online. Browse property websites to compare locations, prices, features, amenities, and more. 

Keep in mind the search could take a while. You’ll spend lots of time looking at property listings. Your weekends will be taken up viewing open homes.

Attending public auctions can also be a great way to understand the types of properties and sale prices in your area, as well as the auction process.

It’s also important to note that timing is everything. Different property seasons have different advantages. Spring and autumn are usually the busiest seasons in Australia – this means lots of buyer competition, but also more homes for sale. Winter and summer can be quieter.

Found your dream home? Fantastic. Now it’s time to make an offer.

In Australia, there are two main ways to buy property: at auction or by private treaty. Depending on the method, there are different requirements and processes to follow. 

However, in both methods, the seller’s real estate agent must give you a copy of the ‘contract of sale’. This document outlines the terms of the sale and the property details. Get your solicitor or conveyancer to review the contract of sale before you bid at auction or make an offer. 

Let’s look at the processes involved in buying a property at auction or by private treaty.

How to buy at auction

If your dream home is up for auction, it is possible for you to make a pre-auction offer. However, sellers don’t have to accept pre-auction bids, and since the property is still on the market, it’s possible another home buyer could trump you with a better offer. 

If you have to go to the auction, make sure you prepare. Remember: auctions don’t have cooling-off periods. If your bid wins, you are under contract to buy the property and pay the deposit, usually 10% of the final sale price. 

To prepare for the auction:

• Get your solicitor or conveyancer to review the contract of sale.
• Figure out how you’re going to pay the deposit at auction.
• Inspect the property. 
• Establish your budget and auction strategy. 

Your bid wins if it’s the highest at the final hammer after the property is declared ‘on the market’. Congratulations – the property is yours. It’s time to buy it. 

(Psst: here’s what happens if you overbid at auction. Don’t do it).

How to buy via private treaty

Private treaty properties are sold on the market with a specific price in mind. You negotiate privately with the seller – typically via their real estate agent. You make an offer in writing and go back and forth with the seller until you agree on a purchase price. The offer is then accepted.

Once your final offer is accepted, you exchange contracts with the seller. 

Your solicitor or conveyancer supports you through this step. They can discuss your options with you and include any special conditions on your behalf in the contract of sale.

The final contract of sale typically includes the following:

• Price.
• Caveats, easements, and covenants.
• Sewer and drainage diagrams.
• Zoning restrictions.
• Property survey (optional). 
• Special conditions, such as finance approval, building inspections, or pest inspections. 

Some buyers negotiate longer or shorter settlement periods. For example, a longer settlement period could benefit you if you need time to prepare your finances. Settlement typically takes 4 to 6 weeks from the date of exchange.

The buyer and seller will each sign copies of an identical contract. You then ‘exchange’ contracts: you keep the seller’s signed version, and vice versa. You can exchange contracts in person or via post. Your solicitor, conveyancer, or agent can arrange the exchange.

If your offer is accepted and the contracts are exchanged, the next step is to pay the home loan deposit. This critical step establish your mortgage’s loan-to-value ratio (LVR) and your home equity, which can impact costs like your interest rate. 

Your deposit amount can vary, but the standard is to pay 10% of the purchase price at exchange. 

There are several ways you pay a home loan deposit:

• Electronic transfer (EFT)
• Personal cheque
• Bank cheque
• Cash

You must pay the deposit on the day if you bought your property at auction. The deposit is then held in a trust account (usually with the seller’s real estate agent) until settlement.

Experts recommend getting home insurance as soon as you exchange contracts. This policy will provide financial cover for the building and your belongings in case of accidental loss, damage, or theft. Generally, you can get a cover note or certificate of insurance for the period up until the settlement date; once the place is yours, the policy will begin.

If you’re buying a unit, you’ll need to arrange a certificate of currency from the body corporate’s insurance provider to ensure your property is adequately cover.

A good rule of thumb is to insure the property for what it would realistically cost to replace it (including materials, construction, and planning). Reading the product disclosure statement and getting quotes from multiple providers can help you find the best value policy for your needs. 

PRO-TIP: Cheap home insurance can be tempting, but these policies tend to be bare minimum. If it doesn’t cover you adequately, it’s generally not worth the money.

A cooling-off period is a brief window of time when you can still back out of buying the home, with written notice. Penalties may apply, depending on the terms of your contract, such as losing part your home loan deposit. 

The length of your cooling-off period varies by Australian state and territory. In NSW, the cooling off period is five business days. Auctions do not have cooling off periods, so it’s vital to know this going in.

However, if you have a cooling-off period in your contract, or any agreed special conditions, now is the time to do your due diligence. This means:

• Pest inspections.
• Building inspections.
• Finance approval from your lender.

If you have conditional approval from your home loan lender, now is also the time to make it unconditional. If you’re eligible for any first home buyer grants, your lender will usually organise this for you and have it ready at settlement.

If you have to pay stamp duty, typically you have to do this within a few months of signing the contract. In NSW, stamp duty must be paid within three months of signing.

The final home loan application process can vary between lenders. Generally, however, you’ll follow these steps:

1. Submit your final application. This includes supporting documentation such as payslips, savings and bank statements, and a signed application form. If your lender has application fees, you may have to pay these as well.
2. Lender checks. Your lender will do their due diligence, such as employment checks, credit history checks, and property valuation. (The latter can come with fees).
3. Final review. Your lender will review your application in full. 
4. Home loan approval. If your lender approves your home loan, you will receive loan documents to sign. Sign these documents and return them to the lender.
5. Loan certification. Your lender certifies your home loan – now you’re ready for settlement.

You’re entitled to a final inspection of the property before you take possession. This check lets you confirm nothing has been damaged or changed since you agreed to buy the property, beyond general wear and tear. 

If something is amiss, now’s the time to get it addressed. It’s better to delay settlement than move into a damaged home.

You’re in the home stretch, now. Your settlement date is in your contract of sale. Your solicitor will make the final settlement arrangements with the seller’s solicitor. 

They will also liaise with your mortgage lender to make sure the funds are available on the time and day of settlement, and register your mortgage on your property’s certificate of title. 

On settlement day, your solicitor will handle the process for you. They will contact you to let you know when settlement has taken place. They will also send you a statement of adjustment to show you how your home loan has been paid. 

Congratulations – you’re officially a first home buyer. All that’s left to do is pick up your keys and pop the champagne.

Have questions about the home buying process? Head over to our first-time buyer hub for more expert guides and tips.

Compare first home loans in the table below.