A home loan expert on the most important things first homebuyers should do when purchasing in capital cities

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This article is sponsored by Great Southern Bank.

The dream of purchasing a property within a major city may seem distant for many Australian first homebuyers. The median national home price has grown by 412% in the last 25 years, while just in the years 2019 and 2020, Sydney dwelling values increased by 10.9%, and Melbourne dwelling values increased by 10.7%.

Although it may seem daunting, there’s no reason for young people to throw away the hope of ever owning a home within a city. There are several ways first homebuyers can set themselves up for success.

To gain further insight into best practices and tips when entering the purchasing journey within capital cities, we sat down with Emmanuel Davatzis, a home loan expert from Great Southern Bank about how first homebuyers can conquer the ever-changing property market.

How can first homebuyers set themselves up for success when commencing the homebuying process?

According to Emmanuel, there are a few common challenges first homebuyers may experience during their purchasing journey. He recommends having a 5-10% deposit saved before purchasing, which is one of the most vital factors that’ll help the process run smoothly.

Although first homebuyers are eligible to purchase a property with a minimum of 5% deposit, having up to a 10% deposit is recommended. This can provide borrowers more of a buffer with their loan, and will lessen the risks associated with overextending yourself financially. It is always best to consult with a banking professional before purchase.

He also noted a range of other factors first homebuyers should consider before purchasing to ease the journey. They include the following:

  • Once you have narrowed down the suburbs you would ideally like to purchase in, the supply of homes on the market may be scarce. Stay committed in your search. Mentioning low supply, this tends to increase interest in the property, which ultimately leads to a higher sale price.
  • Saving the deposit is a big challenge encountered by many first homebuyers. Ensure your money is working for you at all times in helping you achieve the required amount, for example, bonus interest savings accounts, term deposits etc.
  • Manage and understand your expenses; as this forms part of the serviceability component on your home loan application. Basically, the “how much I can borrow?” portion.

Which suburbs in each capital city should first homebuyers consider right now?

Buying your first home is one of the most important and exciting financial investments you’ll ever make, so ensuring you know exactly what you want in a property before buying is vital. According to Emmanuel, when navigating competitive prices within capital cities, it may be worth waiting to save more on a deposit to increase your purchasing power within your desired location. However, while it may reap benefits when taking out a loan, there are other risks involved.

“There is a risk that if property prices continue to rise, the ability to save will be outstripped by the market gains, therefore, making entry into the market that much harder,” he explained.

Emmanuel also provided some insight into which suburbs within each capital city are experiencing increased interest from first homebuyers.

“In Victoria, first homebuyer activity is expected to remain strong in local government areas of Whittlesea, Hume, Brimbank and Casey, particularly in the suburbs within these municipalities that offer affordable house and land packages. In NSW, affordable areas such as Blacktown, Penrith and Campbelltown are expected to see younger and first homebuyer interest throughout 2021,” he said.

“To the west, first homebuyers are showing keen interest in Wanneroo, Armadale and Rockingham. Rockingham, in particular, has a median house price in the $300,000s and is close to some of Perth’s largest employment hubs. Up north, QLD local government areas of Moreton Bay and Logan city have proven attractive to first homebuyers with no signs of this interest waning in 2021.”

How can first homers discern which home loan is the best for them?

Getting approval on a home loan can be one of the most tedious aspects of the home-buying experience. Researching which kind of loan works best for you and your financial plan before applying for one will amplify chances of approval success. Emmanuel recommends making an appointment with a banking professional to tailor the loan structure to serve your budget best.

Banks like Great Southern Bank can provide advice as to which home loan will work best, as well as provide comparisons around which loan will provide the best value in the long-run.

Which first homebuyer schemes should buyers take advantage of?

There is a range of government-funded schemes first homebuyers can take advantage of, with the First Home Loan Deposit Scheme (FHLDS) allowing buyers to potentially borrow up to 95% of a property’s value without incurring the usual Lender Mortgage Insurance (LMI) cost. This allows buyers to purchase a property, having saved a minimum of 5% deposit, which benefits those looking to purchase within cities.

“There are First Homebuyer Grants / Concessions that vary state to state, it is best to check with a professional on what grants or concessions you may be eligible for,” explained Emmanuel, so it’s important to research what’s available to you in your location.

Other than the deposit, how much should first homeowners prepare to save for other costs involved?

While it is important first homebuyers focus on saving a deposit, there are a range of other expenses buyers will need to factor in while devising a saving plan. These include:

  • Lenders Mortgage Insurance (LMI) if you will have a deposit less than 20%
  • Potential Stamp Duty (The exact amount depends on the value of the property and varies in each state)
  • Building & Pest Inspection
  • Once off government registration and transfer costs
  • Conveyancer/solicitor costs
  • Council rates and utilities
  • Removalist cost
  • Cost to purchase basic household furniture and whitegoods
  • Body Corporate (Dependent on the property purchased)

“Assuming first homeowners are eligible for Stamp Duty exception under current First Homebuyer government initiatives, they may still need between $5,000-10,000 to cover for the above anticipated associated costs,” added Emmanuel.