Pilot's ultimate first home buyers guide - Victoria

Want to buy your first home? Find out how it's done by someone who did it many times over.

Finance comes first

How much can you afford to pay? First step is to draw up a budget. Write down all your monthly expenses. Then subtract your expenses from your monthly income. Can you do without any of the expenses? This will give you an indication of the loan repayments you can afford. Once you know how much you can spend on loan repayments each month, you're on the way! Now you'll be able to apply for a loan.

Use Pilot's handy budget template to help work it out.

How much deposit?

Generally you'll probably need around a 10-20% deposit for your purchase. All lenders have different requirements so look around and don't be afraid to ask questions. The First Home Saver Account provides a simple, tax effective way for Australians to save for their first home through a combination of Government contributions and low taxes. They act kind of like a term deposit with high interest. Visit www.homesaver.treasury.gov.au for information.

What's the best loan?

It depends on your circumstances. There's dozens of lenders to choose from, with Banks, Credit unions, Building societies and more, so there's sure to be a loan product that suits you. Shop around, lenders are competing for your business. Don't be afraid to look elsewhere for a better deal. Speak to a good mortgage broker. Ask them what loan they would recommend for your needs. If you don't know a mortgage broker, ask Pilot to refer you to their preferred broker.

Feature seeker?

Often you can get a lower interest rate if you cut out loan features like credit cards. Be careful though, you might benefit from some features like an offset account or loan portability. The general rule is, more features equals a higher interest rate.

Costs of finance

Ask your lender for the comparison rate. This is the interest rate that you'll really be paying because it takes into account the entry and ongoing loan fees. Look out for high deferred establishment fees, high entry, exit fees, ongoing monthly fees. These fees are a favourite little earner for some lenders.

Should you fix your interest rate or go variable? You might prefer to have the security of knowing your repayments are fixed for several years. Alternatively you might prefer to go with the market movements on rates if you think you'll be better off in the longer term on a variable rate.

There are useful calculators to help you work out loan repayments on finance comparison websites www.ratecity.com.au and www.infochoice.com.au

Going formal

Once you've found the best loan, you'll need formal approval. Your mortgage broker will be able to indicate whether you're likely to get approved. It's best to apply for the loan only if you've got a good chance of approval. Each time you apply for a loan, your credit report is looked at. If your report gets too many 'hits', lenders get worried. That's why you should only apply when you know your chances of approval are high. You can get a free copy of your credit report from www.dnbcreditreport.com.au or www.mycreditfile.com.au. Once you're approved, it's time to go shopping. When you're approved, it's time to go shopping for a home.

Super finance tips from Pilot

Here's what we look for in a home loan: Low comparison rates are a must. Low introductory rates are great but only when they stay low once the honeymoon period is over. Super low entry fees and no or low ongoing fees and no/minimal deferred establishment fees. We like to have a loan offset account and an option to switch to interest only repayments. Loan portability is useful so we can move our loan onto another home if we decide to sell. If you put up a higher deposit (usually 20%), you'll avoid paying thousands in lenders mortgage insurance fees.

Check out the market

Now you know what you can spend, it's time to go shopping. 9 out of 10 people start their research on the internet. There's more than a dozen Australian real estate classified websites including market leader www.realestate.com.au - it's a great place to start looking.

When you find a home you like, find out what other homes have sold for nearby. Remember to compare 'apples with apples' when you are considering a home's likely value. Ask your estate agent for examples of recent sales. If they won't provide examples, look out because they might be selling an overpriced home.

Make an offer

Once you've decided on a home, you can make an offer to buy it. Always make an offer in writing accompanied by an initial deposit (we suggest $1000). What's a reasonable offer? As you've done the research, you'll have a good idea of price. You'll also have to agree on the terms of sale. This is the time until settlement and any special conditions that you and the vendor must have. A settlement is commonly 45-90 days while conditions often include a finance clause and inspections by building professionals.

The sale documentation

You might want your solicitor to review the sale contract, especially if it's not a Real Estate Institute Of Victoria standard form. When the you and the seller have agreed on a price and terms, you both sign the sale documents and hand them to each other. This is called 'Exchange'. You'll then usually pay the balance of 10% deposit within 5-10 days.

If you've bought at an auction (which we don't not recommend if you are a first home buyer), you may be required to pay a 10% deposit once the property is declared sold.

Inspections by professionals

Don't get caught with a lemon. For your peace of mind you can make your purchase contract subject to inspections by professionals. A pest inspection will round up any little creepy crawlies that might cause you problems. Building inspectors will look for defective building work and structural problems.

Cool your heels

The cooling off period lasts for 3 business days from the day of signing the sale contract. You can end the contract during this time if you give the seller or their agent written notice. You are entitled to a refund of all money you have paid except for $100 or 0.2% of the purchase price (whichever is more). The cooling off period does not apply in some circumstances, for example if you bought the property at auction.

Insure it

The seller carries the risk of loss or damage to the property until settlement. We think it's important to arrange building and contents insurance right away. Contact your insurance company for information.

Settle petal

Settlement is when the transfer of the property title goes from the seller into the buyers name. It is carried out by your solicitor or conveyancer. On the day of settlement you can arrange to look at the property to make sure everything is in place. When you've been notified that settlement has taken place, you can give the agent a call to pick up the keys!

Government grants

You may be eligible for a substantial grant from the Australian government if you haven't owned a property before. You solicitor/conveyancer will be able to arrange receipt of the grants for you. Read more on the First Home Owner website www.firsthome.gov.au

Costs of buying a home

General estimate only. Based on a purchase of a brand new home at $500,000 with a $50,000 deposit to be used as principal place of residence (PPOR) as at 7 April 2011.

The purchase price	$500,000
Government costs
Stamp duty on the purchase price	$21,970	A one-off State Government fee/tax
Stamp duty on the mortgage	$0	A one-off State Government fee/tax
Registration of mortgage	$10	A fee from Victorian Land Titles office to register the mortgage
Registration of transfer	$1,352	A fee from the State Government to transfer the ownership of title into your name
Finance costs
Mortgage	$450,000	The amount you are borrowing to fund the purchase
Loan establishment fees	$500	Some lenders charge a one off fee for setting up your home loan. Often rolled into the loan amount.
Settlement fee	$130	The lender usually charges a fee to attend the settlement
Security guarantor fee>	$220	Payable if your parents guarantee your home loan obligations
Lenders mortgage insurance	$6,200	Usually payable if you borrow more than 80% of the property value. Generally around 1.4% of the loan amout.
Other costs
Solicitor/Conveyancing	$900	Varies so shop around for a good deal. Make sure you get an all inclusive quote.
Building inspection	$350	To check the building out and make sure it's not a lemon
Pest inspection	$350	To find out if there are any nasties lurking
Removalist	$500	Often you can get an hourly rate if the move distance isn't far

What you would receive from the State Government in our example purchase.

First Home Owners Grant
First home owners grant	$7,000	For first home purchasers where the home is to be used as the PPOR
First home bonus	$13,000	Available only for new home purchases under $600,000

Ongoing home ownership costs
Council rates	$1200 /year	Payable to the local government
Utilities (electricity, water, gas, telephone, internet)	varies	Obtain a quote from various suppliers Ask Pilot for a referral to a free utilities connection service.
Insurance home & contents	varies	Obtain a quote Ask Pilot for a free referral to an insurer.
Owners corporation levies	varies	These are sometimes called Strata Levies. They are a legal requirement of unit / apartment / townhouse properties. It covers day to day running expenses, future capital works and various statutory insurances.
Land tax	$335 /year	based on $280,000 land value

Disclaimer: none of the Pilot ultimate first home owners guide constitutes financial, investment or other advice and should not be taken as such. It is a general informative guide only. Individuals should always seek financial, investment or other advice from professionals tailored for their circumstances.