Home Buying Guide: Six Easy Steps to Buying a Home

If you want to buy your dream home, or even just a humble first home, it doesn’t have to cause stress and sleepless nights. Canstar’s easy six-step home buying guide features all you need to know to help smooth the home buying process.

Six simple steps to buying a home:

Step One: Set a good budget, one with a breakdown of your income and expenses, to determine what you can afford

Step Two: Pick the correct home loan for your situation, one that offers outstanding value in terms of interest rates, fees, features, etc

Step Three: Choose the right house or unit, one that’s within your budget and meets your lifestyle requirements

Step Four: Create a plan to buy the house, including whether buying via private treaty or auction, and if the price and conditions of the property sale contract are right

Step Five: Set a pre-purchase strategy, including pre-purchase inspections, formal loan approval and a plan for the settlement period

Step Six: Secure a happy and responsible post-settlement

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Step 1. Determine your budget

A home loan is most people’s biggest debt, 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 a seasoned property investor.

If you’ve never created a budget before, there’s no need to be nervous. For more on budgeting, 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). If you don’t already have a family, but plan to have children, you also need to factor in how their arrival could affect your ability to meet your mortgage repayments.

Your borrowing power depends on a few factors, such as your income, expenses, the mortgage’s interest rate 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’s important to save more than you think you’ll need for a deposit. This is because buying a home involves many upfront costs, such as a loan application/establishment fee, home inspection fees, legal costs and home and contents insurance.

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. At this stage of your house-hunting mission, you can 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, pre-approval is when your bank conditionally approves you for a loan before you make an offer to buy a house or unit. Most banks 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

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

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.

When making an offer and paying a deposit, it’s important to ensure that any contract you sign contains clauses to ensure that your offer is conditional on your ability to get finance for the home, and that the dwelling passes a home inspection adequately. Discuss these points with your lawyer before making any legal commitment.

An auction is very different to a private treaty. Because auctions can be quite intimidating and do not offer a cooling-off period, it’s a good idea to prepare by visiting a few before bidding yourself.

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
• Be prepared to pay the deposit on the spot if your bid is successful. A deposit is usually at least 10% of the purchase price

A few other handy tips when buying a house:

• Don’t pay more than the house is worth. Familiarise yourself with the recent prices of similar homes that have sold in the neighbourhood
• 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 your conditions don’t suit them
• It’s always a good idea to have a full building report drawn up by a professional, and have your offer conditional on the home not having any major structural defects. If there are problems, you can always use them to help negotiate a better price

Step 5. Enter the pre-settlement stage

Once the sales contract is signed, it’s time to turn your 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.

Once you’ve signed the contract, it’s also time to work through the conditions you’ve stipulated. Over this period, you should:

• Get the relevant inspections done by licensed professionals, e.g. building and pest
• 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)

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

But 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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About the reviewer of this page

This report was reviewed by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.

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