The easy guide to buying your first house.

By Alex Brooks

There are serious incentives to snap up your own four walls and snare your first house, and not just becayse you want to start nailing in those picture hooks the landlord never allowed.

A calm head and solid market research may mean a first home buyer can buy a property with mortgage payments similar to rent. With interest rates falling by more than 4.25 per cent since September 2008 – slashing $800 a month from a $300,000 mortgage – and grants and stamp duty concessions shaving tens of thousands of dollars in purchase costs, why wouldn't you leap in now?

St George General Manager of Retail Banking Andrew Moore says lower interest rates boost first home buyers’ borrowing power, even though lenders are tightening lending criteria and asking for five or ten per cent deposits.

Real estate advocate Neil Jenman says it might take keen property hunting, but if a first home owner can snap up a $360,000 property, they are better off than paying $450 a week in rent.

1. HOW MUCH CAN YOU SPEND?

RP Data’s Tim Lawless says the old rule of thumb about borrowing around three times your annual income is a good place to start when setting your home loan budget.

“For most people, the reality of what they can afford won’t necessarily be what they want,” he says. “But first home buyers need to be able to crawl before they can walk and really have to stick with what they can afford.”

Former real estate agent and author Neil Jenman suggests couples use only one partner’s income to pay the mortgage and ideally try to make extra mortgage repayments that are 4 per cent higher than those charged by lenders today.

“The bonus of paying the mortgage at 4 per cent higher is that you will pay your loan back in half the time if rates stay the same,” he says.

1. LIFESTYLE VERSUS LOCATION

Most first home buyers have to compromise on location, simply because of affordability.

“Some are more willing to forego more of their income in mortgage payments to have the lifestyle they want in a better location,” Lawless says.

It helps to shortlist at least three to five locations and start following the market closely (see step 4) in those suburbs to get a good handle on prices and value.

1. APARTMENT OR A HOUSE

Should you buy an apartment or a house? Apartments can come with hefty quarterly strata fees, but are easier to look after than a house.

“Historically, houses have appreciated faster than apartments, because of their intrinsic land value, but I think we are coming to a time where a strategically located apartment will appreciate at a similar rate to a house further out,” says Lawless.

Cornish says selecting apartments that offer some sort of unique qualities such as size, character or good location can guarantee better long term capital returns than cheaper, generic apartments in large blocks.

1. DO THE RESEARCH

 “The real grunt work of research only begins when you’ve narrowed down your choices to certain locations,” Lawless says.

SQM Research property analyst Louis Christopher says a cheap research method is to do a weekly online check for properties in their price range and keep a detailed list.

He suggests recording the asking prices (you can phone the agent and ask for a price guide if it isn’t published) and how long it takes properties to sell. When they sell quickly, it is a sign prices could rise, but properties that take longer to sell could be asking too much.

Take note of the features of each property – the size, land size, condition, how many bedrooms and whether carparking is available.

You must also keep tabs on what the properties sell for, which are published in Sunday newspapers or can be bought through data agencies like Australian Property Monitors. You can phone agents to check on the selling price of properties.

1. FOLLOW IT UP WITH LEGWORK

It’s important to attend as many open inspections as possible for properties in your price range.

You are able to compare features accurately and make more detailed notes for research.

This might sound like a lot of work for nothing, but these notes will become your negotiating tool and could help you save five per cent or more when it comes to negotiating price – see Step 9.

1. GETTING THE FINANCE RIGHT

Banks and lenders are clamping down on first home buyers that rely solely on the government grants to provide a deposit for a property. They have been swamped with applications and now want genuine evidence of savings and proof of income.

RESI head of consumer advocacy Lisa Montgomery says first home buyers can prevent financing delays by being organised and presenting lenders with originals and JP-signed photocopies of letters, bank statements and payslips to verify their income claims.

7. LEGALS IN PLACE

Legal fees vary widely in cost, but a good property lawyer can save thousands by making sure you have the right titles and fully understand any conditions like easements or heritage listings that affect the property.

A good lawyer will also put pressure on lenders to ensure financing is in order and won’t delay settlement, as well as oversee first home buyer grants and stamp duty exemptions.

You can find a lawyer through recommendations from friends and family who have bought property, or use a conveyancing firm. All lawyers should give you a schedule of costs in advance of doing any work for you so you understand the fees and charges involved, which can be thousands of dollars.

It helps to have a lawyer organised before you find the property you wish to buy, as you want to be able to exchange contracts swiftly and quickly to secure your home.

1. BINGO: FINDING THE RIGHT HOME

After researching and attending at least five to 10 open inspections, it makes it easier to know you’ve found the right first home.

Well-prepared first home buyers “know” the property is right – it ticks most of the boxes and they can see the value equation stacks up.

Buyers who haven’t done the research risk buying on emotion or to suit an imposed deadline, and could pay over the odds for a property.

1. NEGOTIATING PRICE

Finding the right home means forking out money – particularly for a building and pest inspection and a strata report (for apartments). Along with your detailed property research, the inspection notes become your price negotiating tools.

Real estate agents are highly skilled negotiators and love nothing more than insisting first home buyers pay full price for a property.

If you can successfully argue reasons to discount the asking price of a home – because you have good research detailing other recent sales – the agent is much more likely to accept a discount on price.

A building report could uncover flaws that the agent hasn’t taken into account in the asking price, or the agent and seller might be asking a similar price as renovated properties when the bathroom in your property of choice was built back when Noah was a boy.

A five to 10 per cent discount on asking price is not unheard of for a property that has been on the market for a few months and has building flaws.

When the market is heated – as many real estate agents are reporting right now – it is harder to negotiate a discounted price.

If a property is fresh to the market, and meets your criteria and you are happy with the price, it is worth getting your deposit cheque and signed offer to the agent as quickly as possible to beat other buyers. Just beware that you aren’t paying too much.

10. GETTING THE KEYS

Exchanging contracts is an exciting day for first home buyers. But the party doesn’t really begin until settlement, which is usually six weeks from exchange.

Most first home buyers are unaware of the toing and froing that happens during the legal phase of home purchase – queries from buyers or sellers and financing delays can happen, especially if the bank’s valuation doesn’t match the selling price.

Before settlement day, organise a final inspection of the property to make sure it is in order and then insist the agent gives you the keys to your new house as close as possible to settlement time. Move in. Break out the champagne.