2020-01-29 Clint Howen

The First Home Buyer Guide 2020


Full Video

Clint here from Hero Broker. What I want to do is just make a quick video around things that you should know or need to know being a first home buyer and just things that would make it the process a lot easier for you to be able to go from thinking of buying a house to actually buying a house. So if this is something that you might be interested in, then stick around.

Step #1 | Define what you want

All right, so step number one, the biggest thing that you can do to make this process so much easier is to really identify what you want and what you’re looking for. So the best analogy that I like to use is when I go to the shops, I’m going to the shops because there’s something I know that’s there that I’m looking for. I’m in there, I’m getting that item and I’m getting out. I’m not hanging around looking for anything else. I’m going there with the mains.

Girlfriend on the other hand, this is a touchy subject, but girlfriend on the other hand we might go to the shops for something, then we start looking at something over here and something over there. And the same things happens when you’re looking for a house. So if you know a least what suburb you want to live in, what area, what top of house, and then your ideal amount that you want to spend, that really narrows down what you’re looking for instead of just looking at all these different properties. And I know it’s really easy to get carried away because properties look so good on realestate.com.au or any other online sites. That next minute you start looking at some mansion down on some waterfront to just stick with what you’re looking for.

And those sites have filters that you can use. But basically it really narrows down your criteria. There’s only so many open houses you can go to on a weekend. There’s only so many real estates that you can talk to and it’s best to just get that criteria and then just really focus on that. So a big question that comes into that is why you want to buy a house? Is it for investment? Is it because you’ve got a growing family? Is it because you’re still at home with mum and dad and you want to buy your own place? Why is it moving out? Where is it and what is it that you want? Define that. And it makes it so much easier to find a place.

Step #2 | Calculate If you can afford what you want

The next thing is once you’ve figured out what you want to buy or roughly where you want to buy as well is to figure out if you’re going to afford it, if your borrowing capacity meets your expectations of what you want.

So there’s a couple of really simple borrowing capacity calculators that you can jump on our site and use. And basically rule of thumb is times your income by five. So if you earn 50 grand a year, then typically it’s around 250 grand that you can be lent. But the one thing where a lot of people get caught out on with borrowing capacity is great, I can afford this house, it’s in this location, all matches out, fine. But then it’s the deposit. So the next thing need to work out is your deposit. How much deposit can you get together? So you can either borrow money from mum and dad, which I think it’s considered Australia’s sixth largest bank or something stupid like that, like the $64 billion worth of money in the mum and dad bank in Australia.

But basically you can use a parent as the guarantor, you can have some of their equity out of their property to go towards your deposit or they can lend you money and borrow you money. But as long as you just declare that and put it into the application where it came from, and you can normally do a stat deck if it’s a gift, just say it’s a gift. But basically that’s what you need to work out now. Because the rule of thumb is that you need at least 10% deposit to be able to get approved for a loan. So some banks will lend you up to 95%. So just making sure you’ve got that deposit, they’re ready to go.

One thing to remember with having a 10% deposit is that you’re going to have to pay lenders mortgage insurance. So lenders mortgage insurance is actually for the lender, it’s not for yourself. So that’s the bank basically is saying, look, there’s still a bit of risk here because you don’t have the 20% deposit or in some cases even a 30% deposit for some units or rural properties. But basically that’s a large fee that you’re going to have to pay. But you can sometimes bridge that with a personal loan and it can work out cheaper. But that’s a huge thing to remember with a 10% deposit. Or even if you’ve got a five 5% deposit, yes there’s lenders that will lend you money, but it does get a lot more expensive.

Step #3 | Make sure you allow for fee’s

So the other thing you need to work out is along with that is the fees that come with it. So there’s a lot of other little fees that happen on the transaction, which a lot of people don’t see. And there’s application fees, there’s government fees, there’s title search fees, there’s all these solicitor fees that come into it, but roughly you kind of looking at it around two grand that all these fees come into. And it depends on how much the bank will actually cover themselves on a particular loan product.

But the biggest thing is stamp duty. So you really need to work out how much stamp duty is going to be on your property. It’s quite expensive and there’s a bunch of calculators you can use to work that out as well. If you’re a first home buyer, different States give you a concession on new stamp duty or they’ll give you a big reduction or they might put $10,000 towards it or whatever it is. But this is something that some banks might help you cover the cost of stamp duty, but it is a huge chunk that it needs to account for. So if all those things line up, basically you’ve narrowed down roughly where you want to buy. You’ve got a preapproval. Basically, this is the part I’m getting through now. You’ve worked out that you think you’ve got enough deposit, you’ve used all the calculators. Now the next thing is you need to get a preapproval.

Step #4 | Getting your pre approval and full approvals

Now, pre approval it’s a really simple process and it’s something that you do when you’re doing an application on our site. If you do that application on our site, it doesn’t affect your credit score, it just goes to our team so we can look at it and say thumbs up, looks good and that means our banks looked at your application, looked at all the details and from their point of view they’ve also given it thumbs up and said, yep, for this house in this location, with this deposit, with this income, this is what we’ll get you approved for. So the one thing you need to realise with a pre approval is that’s not all it is. It’s just a simple. Have a look at your details. It’s not the the same as a full conditional approval because think about it.

I can put down on a pre approval that I’m earning $500,000 a year and the bank will look at it and go, yeah, that’s great, but now you need to show that you actually earned that half a million dollars a year and this is where it gets to a conditional approval. So pre approval looks good, so you can have a bit more confidence when you’re out there looking for houses. Now the conditional approval process normally happens when it comes to, okay, you’ve identified a house, you go this is the house that we’re looking to buy and this is where… Or maybe even this is a place that we’re looking to buy at auction and this is where you start getting involved with the bank and they’ll start doing valuations on their end to make sure that you have conference going in and put an offer on that place. And then the conditional approval process and the settlement process is basically after all that’s happened, the banks will come in and say, now we’re going to send someone in there, do evaluation.

We’re actually going to talk to the current owners. We’re going to get the solicitors involved, we’re going to get you properly approved, get you a contract ready to sign. So a lot of that really happens in the background. You’ll have people like us basically asking you for documents because the banks will be coming to us and saying, hey, we need to verify their payslips. We’ve got a question about this thing on their bank statement, which I’ll get into a whole nother, a bunch of videos talking about all that sort of stuff as well. But basically that’s what they’ll do. They’ll just be, we’ll be coming to you asking you a whole bunch of questions that will be getting a whole bunch of stuff together and basically they’ll stamp it, get approved and then that’s when you’ll get a set settlement date in time as well where everyone’s agreed that’s going to be a transfer title over and then that’s when you get the keys.

So if you basically go along that timeline, like I said, it should help you out and make it so much easier. First, know what you want, know what you’re looking for. Second, can you afford what you want? Do you need to go back, loop back to number one and maybe readjust. Third, if that all looks good, get a preapproval. Just get a simple preapproval from a bank, you can come through us and just get a second opinion from an actual finance expert or a bank saying, yes, it looks good on our end.

And then the third point is basically to go out and start looking at houses and start talking about maybe making an offer on a house. And that’s where you can engage back with the bank or back with the broker to basically say, hey, I’m looking at this house. Can we have someone from the bank actually look at it and confirm that they think it’s a good deal as well? And then the full parties basically just make the offer and it’s done.

Don’t forget you can always give us a call on 02 8116 1065 or summit your online application on our site.