Canstar has done the research and put together a recipe that could help you on your mission to buy a home.
This home-buying recipe features key ingredients and a method to help get you into that new home as soon as possible.
Purchasing your dream home might be made a little easier with these key steps:
- A good budget, with a breakdown of your income and expenses, to determine what you can afford.
- The right home loan for your situation, one that offers outstanding value for you in terms of interest rates, fees, features and more.
- The perfect house or unit, which is within your price range and includes all the fixtures and fittings you need for your household’s lifestyle.
- 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.
- A pre-purchase strategy, including pre-purchase inspections, formal loan approval and a plan for the settlement period.
- 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
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 will most likely come across various added upfront costs such as a loan application/establishment fee, stamp duty, inspection fees, legal costs and home and contents insurance.
Also keep in mind that once you’re approved for a home loan, there may be fees charged to you.
Step 2. Find the right home loan for your situation
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 of up to a certain amount 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 benefits of knowing exactly how much you can afford to spend when looking at houses and could make a serious offer on a home on the spot if you wanted to.
Choosing a home loan can be a bit overwhelming, having to take into consideration so many factors that could affect your repayments – like fixed versus floating, interest rates, features, term of the loan and fees.
Step 3. Start house hunting
Once you have a bit of 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 really get stuck into the search for your new house.
With an idea of your borrowing power, it will be easier to make a shortlist of suburbs that fit your price range. But you will also want to take into consideration things like:
- The convenience factor of the property (is it close to facilities that are important to you?)
- The layout of the house and features included (if you are buying an existing property)
- Any general concerns about the area (flooding risks, noise levels, demographic information)
Concerns about issues like local flooding or noise can usually be answered by doing a little of your own research, or simply by chatting to people living in that area. House hunting websites like Realestate.co.nz and Property Value by CoreLogic, among others, have helpful tools to learn more detailed information about suburbs you could one day call home.
Step 4. Buy the home
You are now at the stage where 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 have already gathered the information to have a good idea of property prices 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 actually worth. Check the price of the house is right by searching for the property’s sales history online or consult a professional valuer.
- Check the contractual conditions of the property are right, 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. For more information on things to pay attention to when buying a house, check out this article.
Step 5. Enter the pre-settlement stage
Now you have signed the contract for your new home, it’s time to turn that conditional pre-approval into a formal loan approval. Most lenders will get you to sign home loan documents in person and may also ask you to take out home building insurance (if you are buying a house or townhouse).
After signing the contract, you are now in the cooling-off period where 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, pest, and termite
- 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: inclusions 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, you will likely send a lawyer to attend on your behalf who meets with the seller’s lawyer. They will notify the seller’s real estate agent when the settlement is complete and let you know you can now pick up the keys and get into your new home.
Step 6. Enjoy post-settlement (responsibly)
You’re a home owner – congratulations! The house hunting is finally over and you are 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. Any new home owner needs to keep earning and saving because any extra funds can now go towards your monthly mortgage repayments.
To save on interest over time, some institutions will allow you to make repayments more frequently, such as on a fortnightly or weekly basis rather than monthly.
Other bills will also start popping up, because home ownership will inevitably come with unexpected expenses as the years go on.
So as well as your usual savings, it’s 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.
Enjoy reading this article?
Sign up to receive more news like this straight to your inbox.