One of the biggest financial investments you’ll ever make is buying a house. Take the time to do your research and follow these 10 steps to simplify the process.
1. Know your credit rating
Before applying for a loan, get a copy of your credit record. When considering your home loan application, financial lenders check your credit score for any bad credit or significant debts.
The three main credit reporting bodies in Australia are illion, Equifax and Experian and individuals can get a free copy of their credit report annually. Credit bodies may hold different information, so obtain a report from all three for a comprehensive credit overview.
If your financial position isn’t satisfactory, consider reducing or clearing outstanding debts. With store credits and credit cards, banks look at outstanding card balances as well as the available amount so try to clear and close accounts.
2. Determine your budget and affordability
Speak to your accountant, financial advisor or lending institution for a clear indication of what you can afford as there are many costs to buying a house as outlined below:
Home deposit
A home deposit of approximately 10 – 20 per cent is generally required.
Legal and conveyancing fees
Legal and conveyancing fees cover transfer of property title between owners. This includes the exchange and settlement of contracts. Costs can average between $500 to $3,000.
Stamp duty
Stamp duty (also known as transfer duty or general duty) is a tax borrowers must pay to state and territory governments. The amount is applied on the property purchase and varies according to the state lived in.
Building and pest inspection
A complete building and pest inspection can protect your investment and ensure you’re buying a property that’s structurally sound and free from pests including termites which could literally bring the walls crumbling down.
Mortgage repayments
Ensure you can afford mortgage repayments in the event of interest rates rises.
Additional costs
Additional costs can include council rates, strata fees, moving costs, utilities and insurances. Before purchasing a property, check out BMT’s cash flow analysis calculator PropCalc which looks at key suburb data, maintenance costs, rates, insurance and much more.
Finance and insurance costs
Finance and insurance costs increase if you have less than 20 per cent deposit and you may need to pay Lender’s Mortgage Insurance. This is usually a one-off, non-refundable premium paid by borrowers, either upfront or added to the home loan. Shop around for the best loan rate, look at fixed or variable preferences and always read the fine print.
3. Select an agent
Speak to local real estate agents about how the property market is performing in the area. Research similar properties, sale prices and if you are time poor, consider appointing a buyer’s agent to help find suitable properties, perform due diligence and negotiate sale prices.
4. Gain pre-approval
Get pre-approval of your loan to determine your available budget. This involves completing an application and providing lenders with your financial information so they can decide on your borrowing status and ability to service the loan.
5. Attend open homes
Now the fun begins as you decide where to live and what to buy. Consider proximity to shops, work, schools, public transport. Look at council development applications to understand the suburbs changing landscape.
Look at lifestyle when determining the location and whether you’d prefer a freestanding house in a residential area, a strata titled property, a house with acreage or one of the many other options available. Also decide what’s not negotiable.
6. Determine common issues
It’s easy to get caught up in the romance of buying a house but take time to look around. Investigate wall cracks, electrical or water issues (leaking taps, water pressure, plumbing, hot water systems).
Structural issues are costly, so check for uneven floors, roofing, doors and windows. Look at flooring under carpets and check for mould which can be extremely damaging. See if new paint is hiding issues beneath.
Also check roofs, gutters and drains and obtain a building and pest inspection to help identify issues you may not see.
7. Make an offer
Consult a licenced conveyancer and get a property valuation prior to buying a house to determine your offer. Conveyancers can request inspections and are qualified to manage legal processes during settlement and title transfer, ensuring you’re meeting all obligations and are protected.
8. Investigate insurance and utilities
Think about insurances, including home and contents, mortgage protection and building insurance if planning renovations.
If you don’t have insurance or aren’t sure if it’s adequate, contact BMT Insurance. BMT can provide a quote for house, contents and landlord insurance (if using your existing house as an investment property).
9. Keep as an investment?
If keeping your house as an investment property, organise a tax depreciation schedule to maximise the return on your investment. During the 2018/2019 financial year, BMT found residential property investors an average of almost $9,000 in first year deductions.
BMT can review your current circumstances and provide a tax depreciation schedule including a forecast of eligible claims for depreciable assets and structures.
10. Settling the property
Once an offer is made and accepted, the deposit paid and exchange of contracts occurs, it’s generally six weeks between the exchange of contracts and settlement of the property.
In this time, you’ll finalise transfer of the remaining balance to the seller, arrange insurances, pay stamp duty, receive keys and title deeds to your new house. Congratulations!
