Climbing the property ladder starts with one step: the first home.

With interest rates at their lowest in nearly 50 years, falling house prices and a raft of government handouts on offer, it seems foolish not to jump on the mortgage bandwagon and buy that first house or investment property.

The Federal Government has extended its first home grants of $14,000 or $21,000  for a new home, giving first home buyers more time to plan, attack and successfully purchase their home.

What’s more, Australian mortgage insurer QBE says the cost of renting in Sydney and Melbourne will be closer to the cost of paying off a median priced house in June 2009 than at any other time in the last decade.

But that doesn’t mean you should leap into the property market without doing your research. With unemployment and recession lurking around the corner, read these top five tips to keep your first-home hunt sane, safe and successful.

 

TIP ONE: RESEARCH RIGHT, PRICE RIGHT

Real Estate Institute of NSW president Steve Martin admits the Federal Government’s first home owner boost – which began last October as part of the economic stimulus package – has increased prices for houses at the lower end of the market.

“People could be paying $10,000, $15,000 or $20,000 more than they had to before the grant, but at least they become home owners,” he says.

The Australian Bureau of Statistics reported that Australian home prices fell by nearly seven per cent between March 2008 and March 2009 but anecdotal evidence suggests prices are now higher for entry-level first homes, thanks to demand created by low interest rates and the first home buyer grants.

Property experts like SQM Research’s Louis Christopher warn against paying too much for first homes, as house prices could soften again once the grants expire on September 30 for the $14,000 grant and December 30 for the new home $21,000 grant.

Christopher suggests closely following property sales in short-listed suburbs of choice to check you aren’t paying too much.

It’s also worth checking recent sales (http://onthehouse.yahoo.com.au) from the year or two previously to see how the market was faring before September 2008, when demand for first homes took off in a frenzy.

 

TIP TWO: DON’T BUY OUT OF YOUR PRICE RANGE

House hunting can be a harrowing experience for a first-time buyer, especially when they see the range of dingy, disgusting and downright depressing homes in their price range.

It’s always tempting to try to pay that little bit extra to buy something nicer, but first home buyers need to understand their first property is only a leg-up into the second home.

Overstretching the finances can be risky in a recessionary economy, where unemployment is predicted to rise to at least 8.5 per cent, with some economists saying it could go as high as 10 per cent.

The rough rule of thumb is to borrow three times the combined household income – some banks will offer to lend more while others may offer less.

Several big banks are now refusing to accept the first home buyer grants as deposit on a home, so first-time buyers may need to show genuine savings of at least three to five per cent of the purchase price of the house.

There are a range of mortgages on offer for first home buyers without much deposit, such as Family Pledge loans, where a parent guarantees the loan. Shared Equity loans, where the bank shares the capital gains on the property and some of the mortgage payments, might also be worth considering if you want to buy a more expensive property.

It’s worth saving a good deposit towards the first home – ideally as much as 15 per cent. Anything less means you could be charged Lenders Mortgage Insurance, which costs several thousand dollars and insures only the bank(not the borrower) if anything goes wrong.

Remember, even if you aren’t in a financial position to buy a house today, six months of saving could put you in a better place to take advantage of a less heated property market where first home prices may be lower.

 

TIP THREE: STRESS TEST THE WORST THAT CAN HAPPEN

There is nothing more exciting than buying your first home – yet nothing could be more devastating than having a 30-year mortgage when something dreadful happens.

Unemployment, disability, divorce or debt is the most common reasons that houses are repossessed in this country, so you need to think long and hard about whether any of these things could happen to you.
Prime Minister Kevin Rudd’s announcement that the big four banks will offer 12-month mortgage payment ‘holidays’ for anyone who loses their job might sound comforting, but are they?

Not paying the mortgage for a year means the banks add unpaid interest to the loan, dig you further into debt and you could still be forced to sell, leaving you in a worse financial position than before you bought the house.

Take out appropriate insurance (disability and income insurance could be worth looking into) and have a back-up plan should things go wrong.

 

TIP FOUR: HAVE FINANCE AND LEGALS IN ORDER

Many banks and lenders have been swamped by first home buyer demand and are taking weeks – and in some cases more than a month – to give unconditional approval for home loans.

Most lenders will offer pre-approval so first-time buyers know how much they are able to borrow, but will not make the approval unconditional until you have selected a property, had your mortgage application fully assessed and the property valued.

To speed up the mortgage process, make sure you have proof of income (three recent payslips or three years of tax returns) and bank statements showing your savings.

A good mortgage broker or lender will also help you navigate the applications for the first home grants, many of which will offer added bonuses like reduced stamp duty or cash rebates depending on which state you live in.

A lawyer, land broker or conveyancer is another professional you will need to have on standby when you find the house you want to purchase.

The legalities of making an offer on a house, exchanging contracts and settling the sale can be intricate and paying for good advice to check titles, contracts and finance conditions will be worth it.

 

TIP FIVE: NEGOTIATE LIKE A PRO

No matter how desperately you want a house, don’t let the real estate agent know.

It’s best to keep your emotions – and how much you can pay – to yourself to retain the upper hand in negotiations over price.

Simply ask for a contract, engage a building and pest inspection and then start price negotiations.
If there is a stampede of other first home buyers competing for the same property, the best strategy is to be the first buyer with a written offer and signed deposit cheque.

If you are keen to haggle down the asking price of a property, make sure you have done your homework and can point out other recent sales at the cheaper price.

It’s also worth knowing how long the property has been on the market and how keen the vendor is to sell.
In a heated first home buyer market it will be harder to negotiate lower prices, although not impossible.

Most real estate agents realise that first home buyers require more hand-holding and take more time to commit to a purchase than other home buyers in the market – but the more professional, researched and committed you are to the process, the more likely you are to get your dream home at the right price.

 

 

Do your research! 

onthehouse.com.au offers property sales data for you to do your property research.

• Check out Listings and Latest Sales Prices in your area for FREE!
• Sign up for our Premium Reports to do some in-depth research on historical property sales.
  

 

Tags: Australia, Borrow, First Home Buyer, Melbourne, Mortgage, Recession, Research, Sydney

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