Buying for beginners: What you need to know

Buying your first home should be a dream come true.  Yet moving home is right up there alongside death, divorce and major illness as one of the most stressful things humans will ever experience.

You may be finance approved and be ready to hit the real estate road, but there are still a few potholes to avoid along the way.

Let Jackson Jones help smooth the path to your new front door.

Tip One: Beware of the “pre-approval” trap

There’s a common misconception when it comes to lending and pre-approval. When starting the buying process, many buyers go into their bank and ask something like “I’m looking to buy a home, I earn $X per year, how much can I borrow?”. The bank then responds with a figure. Quite often, buyers believe that this is pre-approval - it isn’t.

What the bank has given you is just an indication of what you could borrow; this often doesn’t take into account any debts, loans or credit history. For example, you might have a great household income which should allow you to borrow $X, but what if you’ve forgotten to pay some bills in the past or if you have a large outstanding car loan? These factors will have an impact on you actual borrowing capacity.

The best way to approach finance is to get formal pre-approval. To do this, you’ll need to arrange a meeting with a bank or broker (or even a couple to compare). They’ll ask you to provide evidence of all your financials: bank statements, outstanding debts, tax returns, payslips etc. Once you’ve provided these and chosen the best type of loan for your circumstances, they’ll make the application to the lender for you.

Once the lender has assessed your application as successful, they’ll issue you with a formal letter of pre-approval. Time to go house hunting!

Don’t forget: Even though you have pre-approval, you’ll still need to add a finance clause to your contract as the lender will want to conduct their own valuation of the property (just to make sure that they’re not lending you $500k for a $300k property, etc).

Tip Two: Budget for ugly extras

As well as conveyancing fees and minor financial adjustments when you buy a home, don’t forget to factor in the significant extras:

Body Corporate fees: Apartments and residential complexes come with annual fees payable to a body corporate, a legal entity which takes care of common concerns for the whole block such as insurance, maintenance and gardening. These vary depending on the building and are a big consideration when buying.

Stamp duty: A tax imposed by the state government to be paid on top of the purchase price. Use our stamp duty calculator to see how much you can expect to pay in QLD, based on home value.

Interest rate rises: In the current climate it’s important to lock in mortgage repayments that give you some financial breathing room. Yes, lenders in Australia are legally required to ‘stress test’ your ability to pay off your loan at 2.5% above the interest rate in place when you first took it out. But just be aware that interest rates are predicted to rise further and build some slack into your buying budget. 

Tip Three: Make a killer offer

Regardless of the perceived level of interest in the property, putting an educated offer forward based on comparable sales in the area and asking for an answer within 24 hours puts you in the driver’s seat.  Agents and vendors respond positively to genuine, upfront buyers. Don’t lose a property you love by offending the vendor with a crazy low-ball offer.

If your finance is pre-approved or you’re a cash buyer - bingo! You're a very desirable prospect for the sellers and in the box seat for negotiations.

Try and keep your contract requirements to a minimum and consider letting the agent know if you’re flexible with the settlement timeframe. Ask: “What suits the vendors best?” This will go a long way to helping you get a great deal. Vendors love an uncomplicated buyer scenario and a settlement date within their optimum timeframe.

Tip Four: Be primed about of the process

Buying is a step-by-step process and none of those steps can be avoided, however keen you are to get into your new home. Presuming you are not selling at auction, here’s the process:

• You make an offer and it’s accepted.
• You and the seller sign (exchange) a sale contract setting out terms and conditions, including price and settlement date, a copy of the property title, any local planning certificates, a sewerage diagram, and any negotiated changes and inclusions.
• You’ll pay a deposit, usually around 5% of the purchase price.
• There is generally a cooling-off period of 5 days in Queensland, during which you can pull out of the sale with few, or no, repercussions.
• You’ll usually have both a ‘building and pest’ and a ‘finance’ conditional clause in the contract. These give you time to do a building and pest (B&P) report and ensure that you can get full finance approval prior to the contract going unconditional (this is where the formal pre-approval can speed things up). The B&P clause is usually 7 days and the finance clause ranges from 7 to 21 days. There may be some further negotiations during this time which should be worked through with your conveyancer/solicitor.
• Once the B&P and finance are finalised, the contract becomes unconditional. This means all clauses have been satisfied and you are legally and financially committed to the sale.
• Settlement - when you finally take ownership. This is usually around 30-45 days (sometimes longer) from the time contracts are signed and full payment must be made on this day.