First Home Buyer Victoria: Your Step-by-Step Guide to Buying a Home
Buying your first home is exciting, but it can also feel overwhelming.
How much can you afford? Do you really need a 20% deposit? When should you get your finances assessed? What does “subject to finance” actually mean? And at what point should you sign a Contract of Sale?
The good news is that the process becomes much easier to understand when you break it down into steps.
Here’s a practical guide to buying your first home in Victoria — from working out your budget through to getting the keys.
Step 1: Work Out Your Budget
Before spending weekends at open homes, it's important to understand what you can realistically afford.
There are two numbers to consider:
How much a lender may allow you to borrow, and how much you personally feel comfortable borrowing.
They aren't necessarily the same.
Your borrowing capacity can be influenced by factors including your:
income;
living expenses;
existing loans;
credit card limits;
HELP/HECS debt;
number of dependants; and
other financial commitments.
You'll also need to consider your available deposit and the additional costs involved in purchasing a property.
And importantly, you may not necessarily need a 20% deposit to buy your first home. Eligible first home buyers may be able to purchase with as little as a 5% deposit through the Australian Government 5% Deposit Scheme, which we'll explain below.
The aim at this stage is to establish a realistic property price range before you start seriously looking.
Step 2: Understand Your Deposit and Purchasing Costs
Your deposit is only one part of the money you'll need to purchase a home.
Depending on your circumstances, you may also need funds for:
land transfer duty (commonly called stamp duty);
conveyancing or legal costs;
building and pest inspections;
government registration fees;
moving costs; and
potentially Lenders Mortgage Insurance (LMI).
Can First Home Buyers Purchase With a 5% Deposit?
Potentially, yes.
Under the Australian Government 5% Deposit Scheme, eligible first home buyers may be able to purchase a home with a deposit as low as 5% without paying Lenders Mortgage Insurance (LMI).
Normally, borrowing more than 80% of a property's value can result in LMI being payable. Under the scheme, Housing Australia provides a guarantee to the participating lender for part of the home loan, allowing eligible buyers to borrow up to 95% of the property's value without paying LMI.
This can potentially help first home buyers purchase sooner rather than spending additional years saving towards a 20% deposit.
There are eligibility requirements, property price caps and other conditions, and the home loan needs to be obtained through a participating lender.
Importantly, being eligible to purchase with a 5% deposit doesn't automatically mean you can borrow 95% of the property's value. You still need to meet the lender's credit and servicing requirements and demonstrate that you can afford the repayments.
A smaller deposit also means you're borrowing more, so your repayments and total interest costs may be higher than if you purchased with a larger deposit.
First Home Buyer Stamp Duty Savings in Victoria
Eligible first home buyers in Victoria may also receive significant stamp duty savings.
Currently, eligible first home buyers purchasing a home with a dutiable value of $600,000 or less may pay no stamp duty, while eligible purchases between $600,001 and $750,000 may receive a concession.
These savings can make a substantial difference to the amount of money you need upfront.
The 5% Deposit Scheme and Victorian stamp duty concessions are separate forms of assistance, so depending on your circumstances, you may potentially benefit from both.
Before deciding how much you need to save, it's therefore worth checking which first home buyer assistance you may qualify for and calculating the total funds required to complete the purchase, rather than focusing solely on the deposit.
Step 3: Get Your Home Loan Pre-Assessment
Once you understand your budget, the next step is usually getting your financial position assessed.
A home loan pre-assessment can give you a much clearer idea of:
how much you may be able to borrow;
which lenders may suit your circumstances;
approximately what property price range you can consider; and
whether there are any potential issues that should be addressed before you make an offer.
This can be particularly useful for first home buyers because different lenders can assess the same borrower differently.
Getting organised early can also reduce the chance of discovering a lending problem after you've found the property you want.
Step 4: Start Looking for the Right Property
Now comes the exciting part.
With a clearer understanding of your budget, you can start attending inspections and comparing properties within your price range.
Try not to focus solely on the advertised price.
Consider other factors such as:
recent comparable sales;
property condition;
location;
Owners Corporation fees, where applicable;
potential maintenance;
council rates; and
whether the property itself is likely to be acceptable to your lender.
Most importantly, try not to let emotions push you substantially beyond the budget you've established.
There will always be another property.
Step 5: Find a Conveyancer or Solicitor
Don't wait until you've already signed a contract to find a conveyancer.
It's a good idea to have one ready before you start making serious offers.
When you find a property you're interested in, ask the real estate agent for a copy of the Contract of Sale and Section 32 Vendor Statement.
Your conveyancer or solicitor can review the documentation and advise you about the legal aspects of the purchase before you sign.
A mortgage broker can help with the finance.
A conveyancer or solicitor deals with the legal side.
Both have important but different roles in the purchase.
Step 6: Be Very Careful Before Signing a Contract
This is one of the most important stages of the entire process.
If you're purchasing by private sale and still require finance approval (most cases), you would want your offer made subject to finance.
A subject-to-finance condition can provide important protection if you're unable to obtain finance within the conditions specified in the contract.
Make sure your conveyancer or solicitor reviews the proposed wording and contract before you sign.
Don't assume that having a pre-assessment means your final loan is guaranteed.
The lender still needs to assess the complete application and where required, the property being purchased.
Step 7: Understand the Extra Risk of Buying at Auction
Auctions work differently.
If you're the successful bidder at a Victorian property auction, the purchase is generally unconditional.
You can't simply make the contract subject to finance after winning the auction, and there is no cooling-off period.
That's why finance preparation becomes particularly important if you're considering bidding at an auction.
You need to understand the additional risk of committing to purchase a property before having unconditional finance approval.
First home buyers should make sure they understand those risks before raising their hand on auction day.
Step 8: Your Offer Is Accepted — What Happens Next?
Congratulations!
Once you and the vendor have signed the Contract of Sale, send a copy of the fully executed contract to your mortgage broker and conveyancer as soon as possible.
Your broker can then progress the formal home loan application.
The lender may need to:
verify updated financial information;
assess the property;
arrange a valuation if required;
review the complete loan application; and
complete its final credit assessment.
If your contract contains a finance condition, there will usually be a deadline by which finance needs to be approved.
Keep an eye on this date and stay in contact with your broker and conveyancer.
Step 9: Formal Loan Approval
If the lender is satisfied with the application and the property, formal or unconditional loan approval can be issued.
This is an important milestone.
Your lender will then prepare the loan documentation.
Read the documents carefully and complete any outstanding requirements promptly so there are no unnecessary delays approaching settlement.
Step 10: Prepare for Settlement
Settlement is the final stage of purchasing the property.
Your conveyancer or solicitor will coordinate the legal side of settlement, while your lender arranges the loan funds.
Before settlement, you'll generally need to make sure any remaining funds required for the purchase are available.
You should also arrange appropriate insurance and complete a final inspection of the property.
Settlement periods in Victoria are commonly between 30 and 90 days, although the actual date will be specified in your Contract of Sale.
Step 11: Settlement Day — You Own Your First Home!
On settlement day, the balance of the purchase price is paid and ownership of the property transfers to you.
Once settlement has successfully completed, you'll generally be able to collect the keys from the real estate agent.
You've officially bought your first home.
For many buyers, the process that initially seemed complicated becomes much more manageable when the right preparation happens before making an offer.
A Few First Home Buyer Mistakes to Avoid
Some of the most common mistakes happen before the buyer even finds a property.
Try to avoid:
looking at properties before understanding your budget;
assuming you automatically need a 20% deposit;
taking out a new car loan or personal loan while house hunting;
increasing credit card limits;
changing employment without first considering the lending implications;
spending most of your savings before settlement;
assuming a pre-assessment guarantees final approval;
signing a Contract of Sale without obtaining appropriate legal advice; and
bidding at auction without understanding the finance risks.
Even seemingly small changes to your finances can potentially affect a home loan application.
If you're unsure, speak with your mortgage broker before making a significant financial change while preparing to buy.
You Don't Have to Work Everything Out Yourself
Buying your first home involves a lot of moving parts, but you don't need to become an expert in home loans before you start.
The key is getting organised early.
At Mortgage Compare Plus, we help first home buyers understand their borrowing position, deposit requirements and available lending options.
We can also help determine whether you may be eligible for options such as the Australian Government 5% Deposit Scheme, compare suitable home loans from a range of lenders and guide you through the finance process from initial assessment through to settlement.
We can work alongside your conveyancer, real estate agent and lender to help keep the finance process moving.
Thinking About Buying Your First Home?
If you're planning to buy your first property, it's worth understanding your options before you start making offers.
Contact Steve at Mortgage Compare Plus for a home loan assessment and find out how much you may be able to borrow, what deposit you may need and whether the 5% Deposit Scheme could be an option for you.
Disclaimer: This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.
