Buying a house is an exciting time for any new homeowner, but the process of applying for a loan and finding the right home can be understandably daunting. To help you, our team at Oak Tree Finance have put together a guide on ‘steps to buying a house’, to give you a clear idea on what to prepare to make the property buying process as smooth as possible.
Steps to buying a house
What is the process for buying a house?
Work out your budget
One of the first steps to buying a house is knowing how much you can afford to repay. This includes your current monthly expenses and income and any potential areas where surprise payments may arise i.e. your car. Ideally, you want to be able to pay off a mortgage and still live comfortably, without sacrificing too much of your lifestyle. Aside from current expenses, you might also want to factor in future career prospects or whether you plan on raising a family soon. These will undoubtedly have a major influence on the amount you can pay, though it’s recommended you stick to a conservative figure regardless.
Determine how much you can borrow
Once you’ve determined roughly how much your monthly expenses equate to, you’ll be able to work out how much you can borrow whilst still living comfortably. This is one of the most important steps to buying a house and can be done by using an affordability calculator for some rough figures or discussing your options with a mortgage broker. Generally, financial advisors will recommend you not spending more than 30 percent of your pre-tax income on home loan payments, otherwise you’ll fall into what’s known as the ‘stress zone.’
Secure a deposit
Ideally, you want at least 20% of a deposit saved to avoid paying the lender’s insurance mortgage or incurring higher interest rates. For many First Home Buyers saving this amount can be unrealistic so a 10% deposit will still be sufficient for most lenders. Having this amount saved will make you a favourable candidate for lenders, as it shows you’re more likely to meet repayments. Essentially, the lower the deposit, the higher the risk for lenders, meaning that you’ll often end up paying more in the property buying process in the long run (unless you have a guarantor which can be used instead of a deposit).
Find a home loan
When it comes to finding a home loan, you’ll be pretty spoilt for choice, in fact, the whole process can be borderline overwhelming. There are several types of home loans available, though the most common are fixed and variable loans. A fixed loan is the most predictable out of the two and offers the same interest rate over an agreed term. This means you won’t be susceptible to fluctuations in the housing market and may make budgeting easier as you know exactly how much you need to pay. A variable loan is dependent on the market, which means it can be higher or lower than a fixed rate. This may make it harder to budget accurately but tends to result in a more flexible payment term, which makes it a more desirable option for homeowners. A mortgage broker will be able to offer advice on which loan suits your budget and find a lender who can provide a competitive loan tailored to your financial situation.
Once you and a broker have agreed to a suitable deal, you’ll want to apply for a home loan. Your broker can help you organise the right documents and may even offer advice on how you can improve your chances of being approved, such as improving your credit score or getting on top of outstanding debt. Conditions of approval vary from lender to lender and may involve having a proper valuation of the home you intend to buy to ensure you’re not paying too much for a property. To learn more tips about improving your chances, read our guide on how you can fast track getting approved for a home loan.
Conduct a building inspection
Though finding the perfect house is undoubtedly an exciting time, you’ll want to have a proper inspection conducted on your chosen property. This includes everything from building and pest inspections to land surveys and checks for encumbrances. All too often, excited homeowners forego these checks and are left in thousands of dollars in expenses, when common problems such as shifting foundations or faulty plumbing rear their heads. Though inspections aren’t required for home loan approval, it’s worth doing it for the sake of your mind and wallet.
Make an offer
Once you’ve found the perfect home, you have the option to agree on the set price or negotiate for a better deal. An offer can be made in one of two ways conditional or unconditional. Generally an offer would be conditional to finance approval but other typical conditions include subject to Pest and Building inspection. The main situation where an offer will be unconditional is when bidding at an auction. A buyer can at any time an offer can be made which is unconditional but should only do so if they have finance approval. At this stage of the process for buying a house, you may want the help of a solicitor or conveyancer to read through contracts. We recommend that no contract is signed before reviewing this with your solicitor or conveyancer.
Once everything has been approved and the contracts have been signed, you and the seller will arrange a settlement date for when the deed will be transferred to your name. This will typically be overseen by a conveyancer or solicitor (a legal requirement in some states) to ensure all legal processes are met. You’ll then receive the keys to your home!
Interested to learn more?
We hope our article on ‘The steps to buying a house’ has given you a clear idea of the property buying process. If you’d like home loan advice or to discuss your options with an independent mortgage broker, you can contact us on 0404 403 066 or by emailing email@example.com and one of our brokers will be in touch shortly.