Step 1 - Deciding to buy

Benefits of buying

Building up equity in a home effectively forces you to save, and accumulate wealth over the long term as: 

• Money spent to pay a mortgage goes directly towards owning your own valuable asset
• Home ownership is usually a safe way of investing money over a long period; depending on location and other factors, the value of the asset can appreciate over time
• Owning your own home provides security, and more freedom and choices than paying rent indefinitely 

Renting – just the facts

Benefits of renting

While renting may be initially cheaper than a mortgage, there is a lifestyle element in the mix, as it provides the opportunity to live in an area you may not otherwise be able to afford to buy into. 

• Flexibility and mobility – renting may be a good short- to medium term option and fairly uncomplicated commitment. You usually only need give a month’s notice or less to vacate (subject to the terms of the lease).
• Landlords are generally responsible for underlying problems and expenses with property upkeep such as a leaky roof, however, tenants are responsible for things such as mowing, gardening, vacuuming etc.
• Avoid owning a depreciating asset - property prices are not always heading north, meaning there’s no guarantee your home will increase in value over time. 

Disadvantages of renting 

• At a landlord’s whim - over time rent tends to rise, and you face the possibility of not having a lease renewed or the landlord terminating due to wanting to sell or move in
• You don’t build equity 
• If the housing market goes up you’re not part of it, but your rent may still be increased
• Lack of control – inability to make  changes to improve the property without permission. 

Monthly home loan budget

Before applying for a home loan you need to work out a budget. Once the difference between what you earn and what you spend is calculated, you’ll soon have a clearer picture of your disposable income. Then …

Try our easy-to-use online budget planner and loan calculators to better gauge the home loan you may be able to afford.

Your home deposit and savings history

Generally, the deposit required to secure a property is 10% of the purchase price. If you want to avoid lender’s mortgage insurance, which can cost thousands of dollars, you’ll usually need 20% of the purchase price.

Australian house prices have risen significantly over the past decade and many people feel they are always playing catch-up, trying to save for a deposit.

If you’re finding this scenario challenging, you’re not alone: RAMS has a range of home loans and borrowing solutions to suit different needs.

How much can I borrow? 

• Whether buying your own home or an investment property, your ability to do so will largely depend on affordability.
• As a general guide, total income needs to cover home loan repayment (and costs) as well as any other liabilities such as car loans, personal loans and credit cards, plus funds to live comfortably on. 
• Ask yourself: if debts total more than 40% of your income, consider a smaller home loan or saving a larger deposit. 
• Get a clearer picture of your borrowing capacity with our borrowing power calculator. 

Affordability is key

One way to work out if you’re in a position to service a mortgage is to work out what your monthly payments could be and add this to your current budget, along with anticipated expenses such as rates and other bills.

If you can meet these proposed payments as well as your current obligations, as well as feed, educate and entertain yourself and your dependants, you may be ready to take on a mortgage. 

However, if the sums literally don’t add up, review your budget to determine whether any costs can be cut, then factor in a more reasonable repayment schedule based on a cheaper property.

Check out our handy budget planner to help with these sums.

Buying a property with family or friends

With Australian property prices increasing, more and more first homebuyers are looking at purchasing properties with a partner, friends or relatives (PDF). 

However, that old adage; ‘never mix business or borrowing with family or friends’ still bears careful consideration.

That said, plenty of family and friends do manage to successfully negotiate this path. Some benefits to purchasing a property with another person include: 

• Sharing the deposit and initial costs, so you don’t need to save as much money.
• You’re only up for your share of the mortgage repayment, rates and household bills
• Renovation and maintenance responsibilities can be portioned. 

Potential risks of purchasing with another person

You’re depending on others to honour part of the mortgage agreement over a long period of time

If one person defaults, others have to cover any shortfall (unless otherwise expressly agreed and stated in the mortgage/loan documentation)

The other party may not keep to their promises about maintenance, renovation, etc.

How much can I afford to borrow for my first home?

Buying a house may be the most expensive purchase you will ever make. Exactly how expensive should your new home be?

Knowing your financial limits is vital.

The amount you can borrow for a first home purchase is based mostly on your net disposable income. Other factors that could come into play: 

• Liabilities – debts you need to service (e.g. car loan, credit and store cards)
• Standard living allowances
• Current home loan interest rate
• The term of the home loan
• Whether you have any dependants. 
• Your deposit and savings history

Lender’s mortgage insurance

You’re usually required to pay Lender’s Mortgage Insurance when you have less than 20% of the purchase price as a deposit. 

It’s an upfront fee (PDF) that insures the lender (not you the borrower) against any default on the loan.

If the lender is forced to make a claim under the policy, the insurer will require you to repay the insurer.

Help from a RAMS home loan specialist

There are many home loan products available to suit an array of needs, budgets and situations.  Our home loan specialists can discuss your plans, weigh up the options and, if eligible, assist with a first home owner grant (if applicable).

Choose a legal representative

The role of a solicitor or licensed conveyancer is to take responsibility for the conveyancing process, as well as advising you along the way. Engaging their services can minimise the risk of problems arising. 

Another consideration: if the property you’re looking at is interstate, it’s often wise to engage a solicitor who practises locally as different laws likely apply across each jurisdiction. 

Buying interstate has enough challenges: there’s nothing like local legal knowledge to ward of any potential pitfalls.

Questions for your legal rep 

• Do you have experience in conveyancing? If so, how much?
• Do you have current professional indemnity insurance cover? (All should have this, but it is good to ask)
• What are your fees and what do they cover and not cover?
• Who will be my point of contact?
• Who can I speak with if you’re unavailable? 

Finding a property lawyer or conveyancer

There are several ways to locate a solicitor who does property conveyancing: word of mouth, family, bank managers, accountants or co-workers.

Various state-based law societies keep up-to-date lists of accredited conveyancing experts: 

• Law Society of New South Wales
• Queensland Law Society
• Law Society of Western Australia
• Law Institute Victoria
• Law Society of South Australia
• ACT Law Society  
• Law Society Northern Territory  

Australian Institute of Conveyancers - National Secretariat   

• NSW
• SA
• VIC
• NT
• TAS 
• WA

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