Buying your first home is both an exciting and daunting time, particularly if you are not exactly sure how to get started. To help you confidently navigate the process of buying your first home off-the-plan, we have compiled this guide that outlines the key milestones of the property buying journey.
Why off-the-plan is a great option for first home buyers
Thanks to record low interest rates and improved lending conditions, now has proven to be an extremely good time to buy.
Getting together enough money to afford an established home in sought-after areas is becoming increasingly difficult for Australians in the current housing market. The median price of an off-the-plan apartment, townhouse or house and land package is often significantly lower than pre-existing houses, meaning there are many financial differences to buying off-the-plan.
In addition to lower prices, buying off-the-plan allows purchasers to put down a reduced deposit – sometimes as low as 5 percent – and have the entire build-time to secure the rest of the cost. This is perfect within the current climate, as buyers can enter a contract of sale and secure a home, and not have to put down a substantial amount of money until the economy is in a more stable position.
Know your budget
The first step towards home ownership is research, and in order to effectively search for properties you can potentially purchase, it’s vital that you understand your finances.
In order to be pre-approved for a home loan by a lender (which is usually a bank), you need to demonstrate a level of savings (your deposit) and proof that you can comfortably make the monthly repayments (your income). The Commonwealth Government has a number of incentives and schemes to help first home buyers achieve home ownership, but you will still often need to demonstrate a level of savings and ability to repay your loan.
In the case of off-the-plan, many developers allow buyers to secure a home with as little as a 5 percent or 10 percent deposit (whereas lenders usually require a 20 percent deposit to grant you a loan without costly mortgage insurance attached to the loan). If you purchase off-the-plan before construction of the development has commenced, it often means you have over a year to be approved for a loan from a lender in order to pay the full sale price upon completion of the development – much longer than standard settlements, which usually take place over 30, 90 or 120 days.
It is wise to speak to a financial or property professional at the very beginning of the purchasing process – like a mortgage broker – as they will be able to give you a clear idea of how much money you will likely be approved for and able to spend on your home. You can also go directly to a lender to have this conversation, who will calculate a maximum loan amount they would be prepared to offer you based on your savings, income, savings, expenses, assets and credit history.
It’s often a great idea to have this discussion with multiple lenders and/or mortgage brokers, as they will usually be offering slightly different options, which you can weigh up in order to make an educated decision.
Having these discussions with financial professionals will help you prepare a plan and ensure you understand exactly what you’re committing to. It’s vital that you fully understand the financial risks and responsibilities attributed to your loan amount. Would you be able to cover the mortgage if you were to lose your job, or if there was an increase in interest rates? Break down your current household expenses – including bills, groceries, entertainment and socialising, any subscriptions and direct debits – and make sure you can confidently afford your mortgage. Most mortgage brokers and lenders will assess this for you by looking through your bank statements prior to approving your loan, but it is important that you have a firm grasp on these expenses as it will assist you greatly when saving your deposit.
Set up a budget plan and stick to it as best you can – you will be happy you did when you purchase your first home!
The Commonwealth Government and State Governments offer a number of incentives for first home buyers to help them enter the property market, including stamp duty exemptions and guaranteeing your deposit.
Every new financial year, 10,000 eligible First Home Buyers can access the government’s 5 percent deposit scheme, through which the Commonwealth Government guarantees the additional 15 percent of the required deposit – saving first home buyers from pricey mortgage insurance costs.
If you are applying on your own, then only buyers with an income of up to $125,000 are eligible, according to the government’s current plan. If you are a couple, then the limit will be a combined $200,000.
You must be purchasing a home at or under the maximum property price for each state and territory, outlined below:
If you are unable to access the 5 percent deposit scheme because you earn over the specified amounts, are purchasing a home of a higher value than the scheme allows, or miss out on one of the 10,000 slots and still want to purchase your home that financial year, there are still other State Government incentives available to first home buyers.
In Victoria, first home buyers are eligible for the First Home Buyer Duty Exemption – meaning they pay no stamp duty – if the sale price of property is $600,000 or less, and the First Home Buyer Duty Concession – meaning they may pay a reduced stamp duty amount – if the sale price is between $600,001 and $750,000.
In NSW, eligible first home buyers can access a full or partial exemption on stamp duty (or transfer duty) payment if the value of the property is $800,000 or under. If first home buyers in NSW are buying or building a brand-new home, they can receive $10,000 towards the purchase price in addition to the stamp duty exemption, if the property is purchased for $750,000 or under.
If you are buying or building a new house in Queensland, the state government will provide $15,000 towards buying or building your new house, unit or townhouse, with a maximum price of $750,000.
The Commonwealth Government has also introduced the $25,000 HomeBuilder grant, which is available to eligible first home buyers and owner-occupiers who are buying a new home or doing significant renovations to an existing home. Check out your state websites for more information on how you can apply.
Most of the above incentives are only available to first home buyers who will be occupying the property as their full-time residence, not purchasing it as an investment property to be rented out.