How to Buy a House: Six Steps to Buy Your Dream Home

Buying a home without a good step-by-step plan could not only put you at risk of losing your hair, but also potentially your savings.

If you want to buy your dream home, or even just a humble first home, if doesn’t have to cause stress and sleepless nights. Canstar has done the hard work for you and put together a simple six-step guide on how to buy a house.

Our home-buying recipe features all the key ingredients, plus a step-by-step method, to help get you into that new home as soon as possible.

Purchasing your dream home might be made a little easier by taking these key steps:

  1. Set a good budget, one with a breakdown of your income and expenses, to determine what you can afford
  2. Pick the correct home loan for your situation, one that offers outstanding value for you in terms of interest rates, fees, features and more
  3. Choose the right house or unit, one that’s within your budget and meets your lifestyle requirements
  4. Create a plan to buy the house, including whether you buy via private treaty or auction, and if the price and conditions of the property sale contract are right
  5. Set a pre-purchase strategy, including pre-purchase inspections, formal loan approval and a plan for the settlement period
  6. Secure a happy and responsible post-settlement

Now you know what the key ingredients are for buying a house, it’s time to work out how to use things like a solid budget or a pre-purchase strategy to get you closer to owning that home. Found a home already? Read our checklist of things to look for when buying a house.

Step 1. Determine your budget

Canstar Home Buying Recipe - Budgeting

A home loan will probably be the biggest debt you’ll ever have, so it’s important to take the time to figure out your finances and set up a good budget.

This step is key, regardless of whether you’re fresh to the market as a first home buyer, or you’re a seasoned property investor chasing your next buy.

If you’ve never created a budget before, there is no need to be nervous. To find out how to write a budget and reach your savings goals simply check out this article.

When planning your budget, keep in mind you shouldn’t expect to make mortgage repayments of more than 30% of your gross income (this is mortgage stress zone). There is also the need to consider how your household would make repayments if you plan to have kids any time soon.

Your borrowing power will depend on a few factors, such as your income, expenses, how much interest you pay and the length of the loan. If buying a new property for the first time, you may be eligible for a First Home Buyers Grant.

It is important to save more than what you think you’ll need for a deposit, because you’ll most likely come across various added upfront costs, such as a loan application/establishment fee, inspection fees, legal costs and home and contents insurance.

Step 2. Find the right home loan for your situation

Canstar Home Buying Recipe - Finding the perfect home loan

If you want to buy a home, you’ll need to find a home loan that offers outstanding value for your particular financial needs. At this stage of your house-hunting mission, you can try to make the whole process a lot easier and quicker by applying for pre-approval on your home loan.

Also known as conditional approval or approval in principle, the home loan pre-approval process is when your bank conditionally approves you for a loan before you make an offer to buy a house or unit. Most banks can offer pre-approval for three to six months if they deem you eligible, which takes some of the stress off your search.

If you do decide to go down this route, you’ll have the added benefit of knowing exactly how much you can afford to spend. It means you can make a serious offer on a home on the spot, if you want.

Choosing a home loan can be a bit overwhelming, especially if you’re a first home buyer. There are many factors that can affect your repayments, including: fixed versus floating, interest rates, features, term of the loan and fees. For more information on the types of home loan available, check out our story What is A Home Loan?

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Step 3. Start house hunting

Canstar Home Buying Recipe - House hunting

Once you’ve an idea of your budget and, potentially, a pre-approved home loan, or at least an idea of the type of home loan you need, you can get stuck into the search for your new house.

Of course, this search will depend on whether you want to build or buy, and what type of property you’re looking for, be it a townhouse, traditional villa, duplex or apartment.

But with an idea of your borrowing power, it’ll be easier to make a shortlist of suburbs that fit your price range. You will also want to take into consideration things including:

  • The convenience factor of the property. Is it close to facilities that are important to you?
  • The layout of the home and its features
  • Any general concerns about the area: flooding risks, noise levels, schools, demographic information

Always thoroughly check the LIM report of any home you’re considering buying, which will reveal flooding risks. And do your own research into the neighbourhood, both online and by chatting to people living in the area.

Step 4. Buy the home

Canstar Home Buying Recipe - Purchase

You are now at the stage when it’s time to start making offers on properties that you like. There are two main ways to buy a house or unit – via private treaty or at auction.

If you choose the private treaty (private sale) option, this means the purchase of the house will be negotiated either directly with the seller, or through their real estate agent. Ideally, you should go into price negotiations after you’ve already researched the recent sale prices of similar homes in the area.

You will usually have the chance to inspect the property again after making an offer, so if you or your lawyer notice that something is wrong after you have signed the contract, you may still be able to cancel the contract within the cooling-off period (see Step 5 for more information).

An auction is very different to a private treaty. Because auctions can be quite intimidating and they do not offer a cooling-off period, it’s a good idea to visit a few first just to see how they work.

If you do end up going to an auction with the intent of making a bid:

  • Ensure your lawyer has viewed the contract of sale before the auction
  • Go in with a set price limit
  • Have a personal or bank cheque on the day to make a deposit if you are successful (usually needs to be at least 10% of the purchase price)

A few other handy tips when buying a house:

  • You don’t want to be duped into paying more than the house is worth. Check the price of the house is correct by searching for the property’s sales history online or consult a professional valuer.
  • Check the contractual conditions of the property are correct. But be aware that sellers are less likely to accept an offer that comes with a long list of conditions. The seller may make a counter offer if your price is what they want, but the conditions don’t suit them.
  • Pay close attention to the little things, like plumbing and electrics, when you’re inspecting a home, whether it’s your first inspection or your last pre-settlement inspection..

Step 5. Enter the pre-settlement stage

Enter the pre-settlement stage

Now you’ve signed the contract for your new home, it’s time to turn that conditional pre-approval into a formal loan approval. Most lenders will ask you to sign home loan documents in person, and will also ask you to take out home building insurance.

After signing the contract, you’re now in the cooling-off period, when you check if anything is wrong with the property and can still change your mind. Over this period, you should:

  • Get the relevant inspections done by licenced professionals: building and pests
  • Check compliance of the property with local council by-laws: extensions to the property, fences and pools
  • Have your lawyer check the inclusions you expected are listed in the contract, and change the contract if they are not. This includes things like stoves, light fittings and blinds
  • Know the terms of settlement: find out when the balance of money is due and the date you can take possession, and phone your lawyer the day before settlement to check everything is sorted and ready to go

On settlement day, your lawyer will work with the seller’s lawyer to close the sale. They will notify the seller’s real estate agent when the settlement is complete and let you know when you can pick up the keys and access your new home.

Step 6. Enjoy post-settlement (responsibly)

Canstar Home Buying Recipe - Enjoy post settlement

You’re a home owner – congratulations! You are finally moving into your new home. Take a sigh of relief.

While you have just made a very expensive purchase, the bills are only just beginning. There are myriad costs associated with home ownership, and if you do have extra money, you can always put it towards paying down your mortgage faster.

However, it is a good idea to set up an emergency fund in an interest-earning savings account to cover you for the unexpected, such as if your fridge stops working and needs to be replaced. Happy home ownership!

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