How Much Do You Need To Buy Your First Home?

16 January 2019

How Much Do You Need To Buy Your First Home?

by Ben Nash on 16 01 2019 in The Orchards

The constant and never ending pull toward the Aussie home ownership dream is a strong one, but if you’re like most first home buyers, you’re looking at property prices and wondering whether you’ll ever be able to get into the market.

The good news is that if you know the rules of the game and how best to set yourself up, there are some things you can use to make your dream of home ownership a reality sooner.

Hack 1 - Get clear on your costs

The first thing you should understand are the costs involved in buying a property. This number becomes your target and the gateway to your property purchase.

The main cost of buying a property is stamp duty, which is different in each state but ranges between 2-4% of the property value. Other costs include legal fees (using a conveyancer or property lawyer), property searches and inspections (i.e. building and pest inspection), and loan fees for your mortgage.

The amount of these costs will depend on the type of property, where you buy, and the reports and information you want or need. But the rough rule of thumb is that total costs are generally around 5% of your property value, so for a $500,000 property the total costs to purchase would be around $25,000.

Importantly these costs above don’t include first home buyer benefits which again vary around the country. You can check out a current list of the first home buyer concessions and whether you’re eligible here.

Hack 2 - Set a clear goal and timeline

When you’re looking to save a deposit to buy a property it’s likely you’ll need a fair bit of cash to make it happen. Most people with a big saving goal save money without knowing exactly how much they need. Unfortunately, this makes saving so much harder.

I was working with a couple a while back that wanted to buy a home. They’d been trying to save for almost two years and weren’t making progress at the rate they wanted. When I asked them how much they were trying to save, they looked at each other, then back at me and replied “a lot”.

We took some time to plan out their property strategy and exactly how much they needed, then put together a timeline of when they could get there based on the rate they were saving.

My clients could then see exactly when they’d have enough to buy their property. They weren’t just saving anymore, they were putting away exactly enough money to allow them to buy the property they wanted in the timeframe they wanted. They were immediately more motivated and bought their first home less than a year later.

Without a crystal clear goal, saving is hard work. And if you’re trying to save a large amount (like a property deposit), it can be slow going. Take the time to figure out exactly how much you need to buy the property you want AND exactly when you’re going to get there. This will give you a huge motivational boost and help stop you from getting off track.

Hack 3 - Understand how family guarantees work

This one isn’t for everyone, but if you do have access to family that want to help you get into your first property it’s worth exploring this one in detail. This strategy is a little complex and there are some risks you need to manage if you go down this path, but it can be a shortcut into the property market.

The strategy is known by a few different names, family guarantee, family pledge, going guarantor, equity guarantee, etc. Ultimately they all mean the same thing and involve using the equity in another property to fund your deposit. This can mean you need a smaller deposit, or in some cases even no deposit.

Because it’s a slightly complicated strategy I can’t lay out all the detail here, but I’d encourage you to speak to your financial adviser, mortgage broker, or do some research about whether this might be a way you can purchase your first home sooner.

The wrap

Buying your first home is a big deal, and a challenging undertaking. But if you get your approach right from the start it can save you years of frustration and slow progress. And it won’t just happen on it’s own.

You need to make the time, do your research, and put in the work. But the results are worth it.

Ben Nash is a financial adviser and founder of 
Pivot Wealth, and the Author of the Amazon Best Selling Money Guide, Get Unstuck.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.