3 key steps to buying your first home

Buying your first property is a huge and exciting step. But planning for it starts well before you exchange contracts on your dream home. Here are the steps to take so you can open the door on your first house or apartment.

Before you talk to a bank, make sure you’ve got a handle on your financial situation. This starts with checking your credit score. This, along with your credit report, is vital information a bank will use to decide whether to lend you money. It gives the bank an indication of your past behaviour when it comes to repaying money. You can check your credit score for free at ClearScore.

Once you know what your credit score is, go online and delve into your bank statement. Work out how much you have coming in and how much is going out and see where you may be able to make some savings. Banks typically want to see potential loan customers have at least six month’s saving history. But it can take a lot longer than that to save up for a house deposit.

How much you need to save will depend on the value of the underlying property you want to buy. But banks will generally require a 20 per cent deposit, or you are likely to be charged lender’s mortgage insurance.

The exception is people who qualify for a loan under the First Home Loan Deposit Scheme. Under the program, first home owners only need to save a five per cent deposit for a home. The government guarantees the additional 15 per cent of the deposit.

To find out how long it will take you to save up your house deposit, go to the MoneySmart site and use the savings calculator to work out how much you need to save.

Once you know how much you need to save for your deposit, you can talk to a bank about how much you can afford to borrow. It will take into account how much you earn, as well as your partner’s financial situation if you are buying a property together. When you apply for a loan you’ll also need to provide a range of different documents including:

• Identification such as a passport, driver’s license or Medicare card.
• At least six months of recent pay slips or other proof of your income.
• Last year’s tax return.

The bank will also consider any government incentives to which you are entitled. For instance, if you are building a home you may be entitled to the government’s $25,000 HomeBuilder scheme. First home buyers can also add to their super fund and access this money for their deposit under the First Home Super Saver Scheme. Most states also have incentives for first home buyers, for instance, relaxed stamp duty rules, to help them get into the market. Check your state’s relevant department, usually the revenue office, to find out the rules in your state.

It’s also important to understand the different types of lenders that offer loans to first home buyers. ClearScore is a great place to start to explore different lenders, their rates and the features that come with their first home loan options.

Once a bank has assessed your financial situation, it will give you an indication of how much you can borrow given your circumstances. This is called pre-approval and means you can go house hunting with an idea of how much you can afford to borrow to buy your first home.

Once you have your loan pre-approved, it’s time to find your new home. Now you’ve done all the hard work and know how much you can spend, it’s time for the fun part. Take the time to research the areas you want to buy in so you know what represents good value.

Once you find a property you want to make an offer on, you can do this with confidence knowing your loan has been pre-approved. Happy house hunting!