Snaring your first home

By Alex May

Snaring a first home can seem like an out-of-reach dream given the property price boom of the last two years.

The Office of State Revenue says NSW first home buyers spent an average of $349,375 in June 2004 to snare a property, up from $295,908 in June 2003.
And while the numbers of first home buyers in the market has declined, some experts are saying the first home buyer benefits from state and federal governments have never been so good.
“A first home buyer can score up to $27,000 worth of benefits – that’s a lot of money,” says Real Estate Institute of NSW president Rowen Kelly.
The Australian Bureau of Statistics says first home buyer activity is starting to pick up, with May 2004 lending figures showing first home buyers are 14.1 per cent of all borrowers, up from 13.4 per cent in April.
But just where does a first home buyer start to navigate the maze that is buying a house? Domain has put together this 10-step guide.

#1 Deal with the dosh

Unless you are extremely lucky and have a few hundred thousand in the bank, most people will need a mortgage to buy their first property.
Kelly says calculators on the internet (such as www.yourmortgage.com.au and www.realestate.com.au), local bank managers and mortgage brokers can help people work out how much money they can borrow.
Generally, buyers can borrow two or three times their gross annual salary – but the lending criteria does vary, especially for the self-employed or people with other personal debts.
A first home buyer will also need between five per cent and 20 per cent of the purchase price as a deposit.

#2 Don’t let the dosh depress you

Residex chief executive John Edwards says it is only once a buyer has established a price range that they can begin their hunt for a property.
He suggests first home buyers who want build equity for the future think about buying an unrenovated two or three bedroom apartment in a small block in the low $200,000s price range in the outer suburbs.
“If you’re a couple, you should rent out the spare bedroom and just put up with the inconvenience while you spend your weekends doing a bit of painting or tiling and improving the property,” he says.
Then after 12 months of renovating, move out and rent somewhere cheaper while you rent out the property and gain the tax advantages.
“That will make the place pay for itself over time – it’s a way to turn your own personal exertion into capital if you don’t have mum and dad to help you out.”
Kelly suggests that buyers narrow down the locations they want to live in, and start house-hunting further afield to find a similar suburb that is more affordable.
“The fact is that it’s unlikely that you will be able to afford to buy your first home in the area that you’d really like to live in,” he says.

#3 Start the research

Edwards says the key to getting the most for your money is to research the market so the buyer knows more than the local agents and the sellers.
Kelly says buyers should look at auction and sales results published in newspapers to get a feel for recent sales prices.
“You need to know more than the agent and more than the seller so you should spend a bit of money researching the market,” Edwards says.

#4 On the hunt

Kelly says buyers should narrow their search to three or four suburbs to really get a feel for the local market.
Kylie Parker (see breakout) says the best way to house hunt is to search the internet on Friday night and narrow down the properties open for inspection on Saturday.
“If you have a list on the Friday night, you can organise to look at a fair few properties in one morning rather than drive all over Sydney just to look at two places,” she says.
“And be warned – the more you look, the fussier you get.”

#5 Bingo – it’s the one

Once you find a place you are interested in, make sure the finance is pre-approved and a solicitor is teed up to look at a contract.
“It is very hard to act quickly if you don’t have your finance organised,” Kelly says.
It is rare for properties in lower price ranges to go to auction, but if you are interested in bidding at auction then make sure a solicitor checks the contract for you before you bid.
If the property is for sale by private treaty, Kelly says it is common practice to negotiate a price before asking for a copy of the contract.
“It can take one or two weeks to negotiate a price before a contract is sent out,” he says.

#6 Negotiate, negotiate, negotiate

Edwards says first home buyers have to negotiate hard with a real estate agent, who will probably try to pressure them into a quick sale.
“Don’t be frightened to miss a property because you want to stick to a real price. In this market, another property will come along,” he says.
Edwards suggest buyers try to negotiate directly with the vendor, rather than through an agent as it is often the vendor that has an over-inflated idea of what their property is worth.
He also says to make ridiculously low offers to see what price the vendors really will consider.
“When they say no to the low price, then get them to come back with a price that they will consider,” he says.
Edwards says the price negotiations are critical to first home buyers as paying $5000 over market value for a property can add $50,000 cost over the life of a mortgage.

#7 What’s with the holding deposit?

Kelly says it is common practice for agents to ask buyers to pay a “good faith deposit”, which is not legally binding for either party.
“It is common that a potential buyer will pay a good faith deposit to stop an agent introducing more people to the property while the buyer does all their inspections and price negotiations,” he says.
“The deposit doesn’t guarantee that the property can’t be sold, but the buyer can also ask for the deposit back even if they change their mind about buying the property.”
Kelly says the deposit can be useful – especially in a slower market – to give buyers time to confirm their finance and building and pest inspections before the contract actually exchanges.
“The only way to secure a property in NSW is by paying a deposit pursuant to a contract, not by paying a good faith deposit” he says.

#8 From price to exchange

Once a price has been agreed, a buyer or seller may wish to negotiate some terms of sale in the contract.
Most contracts are standard, with basic inclusions like fixed floor coverings and blinds or curtains, a 42 day settlement period and a 10 per cent deposit.
Kelly says it is common for sellers to agree to a five per cent deposit, as long as the buyer will agree to pay a 10 per cent deposit in case of default.
“Settlements are usually six weeks, but sometimes they are four weeks or twelve weeks,” he says.
If a couple is buying a property, they might also decide whether to buy as tenants in common (each person owns an equal share) or joint tenants.

#9 Inspections and checks

Edwards says it is vital for first home buyers to do adequate pest, building and strata inspections before a contract is exchanged or a cooling off period expires.
If a buyer exchanges a contract and then pulls out of the deal within the five-day cooling off period, they are entitled to a refund of their deposit minus a 0.25 per cent fee.
“If you don’t do adequate checks, you might find yourself up for a few thousand dollars in unexpected costs which can really hurt a first home buyer,” he says.

#10 Ah, settlement

Once contracts have been exchanged, the lawyer or conveyancer does most of the work searching titles and overseeing finance until the “settlement date” when the deeds for the property are handed over the mortgagor.
While settlement periods vary, there can be some costs a buyer may have to cough up for between exchange and settlement, including:

• mortgage stamp duty
• property stamp duty
• conveyancing or legal costs (and disbursements, such as a survey)
• insurance
• adjustments to rates and levies

Kelly says it’s important for buyers to inform their solicitor if the property they are purchasing is rented out, as someone needs to officially give the tenant notice to move out.
“You’d be surprised how often that gets overlooked and then the property settles, but the tenant is still happily living there when the buyer wants to move in,” he says.
And don’t forget to do a pre-settlement inspection to check the property is in the same condition as when contracts exchanged.
Oh, and don’t organise your moving date on settlement day – there are plenty of instances of settlement being delayed by half a day or more in which case the moving van has to be sent in to unpack and come back again the next day.

Kylie Parker

Kylie Parker and her partner have been toying with the idea of buying their first home for two years – but now they are serious.
“We have been thinking about it since we moved in together, but it was only when we got a good deposit together that we started to see it was really possible,” she says.

“Once you realise that you actually can buy something and that it isn’t out of your reach, it definitely gets more serious.”
Kylie and her partner are looking to buy a freestanding house with off-street parking in the inner west for under $620,000.
“When we first started looking, we thought we’d get an apartment for around $400,000 but after having a look and talking to people we realised that we really want something on its own block of land,” she says.
“In Sydney, the best way to build equity is to have land. We realise that our first house won’t be our dream house, but we want to be in a position to trade up to our dream house.”

The couple have made major sacrifices to save for their first house by renting a small granny flat from a friend in Pymble, scrimping on dinners out and buying clothes and “making saving a number one priority”.
“Once you become committed, the deposit grows and then you can afford something a bit more expensive than you probably initially planned,” she says.

The couple went to a mortgage broker to arrange pre-approval for their finance, and have been happy with the service.
“We’d like to stick to the ideal of only paying a third of our income in mortgage, but that’s just unrealistic in Sydney so we figure paying half our income in mortgage is our absolute limit,” she says.
The couple have spent time researching the market, and weighed up different places to buy and considered everything from buying a small apartment on the lower north shore to buying a five-bedroom house in Guildford or Hornsby.
“We’ve looked into everything but have decided buying something in the inner west, even if it is under the flight path, will be the best thing,” she says.

“We researched a lot of areas and the inner west has had rising values for the last five years, so we figure you can’t really lose in that area.”