“The Ten Steps to HomeOwnership”, was kindly provided by “Your Mortgage” magazine. It
provides a brief but informative outline of the events you are likely to
encounter on the road to purchasing your home. As you will see there are many
things to consider and much work to be done and for that reason we thought that
it may be useful to you. We have taken the liberty to include some commentary
throughout the article in the ways that we are able to assist you through this,
most often, onerous journey
Determine your budget
The first step towards home ownership involves a little introspection.
You need to take a long, hard look at yourself and determine what you are
planning in the years ahead and how much you can afford to repay.
Begin with your total monthly income. Use the after-tax income of both
you and your spouse (if applicable), regular income you get from term
deposits, cash management accounts, share dividend or property investment.
This becomes your total monthly income.
The next step is to determine your monthly expenditure. This is a
little trickier than determining your income, because your cash is likely to
go towards a number of different places over the course of a month. Obvious
categories of expenditure include food, clothing, electricity, phone, gas,
medical, insurance, entertainment, personal, car, transport, childcare,
credit cards – the list goes on. Don’t include your current rent if you are
purchasing a home to live in, if things go well, you won’t have to pay rent
for much longer.
Subtract your total monthly expenses from your total monthly income
and (hopefully) you will have a healthy positive number that is roughly what
you can afford to repay each month on a loan. Now if the figure you arrive at
is suspiciously high, look carefully at your expenses. If the figure suggests
you can save $2,000 a month, and you’ve only ever been able to save $1,000
then clearly you’ve left a few expenses out. People are creatures of habit –
if you haven’t saved before, you’re going to find it difficult to save now.
Be honest with yourself from the outset. There are no prizes for having the
biggest house and then not being able to afford to live in it.
With the numbers under control, you also need to consider more
abstract thoughts, such as where you think your career is headed financially,
whether you or your spouse are considering raising a family and what impact
this might have on your ability to service your loan.
Now that you know the total amount you can devote to mortgage
repayments each month, you can determine roughly how much you will be able to
borrow. This amount will vary from lender to lender, and many now have handy
calculators on their web sites that allow you to determine the amount of
money they are prepared to part with. There is also an affordability
calculator on the Your Mortgage web site that calculates a very conservative
estimate of the amount you will be able to borrow and the costs you will face
depending on the State you are purchasing in.
As a professional finance broker we are kept abreast of both the lending
criteria and the maximum lending calculations used by the banks. These
calculations, which vary from one lending institution to another, are the
method used when working out if they will firstly lend to you and secondly
how much they will lend to you. As we deal with most of the major lending
institutions across Australia we are able to calculate the specific maximum
loan amount from a variety of lenders.
How much bang for your buck
Now that you know your budget, it’s time to determine how much ‘home’
it’s likely to buy you – and the suburbs you can afford to live in. The real
estate section in newspapers, local papers and real estate agents themselves
are all useful sources of pricing information, but when it comes to getting
comprehensive comparative sales information, it’s hard to go past Australian
Property Monitors (APM), a joint venture between the publishers of Your
Mortgage and John Fairfax & Sons.
APM publishes Sydney, Victorian, Canberra and Perth Home Price Guides.
Expanding the service even further, the Home Prices Guide will soon be
expanded to cover all of Queensland from the distant outback of Mount Isa
through to the high-rise apartments of the Gold Coast.
APM systematically tracks residential property activity from a variety
of sources including government and semi-government agencies, real estate
advertising, real estate agents and the company’s own researchers. This vast
base ensures APM’s databases contain the latest and most detailed property
Each Home Price Guide lists recorded residential sales in the previous
12 months and details the full address of the property, the type of property,
descriptive features of the home and exact sales date and sales price paid by
If the home of your dreams in your desired suburb is too pricey, it’s
time to either lower your expectations or save some more money. However,
remember that while you are saving more money, prices can often increase at a
similar (or faster) pace.
It’s important to remain flexible with your housing demands because
it’s simply impossible for everyone to purchase their dream home immediately.
Sometimes it is better to settle for something that isn’t perfect, pay it off
quickly and then step up to a better home down the track.
Good Loan Hunting
Determining the type of loan that suits your needs is the best way to
It’s important to consider which loan features are appropriate to your
lifestyle. If you’d like the security of knowing exactly how much your
regular repayments are going to be for a given period, then a fixed loan may
be for you. If you want to make additional repayments, then a variable rate
could be more suitable. Should you have surplus disposable income, then an
all-in-one loan or 100 per cent offset account might be the ticket.
Once you’ve determined the type of loan that best suits your needs,
it’s time to get your affairs in order and go mortgage shopping. You will
need the income and expenditure calculations you did in Step One, some proof
of income such as pay slips or recent tax returns, proof of your genuine
savings history and other documents that may be required by specific lenders.
Here in Australia we are very lucky in that we have loans, which are very
feature rich, but unfortunately all these features and how they relate to
you can get very confusing. As we transact with the majority of the major
lending institutions in Australia it is our business to be aware and
conversant with all the different loan features available. We even have
software programs which help us identify the loans available which have the
features that you’re looking for
Shop for the best deal
The next important step in obtaining a competitive deal from your
lender is to know what’s out there. Television and radio advertisements,
newspapers and magazines such as Your Mortgage are great places to find out
what deal are currently on offer. Be proactive and contact lenders directly
if the advertisement details aren’t clear.
Whether it’s a lower interest rate, zero establishment fees, frequent
flyer points or other value-adds, the more you know about the current home
loan market, the better your negotiation skills will be when it comes to
talking turkey with your lender of choice.
With over 3,000 lending products in the market, it’s nearly impossible
to keep track of every one that is being offered. Lenders continue to add new
features, honeymoon rates and an endless array of ‘bells and whistles’ to
their loans. Simply asking your lender of choice if they have any new
products or special offers available could result in significant interest
savings. Asking them to check with head office is probably a good idea as
well, as loan officers are sometimes the last to hear about these things!
While bouts of closing branches and record profits might suggest
otherwise, financial institutions do take customer loyalty seriously. The
cost of acquiring a single customer, through snappy advertising and marketing
campaigns has been estimate to cost upwards of $1,000. This can be used to
your advantage when it comes to negotiating your loan. If you’ve been with
one institution for a long time and have multiple accounts with it, your
position improves further. Ideally, you own your own business and have your
company accounts with a particular institution. Start making noises about
moving all of your accounts to the lender that offers you the best home loan,
and just watch the reaction.
As you can see, getting a suitable loan with the right conditions is a very
confusing task and that is why the mortgage broking industry now accounts
for a large portion of all new loans. In the US mortgage broking is the
predominant method of securing your home loan. As professional mortgage
brokers we are reliably kept abreast of all the new rates, specials and
product enhancements by the lenders, as they know we represent to our
clients the products of many lending institutions. We shop for a
competitive deal for you!
Get the application approved
Having found a suitable deal, it’s time to find out if your lender of
choice wants you as badly as you want them! Find out exactly what hoops you
are required to jump through in order to get home loan approval and ensure
that you have the required documentation.
Procedures vary from lender to lender but it is likely you will be
issued with either a ‘home loan guarantee certificate’ or a ‘pre-approval
certificate’. These are very handy pieces of paper that says that (subject to
a few conditions) your home loan either has been, or will be approved when
you have found the property you want to purchase. One of the typical
conditions attached to these certificates is ‘subject to valuation’ which
makes sense – if you pay way too much for a home, you’re likely to scare your
lender and they won’t advance you the cash.
Loan approvals don’t last forever, and are typically from two to four
months. If you find your pre-approval has expired or is about to, contact the
lender and see if it can be extended of if you have to re-apply.
It is human nature to want to buy the best house that is available
to you in your price range. That usually means that people want to borrow
up to their maximum limit and sometimes beyond. Of course, borrowing at
your maximum limit is the loan that is the hardest to get approved.
Therefore, it is very important to present the application to the lending
institution complete and in the manner in which they expect to see it. This
eliminates much frustrating time going back and forth but may also improve
the chances of getting it approved. You have to remember that the credit
officers in the banks are only human and therefore making a good first
impression is very important.
As professional finance brokers we are trained, by the lending
institutions, in loan preparation and presentation. Secondly, we are
experienced in this area as we submit applications every day.
With your finances under control, it’s time to find a suitable partner
to perform the eventual transfer of property from one person to another,
through the process of conveyancing.
Once you’ve found the property you want to purchase, the agent looking
after the sale (or vendor themselves) will provide you with a contract of
sale. It’s important that this document be looked at carefully to ensure that
everything about the property is understood and that there will be no legal
surprise after you have purchased it. Signing a contract without having an
experienced person look at it first is madness – and if you want to make any
changes to the contract, now is the time to speak up.
While the legwork is typically performed by solicitors or professional
conveyancers, you can also conduct your own conveyancing, although you need
to be aware of the risks involved.
The most obvious consideration when determining how to choose the
method of conveyancing is the cost. While most solicitors and conveyancers
offer a fixed price, you need to determine exactly what is included in the
price, and what isn’t. Some people simply want the appropriate forms
completed and lodged, while others require a more comprehensive service, such
as assisting in negotiations for a private sale. With additional services
come additional fees and it pays to know what these are likely to be.
One of the key benefits of using a solicitor or conveyancer is the
peace of mind that they provide. Both should have sufficient indemnity
insurance to cover them if something goes wrong with the transfer. Another
benefit of using a professional is that they provide this service on a
regular basis. Experience is an added bonus, and you should ensure that if a
junior clerk is assisting with your conveyance, the person who signs off on
the process knows what they are doing.
Some people prefer to complete their own conveyancing. A number of
do-it-yourself kits exist for this very purpose. The main reason for
performing your own conveyance is to save money, but there are a number of
important issues that should be considered first.
These issues can arise regardless of the method of conveyancing you
choose, but can be time consuming and difficult to resolve without
professional help. The most common are:
– Caveats and covenants attached to the property,
– Illegal extensions which have not been approved by local council,
– Actual property size differing form the measurements in the title, and
– Finding the property is damaged (or something is missing) when you conduct
the final inspection.
Most conveyances are performed without any difficulty, but like
insurance, using a professional conveyancer could save you heartache if
difficulties are encountered. Remember – the professionals carry indemnity
insurance while you, as an individual, do not.
Time to buy
Having put all of the pieces together, it’s finally time to buy. While
the preparation up to this point may seem like over-kill, once you find the
property you want, the last thing you need is to be rushing around tracking
down a lender, waiting for a loan approval, negotiating with solicitors and
determining whether the property is a bargain or not. You’re going to have
your hands full with the next three steps, so don’t proceed until you’ve
After being taken on the real estate merry-go-round by a number of
agents, eventually you will find the property that you want to buy. Before
breaking out the chequebook, it’s time for a quick reality check. How much
are you prepared to part with to make this home your very own? No, don’t look
at the asking price or believe what the real estate agent tells you the
property will probably reach at auction, use your own research (from step
Two) to determine a reasonable price.
If the home you crave is being sold via auctions, it is critical that
you have a pre-auction meeting with your lender. It’s also important to note
that any pre-approval you have received from your lender is often subject to
their own, independent value of the property – so if you are borrowing right
up to hilt and pay too much at auction, that pre-approval is not worth the
paper it is printed on.
Having enough of a deposit on the day is a good start, but it’s the
remaining 25 years that often gets people into trouble. Bidding more than you
have been provided by your lender is purely madness and could leave you in a
mess of debt. If in doubt, have a friend beside you, to stop you bidding once
you have reached your agreed upon limit.
Once your bid on the property has been accepted and you’re given the
green light on the contract, it’s time to break out the chequebook and pay
the pre-requisite ten per cent deposit. This is typically given to the real
estate agent, who holds it on behalf of the vendor until the sale is
finalised. Note that this ten per cent isn’t going to help you with stamp
duties and other costs associated with your loan, so ensure you have ready
access to these funds as well.
Contracts are formally exchanged between the buyer and the seller. In
most cases, the solicitor or conveyancer representing each side does the
exchanging, although when you are performing your own conveyance, this will
have to be done personally. Once this has occurred, you are legally bound to
proceed with the purchase of the property, unless a special condition is
breached that is listed in the terms and conditions of the contract
The Waiting Game
Take a deep breath and relax, you’ve earned it. The pace slows a
little now as you wait for your legal team to do some tyre kicking. For the
next six weeks, sometimes less and sometimes more, enquiries will be made
about the property. Survey and drainage will be examined, government
departments will be written to, heritage orders will be inspected and council
checks will be performed.
In other words, the work is (hopefully) out of your hands, but someone
still had to do it. A kind vendor may grant you additional time if you are
having difficulty meeting the agreed deadline but don’t count on it. The
chances are that the property is also costing them money (through their own
mortgage repayments or lost interest) and they are under no obligation to
give you more time.
This is the time when buyers (and vendors) get an attack of the
jitters. Buyers keep their fingers crossed that everything about the property
will be fine and run according to schedule and the vendor is praying that the
sale goes ahead and they can get their hands on some cold, hard cash.
A good way to pass the time (and raise your spirits) is to start
assembling quotes from removalists and renovators, preparing a list of people
that will need to be notified of your change of address and the like. You may
also be granted access to the property so that you can measure up curtains,
white-goods and rugs, but again, the vendor is well within their right to say
There’s not much left that can go wrong, but don’t go ordering that
customised kitchen just yet – there’s still one step left.
Settlement At Last
Settlement day is the day that you (or your representative) meet with
the vendor to swap your cheque with their title of ownership. Cherish this
moment, because with most people this certificate will quickly go to your
lender, unless you are lucky enough to purchase the property outright.
Government departments need to be notified of the change in ownership,
and this is typically taken care of by your solicitor or conveyancer. Now the
Telephones, electricity, gas, water, pay TV and insurance all needs to
be in place now that the property is will and truly yours. Little things like
food in the fridge is probably a good idea as well!
Congratulations, you are now the proud owner of your new home. It’s
only taken you ten steps to get here, and now you are a property owning
veteran. What will be next? A newer, larger, better home in five years time?
Maybe this will be the first purchase in your property investment portfolio?
Regardless of your future movements, there is probably nothing more
stressful than making your first purchase. Mistakes will be made and lessons
will be learnt, but isn’t that what life is all about?