How to Buy a House in Australia: A First-Timer’s Step-by-Step Guide
Did you know that 60% of first-time homebuyers find the home buying process in Australia overwhelming and confusing?
The Australian property market can be particularly daunting if you’ve never navigated it before. From saving that seemingly impossible deposit to understanding the maze of mortgage options, the journey to homeownership is filled with unfamiliar terminology and complex decisions.
However, with the right information and a clear roadmap, you can confidently take that exciting step toward owning your first home. After all, approximately 30% of Australian homebuyers are first-timers just like you!
This comprehensive guide breaks down the entire process into manageable steps, starting with saving for your deposit all the way through to settlement day. Whether you’re just beginning to save or ready to attend inspections, we’ve got you covered with practical advice tailored specifically for the Australian market.
Let’s turn that dream of homeownership into reality by understanding exactly what you need to do, when you need to do it, and how to avoid the common pitfalls along the way.
Step 1: Save for a House Deposit
The foundation of your home-buying journey begins with accumulating enough money for a deposit. Many first-home buyers find this step challenging yet achievable with proper planning and discipline.
Step 1: Save for a House Deposit
Saving for a house deposit requires determination and strategic planning. The amount you’ll need depends on property prices in your desired location and your financial circumstances.
Set a realistic savings goal
Starting your savings journey requires establishing a clear target. A deposit of 20% of the property’s value is generally considered ideal [1]. This percentage minimizes your loan amount and reduces monthly repayments. For example, for a property worth AUD 764,495, a 20% deposit would be AUD 152,899 [1].
To make your savings goal more achievable, create a SMART goal—Specific, Measurable, Achievable, Realistic, and Timely [2]. This approach helps you stay focused and motivated throughout your savings journey.
Once you’ve determined your target amount, establish a timeframe. Calculate how much you need to save monthly to reach your goal within that period. This calculation will guide your budget planning and help you track progress.
Use budgeting tools to track progress
Effective budgeting forms the backbone of any successful savings plan. Start by analyzing your income and expenses to identify areas where you can cut back. Create a budget that allows you to save consistently without drastically affecting your lifestyle [3].
Take advantage of digital tools to simplify the process:
- Online budget planners from financial institutions
- Expense calculators to understand spending patterns
- Automated savings transfers to enforce discipline
Setting up automatic transfers to a dedicated savings account immediately after receiving your pay is particularly effective [4]. This “set and forget” approach ensures consistency and removes the temptation to spend the money elsewhere.
Additionally, consider opening a high-interest savings account specifically for your house deposit. Some banks offer accounts without setup or ongoing fees, allowing you to maximize your savings potential [5].
Understand how much deposit you need
While 20% is ideal, many lenders accept smaller deposits—sometimes as low as 5% [1]. However, borrowing more than 80% of the property value typically incurs Lenders Mortgage Insurance (LMI), which protects the lender if you default on your loan [4].
The average LMI fee is approximately AUD 9,480 [4], but it can be significantly higher depending on your loan-to-value ratio (LVR). Your LVR is calculated by dividing your loan amount by the property’s value, expressed as a percentage. For instance, borrowing AUD 611,596 for a property worth AUD 764,495 results in an 80% LVR [1].
Furthermore, remember to factor in additional costs beyond the deposit:
- Stamp duty
- Legal and conveyancing fees
- Building and pest inspections
- Moving expenses
- Home insurance
Consequently, your total savings goal should include your deposit plus these associated costs to avoid financial strain during the purchase process [4].
By setting realistic savings goals, utilizing budgeting tools, and understanding deposit requirements, you’ll build a solid foundation for your home-buying journey in Australia.
Step 2: Know What You Can Afford
Once you’ve accumulated savings for a deposit, the next crucial step is determining exactly how much you can afford to borrow. This financial reality check prevents disappointment and ensures you shop within your price range.
Step 2: Know What You Can Afford
Calculate your borrowing power
Borrowing power (or borrowing capacity) refers to the estimated amount a lender may allow you to borrow, calculated primarily as your net income minus your expenses. Your expenses include daily living costs, bills, and existing financial commitments like credit cards or personal loans [6].
Most lenders use a serviceability assessment rate at least 3 percentage points higher than the current interest rate when calculating your maximum loan size [7]. This buffer exists to ensure you can still make repayments if interest rates increase.
Online borrowing power calculators from financial institutions can provide estimates, though these are guides only. They make assumptions about your circumstances and may not consider your complete financial position [8]. Key factors affecting your estimate include:
- Your income and tax obligations
- Number of dependents
- Existing loan repayments
- Credit card limits (even unused ones)
- Regular expenses and financial commitments
Notably, most home buyers don’t take out the maximum possible loan size. Banks report that only around 10% of borrowers take loans close to their maximum capacity [7].
Check your credit score and report
Your credit score significantly impacts your home loan options. This numerical representation of your creditworthiness is based on your credit history – including repayment records, defaults, and loan enquiries [9].
You can obtain a free copy of your credit report once yearly from major credit reporting agencies like Equifax, Experian, or Illion [9]. Reviewing your report regularly ensures all information is accurate, as errors can affect your borrowing prospects.
A high credit score typically results in more favorable home loan options with lower interest rates. Conversely, an average credit rating may mean fewer options and potentially higher rates, while a low rating could prevent approval altogether [9].
When reviewing your credit report, look specifically for:
- Incorrect personal information
- Inaccurate debt amounts
- Incorrect defaults
- Debts created in error
Remember that defaults (overdue payments valued over AUD 229.35 for 60+ days) remain on your report for five years [9].
Factor in interest rate changes
Interest rate increases have a substantial impact on borrowing capacity. Since May 2022, the 225 basis point increase in the cash rate has reduced borrowers’ maximum loan size by approximately 20% [7].
Moreover, higher rates affect not just your borrowing power but also your actual repayments. A 225 basis point increase in mortgage rates means monthly payments on a new 25-year principal and interest loan will be about 25% larger [7].
For first-time buyers, rising rates create significant challenges. During periods of lower rates, buyers could qualify for larger loans and bid higher for properties. As rates rise, qualifying income requirements increase, potentially pricing many first-time buyers out of the market, especially in major cities [10].
Interest rates directly influence mortgage rates and property affordability. Higher rates mean increased borrowing costs and higher mortgage repayments, potentially reducing the pool of potential buyers [11]. This demonstrates why considering potential rate increases is essential when determining what you can truly afford.
Understanding your realistic borrowing power, checking your credit status, and factoring in potential rate changes provides a solid foundation for your property search, ensuring you pursue homes within your financial reach.
Step 3: Get the Right Home Loan
Selecting the right home loan stands as a critical decision that can impact your financial future for decades. With numerous options available, understanding the key differences helps you make an informed choice.
Step 3: Get the Right Home Loan
Compare fixed vs variable rates
Fixed and variable interest rates represent the two primary home loan options, each offering distinct advantages depending on your circumstances.
Fixed rate home loans lock in your interest rate for a set period—typically between one and five years—providing certainty in your repayments [12]. This stability allows you to plan your budget with confidence, knowing exactly what you’ll pay throughout the fixed term [1].
Nevertheless, fixed loans come with limitations:
- Restricted additional repayments (often capped around AUD 15,000 per year) [12]
- No ability to redraw funds during the fixed period [12]
- Potential early repayment adjustments if you pay off the loan early [12]
- No benefit from interest rate decreases [12]
In contrast, variable rate home loans offer greater flexibility as rates fluctuate with market conditions. These loans typically feature:
- Unlimited additional repayments [12]
- Redraw facilities on extra payments made [12]
- Potential savings when interest rates fall [12]
The main drawback occurs when interest rates rise, potentially increasing your repayments and making budgeting more challenging [1].
For those unable to decide, split loans provide a middle ground—allocating a portion to a fixed rate and the remainder to a variable rate [13]. This approach offers both repayment certainty and flexibility to make extra payments on the variable portion [1].
Use a mortgage broker if needed
According to a study by lenders’ mortgage insurance provider Helia, 56% of first home buyers engage mortgage brokers to navigate the loan process [14]. The primary motivations include accessing better deals (45%), ease of application (41%), reduced stress (39%), and expertise (36%) [14].
Mortgage brokers serve as intermediaries between you and potential lenders, helping to:
- Compare options across multiple financial institutions [15]
- Explain how different loans work and their associated costs [15]
- Manage paperwork and guide you through to settlement [14]
Most brokers receive payment through lender commissions rather than charging you directly [15]. Therefore, their services often come at no additional cost to borrowers.
Get pre-approval from a lender
Pre-approval (sometimes called conditional approval) indicates a lender has agreed in principle to extend you credit up to a certain amount [5]. This critical step provides numerous benefits:
- Establishes a clear budget for your property search [5]
- Positions you as a serious buyer when making offers [5]
- Allows for more focused and confident house hunting [16]
Pre-approval typically remains valid for 90 days [5]. Thus, timing your application is crucial—apply too early, and you may need to repeat the process, potentially affecting your credit score through multiple applications [5].
The pre-approval process involves providing financial documentation such as income statements, bank records, and details of existing debts [5]. Lenders will conduct a credit check to assess your financial reliability [5].
Remember that pre-approval isn’t a guarantee of final loan approval [17]. The lender will still need to assess the property you intend to purchase before granting unconditional approval [16].
Step 4: Find the Right Property
Finding your ideal property marks a pivotal stage in your home buying journey. With numerous options available, a methodical approach ensures you find a home that meets both your needs and budget.
Step 4: Find the Right Property
List your must-haves and nice-to-haves
Initially, create a comprehensive checklist dividing features into essential requirements versus preferences. Include specific details about:
- Number of bedrooms and bathrooms
- Parking requirements
- Minimum land size
- Kitchen features
- North-facing aspect (if desired)
- Location relative to work, schools, and amenities
This approach helps you stay focused during property searches and makes it easier to compare options objectively. Set up alerts on real estate websites to be notified when properties matching your criteria come on the market.
Research suburbs and property types
Understanding different property options is essential. Large detached houses in outer suburbs typically offer more space and bedrooms but may involve longer commutes. Alternatively, townhouses and apartments closer to urban centers provide better access to amenities albeit with less space.
When evaluating locations, presently consider:
- Transportation options and commute times
- School quality if relevant
- Local amenities like parks and shopping centers
- Future development plans affecting the neighborhood
- Community atmosphere
Undoubtedly, visiting potential suburbs at different times helps gage noise levels, traffic patterns, and overall lifestyle fit.
Attend inspections and ask questions
During inspections, look beyond cosmetic features. Check for structural issues such as:
- Signs of dampness or mold
- Cracking in walls or foundations
- Working plumbing and electrical systems
- Roof condition and guttering
- Window and door functionality
Bring someone along for an unbiased second opinion. Furthermore, question agents about:
- Why the owners are selling
- How long the property has been listed
- Recent renovations or modifications
- Building and pest inspection reports
- Property orientation and natural light
Consider revisiting promising properties at different times to assess noise levels and natural light throughout the day.
Step 5: Make the Purchase and Settle
The final phase of your home-buying journey involves making an offer and completing the settlement process. This stage requires careful attention to detail and understanding of legal obligations.
Understand auctions vs private sales
Auctions and private sales represent the two primary methods for purchasing property in Australia. Fundamentally, auctions create competition among buyers, potentially driving prices upward through emotional bidding [4]. The highest bidder commits to purchasing without a cooling-off period, offering sellers greater certainty [18].
Private sales, alternatively, involve listing a property with an asking price where buyers make offers directly to the agent [19]. This approach allows sellers to review options at their own pace and gives buyers more time to consider their decision [19]. Private sales often include a cooling-off period, providing buyers with additional protection [20].
Review the contract of sale
The contract of sale is a legally binding document detailing all aspects of the property transfer. Essential components include:
- Names and addresses of both parties
- Property details and purchase price
- Deposit amount and settlement date
- Inclusions/exclusions (fixtures, fittings, appliances)
- Special conditions and restrictions [21]
In most states, exchange of contracts represents a critical point after which both parties are legally bound to proceed [22]. First, always have a conveyancer or solicitor review this document before signing.
Organize building and pest inspections
Building inspections identify structural issues like rising damp, wall movement, or roofing problems [23]. Meanwhile, pest inspections detect evidence of termite damage or other infestations [23].
Essentially, these inspections serve as insurance against hidden problems, potentially saving thousands in future repair costs [3]. Schedule them before exchanging contracts or during the cooling-off period to maintain your ability to negotiate or withdraw if significant issues arise [3].
Pay stamp duty and other fees
Stamp duty varies significantly across Australian states and territories. Many jurisdictions offer concessions for first-home buyers:
- NSW: No stamp duty on homes up to AUD 993,843.65 [2]
- Victoria: No stamp duty on properties below AUD 917,394.14 [2]
- Queensland: No stamp duty on first homes under AUD 764,495.12 [2]
Additional costs include legal fees (AUD 1,070-AUD 3,822), insurance, and inspection costs [24].
Get home insurance before settlement
Home insurance requirements vary by location. In ACT, South Australia, and Tasmania, buyers typically become responsible for property damage after exchanging contracts [25]. Whereas in Victoria and NSW, responsibility transfers on settlement day [26].
Following settlement, organize key handover and begin your journey as a homeowner.
Conclusion
Buying your first home in Australia certainly represents a significant milestone filled with both excitement and challenges. The journey from saving your deposit to receiving the keys requires careful planning, research, and patience. Undoubtedly, understanding each step of the process empowers you to make informed decisions rather than feeling overwhelmed.
Financial preparation forms the foundation of successful home buying. Starting with a realistic savings plan allows you to accumulate that crucial deposit while simultaneously establishing good financial habits. Additionally, knowing your borrowing capacity before house hunting prevents disappointment and keeps your search focused on attainable properties.
Selecting the right home loan deserves thorough consideration since this decision affects your finances for years to come. Whether you choose fixed rates for certainty or variable rates for flexibility depends entirely on your personal circumstances and financial goals. Mortgage brokers can prove invaluable during this stage, especially for first-time buyers navigating unfamiliar territory.
Property selection remains perhaps the most exciting yet challenging aspect of the journey. Creating clear lists of must-haves versus nice-to-haves helps maintain objectivity during inspections. Remember that location and property type significantly impact not just your lifestyle but also your investment’s long-term potential.
The final stages of making an offer and completing settlement require careful attention to detail. Building and pest inspections protect you from costly surprises, while professional legal advice ensures your interests remain protected throughout the contract process.
Though the Australian property market presents unique challenges for first-time buyers, proper preparation and realistic expectations make homeownership achievable. Take each step one at a time, seek professional guidance when needed, and balance emotional desires with practical considerations. Your path to homeownership might seem daunting now, but with this roadmap in hand, you’re well-equipped to turn your property dreams into reality.
References
[1] – https://moneysmart.gov.au/home-loans/choosing-a-home-loan
[2] – https://www.realestate.com.au/home-loans/guides/do-first-home-buyers-pay-stamp-duty
[3] – https://www.nab.com.au/personal/life-moments/home-property/buy-first-home/building-inspection
[4] – https://www.commbank.com.au/articles/property/selling-by-auction-vs-private-treaty.html
[5] – https://www.nab.com.au/personal/life-moments/home-property/buy-first-home/pre-approval
[6] – https://www.anz.com.au/personal/home-loans/calculators-tools/borrowing-power-calculator/
[7] – https://www.rba.gov.au/speeches/2022/sp-so-2022-09-19.html
[8] – https://www.nab.com.au/personal/home-loans/calculators/borrowing-calculator
[9] – https://www.qantasmoney.com/home-loans/guide/how-credit-scores-affect-your-home-loan-application
[10] – https://empire8property.com.au/higher-rates-impact-housing-affordability/
[11] – https://investmentaus.vemvisa.com/en/impact-of-interest-rate-changes-on-australias-real-estate-market/
[12] – https://www.commbank.com.au/brighter/home-loans/fixed-versus-variable-rate-home-loans.html
[13] – https://www.macquarie.com.au/home-loans/the-pros-and-cons-of-fixed-versus-variable-rates.html
[14] – https://www.money.com.au/home-loans/first-home-buyer
[15] – https://moneysmart.gov.au/home-loans/using-a-mortgage-broker
[16] – https://www.anz.com.au/personal/home-loans/get-started/pre-approval/
[17] – https://www.westpac.com.au/personal-banking/home-loans/first-home/home-loan-pre-approval/
[18] – https://www.realestate.com.au/advice/auction-vs-private-sale-which-is-right-for-you/
[19] – https://www.openagent.com.au/blog/auction-vs-private-sale-which-is-better
[20] – https://www.vendoradvocatemelb.com.au/private-sale-vs-public-auction-which-is-best/
[21] – https://victorianstatewide.com.au/blog/understanding-contract-of-sale-in-victoria/
[22] – https://www.fairtrading.nsw.gov.au/housing-and-property/property-professionals/working-as-a-property-agent/sales-contracts
[23] – https://www.fairtrading.nsw.gov.au/housing-and-property/buying-and-selling-property/buying-a-property/property-inspections
[24] – https://www.nab.com.au/personal/life-moments/home-property/buy-first-home/costs
[25] – https://www.gio.com.au/know-more/insuring-your-home/home-insurance-before-settlement.html
[26] – https://www.westpac.com.au/personal-banking/insurance/home-insurance/home-insurance-before-settlement/
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