Buying Your First Home – The Ultimate Guide 

Buying your first home is both EXCITING and DAUNTING. However, with proper financial preparation and the developing the right habits, you can significantly improve your chances of securing a home loan and reduce the frustration and disappointment that goes with not being able to get a loan or borrow as much as you would like. 

This comprehensive guide will walk you through essential financial and non-financial habits to cultivate before embarking on your home-buying journey. 

Financial Habits to Develop Before Buying Your First Home

 

1. Master the Art of Budgeting

Budgeting is an important step in preparing to buy a house. A well-structured budget is the best way to: 

• Determine how much you can realistically afford to spend on a home 

• Account for mortgage payments and other housing-related expenses 

• Identify areas where you can cut back spending and build savings for a deposit. 

Consider implementing the 50-30-20 budgeting rule: 

• 50% of your income goes towards necessities (housing, food, utilities) 

• 30% is allocated for discretionary expenses (entertainment, dining out) 

• 20% is dedicated to savings and debt repayment 

By adhering to this rule, you can systematically build your deposit for a home and reduce outstanding debts, positioning yourself as a strong candidate for mortgage approval. 

2. Build a Robust Emergency Fund

An emergency fund is your financial safety net, designed to cover unexpected expenses such as: 

• Medical bills 

• Car repairs 

• Home maintenance issues 

It can also help provide a safety net if you lose your job or your income otherwise takes a dip. 

Start by saving enough to cover one month’s living expenses, then gradually work towards a three-month cushion.  

Your buffer might dip when you do come to buy a home but work to re-build that buffer (and extend it to a 6 months buffer) post settlement.  

Having this buffer demonstrates financial responsibility to lenders and provides peace of mind as you transition into homeownership. 

3. Strategically Manage Your Debt

Existing debts reduce your borrowing power.  However, paying down debts does not always increase the amount you can borrow. 

Lenders use the debt-to-income ratio (DTI) to assess your ability to manage monthly payments and repay debts. To calculate your DTI: 

• Add up all your monthly debt payments 
• Divide the total by your gross monthly income 
• Multiply by 100 to get the percentage 

Most lenders prefer a DTI of 6 or lower. Understanding your DTI can help you gauge your maximum borrowing power and if necessary, you can take steps to improve your ratio if necessary. Your broker will be able to guide you here as to what changes are needed or helpful. 

As a rule, reducing credit card limits will increase your borrowing power, as will paying off in full loans. If you can’t pay off a loan, then paying a debt down does not improve your borrowing power. 

4. Automate Your Savings

Consistency and persistence are key when it comes to saving for a home. Set up automatic transfers from your transaction account to a dedicated savings account each payday and then you need to persist for long enough. This habit ensures continued growth in your deposit/savings for a home and demonstrates financial discipline to lenders.  

Of course, the other key part of this is to not dip into these savings for any reason (if at all possible) so you do not undo all your hard savings work. 

5. Aim for a Substantial Down Payment

While some lenders offer loans with as little as 5%, aiming for a 20% down payment offers several advantages: 

• Avoids the cost of Lenders Mortgage Insurance (LMI) 

• Potentially secures a lower interest rate 

• Reduces monthly mortgage payments 

• Demonstrates strong financial capability to lenders 

Make it a habit to save a portion of every pay specifically for your deposit fund. 

6. Embrace Frugal Living

Lenders scrutinize your spending habits, often reviewing up to three months of bank and credit statements. Cultivate frugal habits in the run up to buying a home to showcase responsible financial behaviour. Tips for achieving this include: 

• Meal prep and eat at home more often 

• Cancel unused subscriptions and memberships 

• Reduce credit card limits or close unnecessary accounts 

• Limit use of ‘buy now, pay later’ services 

• Maintain and repair items instead of replacing them 

• Shop with a list to avoid impulse purchases 

7. Nurture Your Credit Score

Your credit score is a crucial factor in mortgage approval and determining your interest rate. To maintain a healthy credit score: 

• Pay bills on time 

• Keep credit card balances low and make sure that you pay at least the min amount due on the card each month 

• Avoid applying for new credit unnecessarily 

• Close credit cards that you do not need or use (or at least reduce the limit of these cards) 

• Regularly check your credit report for errors 

A higher credit score can impact your ability to get a loan and, in some cases, can lead to more favourable loan terms (better rates, lower fees), potentially saving you thousands over the life of your mortgage. 

8. Don’ forget the Ongoing Homeownership Costs

Homeownership involves more than just mortgage payments so you need to be prepared for these costs. In your budget make sure to allow for the new expenses you will have once you own a home, such as: 

• Council rates 

• Home insurance 

• Maintenance and repairs 

• Utilities (electricity, water, gas) 

• Body corporate fees (strata fees) 

• Land tax (investment properties) 

 

Non-Financial Habits to Cultivate 

While financial preparation is crucial, developing non-financial habits can also significantly benefit your home-buying journey. 

1. Become a Housing Market Expert

Dedicate time to researching the real estate market and defining the property you are looking for: 

• Identify the non-negotiable features in the property you plan to buy 

• Explore different neighbourhoods and understand the amenities that the areas offer 

• Find properties that are similar to what you are looking for that have sold and understand what they sold for so you can start to predict what properties you consider buying might be worth 

• Understand the state of the property market you are looking to buy in (is it a sellers’ or buyers’ market? Are properties selling slowly and within the quoted range, or, quickly and well over the asking price) 

• Know how to recognise and assess potential risks and where necessary seek independent help (e.g. stumping issues, roof leaks, location issues such as crime) 

Thorough market research helps you make informed decisions and identify the best opportunities for your budget and lifestyle. For tips on becoming a property expert as you look to buy a home check out 30 Tips for First Home Buyers: Property Search. 

2. Build Your Home-Buying Team

Assemble a team of professionals to guide you through the home-buying process: 

• Financial Advisor: Helps determine your budget and financial goals 

• Buyer’s Agent: Assists in property search and purchase based on your criteria 

• Mortgage Broker: The central and most trusted adviser in the whole process of buying a home.  They advise on how much you can borrow and how to achieve your goal. Also finds suitable loan products and arranges the home loan (including all documentation) 

• Building Inspector: Examines potential properties for hidden issues. Always good to know what is wrong with a property before you buy it! 

• Solicitor/Conveyancer: Handles legal aspects of property transfer 

Each professional plays a crucial role in ensuring a smooth and successful home-buying experience. You can read more about their roles in our article 30 Tips for First Home Buyers: Things to Know Before You Start Your Property Search. 

Paving the Way to Homeownership 

By cultivating these financial and non-financial habits, you’re not only increasing your chances of mortgage approval but also setting yourself up for long-term success as a homeowner. Remember, the journey to homeownership is a marathon, not a sprint. Consistency in these habits will demonstrate to lenders that you’re a responsible borrower and capable of managing the financial obligations of owning a home. 

With dedication, patience, and the right preparation, you’ll be well-equipped to turn your homeownership dreams into reality. Start implementing these habits today, and take the first step towards buying your first home.