Help First time buyers buy their first home! Steps to buying a home

Updated July 12, 2024

Becoming a property owner is a dream for many people in Australia. However, the process is complex and can be difficult to navigate. This is especially true for first-time buyers. For starters, it is important to know whether they are qualified. This is needed to help them look for government programs that are designated to help first-time buyers of real estate properties enter the property market.

So, for our longtime readers who are working in the mortgage industry, this article will serve as your clients’ ultimate guide in becoming a property owner. Feel free to share this article to help them in their journey towards climbing the homeownership ladder.

Mortgage Professional Australia will discuss the steps in buying their first home as well as an in-depth analysis of the home loan options available. We will also tackle what their credit score should be and other essential details.

What is meant by first-time buyer?

It is necessary to understand what a first-time buyer is before everything else. A first-time buyer is an individual purchasing a home who has not previously owned any property. In turn, they cannot sell any property as well nor do they have real estate investments. So, you are considered a first-time buyer if:

• you have never owned a home
• you are not a real estate investor
• you are not currently mortgaging or re-mortgaging a house

Who qualifies

The following is a breakdown of who qualifies as a first-time buyer in Australia:

• you have not owned a principal residence for three years; if your spouse has owned a home and you have not, you can buy a property together and still be considered first-time buyers
• you are a single parent who has only owned a property with your ex-spouse when you were married
• you are a displaced homemaker who has only owned a property with your former spouse
• you are someone who has only owned a principal residence that is not permanently attached to a foundation as defined under applicable regulations
• you have owned a home that was not in compliance with local, state, or model building codes

Whether living with parents or renting, first-time buyers are usually more attractive for home sellers because they are chain-free. This means that it is easier and faster for them to sell their properties. Real estate agents will review your financial situation before proceeding with a home purchase.

Other countries that offer aid to first-time buyers

Australia is not the only country looking to help first-time home buyers. Many countries across the world have similar programs. Here are some of them:

• Canada’s first-time home buyer incentive
• United Kingdom’s first-time buyer's initiative and help to buy scheme
• United States’ FHA, USDA, and VA loans
• New Zealand’s first home grant

This is just a short list of those available to first-time buyers on the federal level. The local or state governments could have even more options and more lenient qualifications.

What are the steps to buying a home for the first time?

Purchasing a property takes time and effort. To begin, you should have a checklist of the things that you need to do. Here are the steps to buying a home for the first time:

1. do your research early
2. determine what you can afford
3. be pre-qualified and pre-approved for credit
4. hire a good real estate agent
5. shop for your house and check its features
6. ask for a home inspection
7. select your home loan
8. get a valuation report
9. complete the paperwork
10. close the deal

Now that you know the basic steps, let’s take a closer look at each one of them. Here is a breakdown of the process for first-time buyers:

1. Do your research early

Your first step is to do your research from the beginning. You should know from the outset what you are looking for. A good start is checking online. You can also scour real estate listings in newspapers and magazines.

Once you find a house that you are interested in, it is good to learn about it further and see how long the property has been on the market. You will also want to note the changes in the asking price. Not only will it help you determine what you can afford, but it will give you an idea of housing trends in different neighbourhoods.

2. Determine what you can afford

Usually, lenders say that you should look for a house that costs no more than five times your annual household income. This is often the case if you make a 20% downpayment and have a reasonable number of other debts. This is where an affordability calculator on mortgage lenders’ websites might come in handy. Using it can help determine how much you can afford when buying your first home.

3. Be pre-qualified and pre-approved for credit

You should find out how much you can spend on a home even before you start your search. Getting pre-qualified for a mortgage is a great way to do that. Start by providing your financial information to the bank or mortgage lender.

Here are the financial details that they usually look for:

• income
• savings
• investments

After reviewing this information, your lender will tell you how much you can borrow for a mortgage loan. This amount is critical as it will give you the price range of the homes you can afford.

4. Hire a good real estate agent

When you are buying property, real estate agents are significant. They can provide you with useful information on houses and neighbourhoods that are otherwise inaccessible to the public. Not only do real estate agents offer expertise on properties, but they also have top-tier negotiating skills and knowledge of different areas.

Perhaps the major perk is that real estate agents make commission on home sales and purchases; it does not necessarily have to cost you anything.

5. Shop for your house and check its features

When you have found a property in your price range, it is time to start touring. As such, it is helpful to create a checklist. If you are shopping and see a lot of homes, you might need it for taking notes. As you shop for your dream home, keep an eye out for the following:

• test the plumbing by turning on the shower to gauge the water pressure; observe how long the water takes to get hot
• switch the lights on and off to check the electrical system
• examine the windows and doors to ensure they open and close properly

In terms of the neighbourhood, you may also want to make note of the following:

• the conditions of the other homes on the block
• the street traffic situation; whether it is mostly heavy
• the parking situation for you and your possible guests
• the distance of the home to shops and amenities you will use regularly

6. Ask for a home inspection

This is a step that will dictate the final sale. During home inspections, signs of any structural damage that may require repairs are examined. Within a couple days of your offer being accepted by the seller, your real estate agent will help set up the inspection.

Asking for a home inspection is a vital step because it protects you. It also provides an opportunity to renegotiate your offer. Finally, inspecting the property will give you the option of withdrawing from the sale without penalties if you discover significant damage.

7. Select your home loan

You will want to work with a mortgage broker for this step. Most banks and mortgage lenders offer numerous home loan programs that are competitively priced. They can also provide great customer service. As such, brokers are there to talk with banks and lenders on your behalf.

It’s important to choose a home loan that’s tailored to your specific financial needs and situation. In turn, brokers can negotiate with lenders to give you the best possible mortgage program suited to your preferences. They can also discuss the possibility of keeping your monthly payments as low as possible.

8. Get a valuation report

To know how much the home is worth, get a professional qualified valuer to give you a formal property valuation report. This is an independent assessment on the value of the home you are purchasing. Valuers are third party company members that are not associated with your lender. These people inform all parties involved about the real value of the property.

A property appraisal is not the same as a property valuation. Appraisals are simply estimates and have no legal standing while valuations are more formal. Watch this video to learn more about how they differ:

9. Complete the paperwork

The lender will sort out a title company to complete the paperwork. This will guarantee that you are the rightful owner of the home you are purchasing. Expect that there will be a lot of i’s to dot and t’s to cross, making this an important step to prepare yourself for.

10. Close the deal

Lastly, once every step has been finalised, the deal will be closed. This refers to signing the mortgage loan documents and transferring the funds to your real estate attorney so that they can pay the seller. You will also need to prepare funds for the closing costs. Here are some of the charges you have to pay during closing:

• real estate lawyer's fees
• cost of running a credit report
• cost of completing title search
• loan origination
• survey fees
• payment for property valuation
• home inspection charges

It often takes a few days for the loan to go through after the paperwork is given back to the lender. After closing the deal, you are ready to call that house a home.

This ten-step process might seem overwhelming; don’t worry, help is here. Check out our Best in Mortgage listing for the top names in Australia’s mortgage industry. Reach out to them for the expertise and advice that first time buyers like you could benefit from.

What benefits do first-time buyers get?

First-time buyers are often encouraged by the Australian government to climb onto the property ladder by offering them with assistance. One such program is their Home Guarantee Scheme. Housing Australia administers this initiative on behalf of the Australian government.

This government aid for first-time buyers operates like many similar home loan schemes in countries across the world. It helps those who are considered eligible home buyers to purchase a property as soon as possible.

How the Home Guarantee Scheme works

Home loans are offered to eligible property buyers who do not have the usual 20% deposit needed to apply for the typical mortgage loans in Australia. These prospective buyers are eligible in terms of income criteria and other requirements. Housing Australia partners with specific banks and other mortgage lenders to facilitate these home loans. These are then referred to as “participating lenders.”

There are several participating lenders offering the Home Guarantee Scheme. These lenders have been authorised by the Australian government through Housing Australia to assist first-time buyers. Some of them are:

• Commonwealth Bank of Australia
• National Australia Bank
• BankSA
• Bank of Melbourne
• St. George Bank
• Bendigo Bank
• Great Southern Bank
• Australian Mutual Bank

There are three types of guarantees under the Home Guarantee Scheme:

1. First Home Guarantee (FHBG)

This guarantee helps those who want to purchase a home sooner with 5% as its deposit. As of now, there are 35,000 places available for FHBG.

For property buyers who want to apply for FHBG, here are the criteria:

• they must be at least 18 years of age
• they must be applying as an individual or two joint applicants
• they must be Australian citizens or permanent residents at the time they apply
• they must have a maximum annual income of $125,000 for individuals and $200,000 for joint applicants; this is shown on the Notice of Assessment issued by the Australian Taxation Office
• they must have the intention to be owner-occupiers of the property to be purchased
• they must be considered first-time home buyers or previous homeowners who have not owned a property in Australia in the past ten years
• they must be considered first-time home buyers or previous homeowners who have not had interest in a real property in Australia in the past ten years; this includes solely owning a piece of land

To better understand FHBG, watch this video:

2. Regional First Home Buyer Guarantee (RFHBG)

This guarantee acts the same as FHBG but is concentrated in the regional areas. RFHBG also helps those who want to purchase a home sooner with 5% as its deposit. As of now, there are 10,000 places available for RFHBG. As for the requirements needed to apply for this guarantee, they are also the same as the criteria for FHBG.

First-time buyers can purchase residential properties under RFHBG such as:

• a house and land package
• an off-the-plan apartment or townhouse
• an existing house, townhouse, or apartment
• a land and a separate contract to build a home

For a more in-depth look at this scheme, read this article on Regional First Home Buyer Guarantee.

3. Family Home Guarantee (FHG)

Under this guarantee, eligible single parents and eligible single legal guardians of at least one dependant can get help in purchasing a home as soon as possible. They have the option to pay a deposit of at least 2% and currently, there are about 5,000 locations available.

Here are the criteria for applying this type of HGS guarantee:

• they must be at least 18 years of age
• they must apply as an individual
• they must be an Australian citizen or a permanent resident during their application for the FHG
• they must be considered a single parent or single legal guardian of at least one dependant
• they must be earning a maximum salary of $125,000 per year
• they must have the intention to be owner-occupiers of the property to be purchased
• they must not currently own any property
• they must not have the intention to own a separate property after the settlement of the guaranteed home

You’ll find more details in this explainer on the Family Home Guarantee scheme.

Under the FHBG and the RFHBG, a maximum of 15% of the home loan’s value will be provided by Housing Australia as a guarantee to the participating lender. On the other hand, participating lenders can expect a maximum of 18% for FHG.

First-time buyers who apply for any of these three guarantees can purchase property without paying the participating lenders for mortgage insurance. However, the guarantee is not a cash payment, and the criteria above should first be met.

What role does a credit score have for first-time buyers of homes?

When you purchase property, your credit score is vital. This will not only reveal your credit history but will indicate how you have handled debt. Not only that, but it will also be easier for you to buy a home if you have a solid credit score. Simply put, the better your credit score, the higher your chances of getting approved for a home loan.

Watch this video about credit scores in Australia and how they work:

Need help in this area? Here are six ways to increase your credit score.

What is the minimum qualifying credit score?

There is no minimum qualifying credit score for home loans in Australia. If your credit score is between 611 to 710, you have a fair chance of securing a loan. Lower credit scores tend to have lower approvals from mortgage lenders and banks but are not entirely impossible.

Different ranges of credit scores

A home buyer’s credit score will provide mortgage lenders and banks with a basis of your credibility as a borrower. This means that these figures could make the difference between getting a mortgage or not.

Currently, there are three companies responsible for calculating every Australian’s credit scores:

• Equifax
• Experian
• illion

These three use varying types of information and algorithms to measure one’s credit score. As such, their scope is also different from one another. Let us look at their ranges below:

Equifax

• Excellent: 853 to 1,200
• Very good: 735 to 852
• Good: 661 to 734
• Average: 460 to 660
• Below average: 0 to 459

Experian

• Excellent: 800 to 1,000
• Very good: 700 to 799
• Good: 625 to 699
• Fair: 550 to 624
• Below average: 0 to 549

Illion

• Excellent: 800 to 1,000
• Great: 700 to 799
• Good: 500 to 699
• Room for improvement: 300 to 499
• Low score: 1 to 299

Want to know if you can still purchase a home with a bad credit score? Read this article on getting a mortgage with bad credit.

What is the first home owner grant?

After buying a home for the first time, you then become a homeowner. With that, you might be eligible to collect the First Home Owner Grant (FHOG) from the government. It is a one-off grant available for first-time property owners that can meet a set of requirements. These vary per location.

How much is the first home owners grant in Australia?

The amount of the FHOG depends on the state or territory where the purchased home is located. For example, eligible Australians can get $10,000 worth of FHOG in New South Wales and Victoria while those in Queensland can expect to get $30,000.

In the Australian Capital Territory (ACT), the FHOG is no longer available. However, first-time buyers can still obtain grants on stamp duty.

Read this article for everything on the First Home Owner Grant.

What is the best option for first-time buyers?

The best option for first-time buyers in Australia is dictated by several factors. It can be location and affordability for practical reasons. Preferences and goals are also points to consider. All in all, it depends on the buyers themselves. They will define the best option based on what they prioritise.

Here is a guide to mortgages for first-time buyers to help you turn your homeownership dreams into reality.

Which first time home buyers scheme do you think is most helpful? Let us know in the comments