FIRST

HOME BUYER
MANUAL
Your 31 step guide to buying
your first property in NSW
2016 Edition

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

John Ruddicks 31-step guide to buying your first property in NSW.

2016 Edition
PREFACE

CONTENTS

If you need to borrow money to buy a residential property in New

South Wales, I want to be your mortgage broker.

STEP 1

Contact me

STEP 2

Income 5

STEP 3

Ongoing expenses

To apply for a home or investment loan you can either contact a

lender directly or speak to a mortgage broker. In recent years, more
than half of all Australian mortgages have been taken out with the
help of a mortgage broker. The advantage of a broker is we are
mortgage specialists who can introduce you to products from many
lenders, including all the major banks.
The rising dominance of mortgage brokers can also be attributed
to the increasing complexity of the mortgage process. Government
and lender policies change frequently, and it takes a dedicated
professional to stay informed.
These 31 steps are a rough sequence of events for first-time
property buyers in NSW. But every individual and every mortgage
application is unique. Since 2001 my passion has been to help
borrowers properly structure their mortgage debt and, just as
importantly, understand the strategy behind the structure.
I hope this guide inspires you to begin mapping out a plan to buy
your first property. A good first step on that journey is to contact my
office and arrange an obligation-free appointment to discuss your
circumstances. Even if you think you may not buy for a year or more,
its worth having a general discussion now.

STEP 4 Your deposit

STEP 5

STEP 6 Should I use a guarantor?

STEP 17 Government benefits for

first home buyers

13

STEP 18 Property hunting

14

STEP 19 Using a buyers agent

14

STEP 20 Price negotiation

14

What is Lenders Mortgage

Insurance (LMI)?

STEP 7

STEP 21 A conditional exchange

of contracts

15

STEP 22 Unconditional exchange

Can I buy with someone

of contracts with a 66W

who is not my partner?

STEP 8

What is Stamp Duty?

STEP 23 Buying at auction

STEP 9

What other costs do I pay?

STEP 24 Beware the auction/valuation

STEP 10 Loan types

10

STEP 11 What are redraw and offset?

11

STEP 12 Repayment types

12

STEP 13 What if my home might one

16
16

black spot.

17

STEP 25 Unconditional Approval

17

STEP 26 Paying your deposit

18

STEP 27 Loan offer

18

12

STEP 28 Insurances 18

STEP 14 Loan submission

12

STEP 29 Settlement 19

STEP 15 Credit report

13

STEP 30 Post-settlement 19

STEP 16 Pre-approved! 13

STEP 31 Congratulations 19

day become an investment?

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

Ninety percent of all

millionaires become so
through owning real estate.
Andrew Carnegie

Disclaimer
The information in this manual is accurate as at May 2016. Lenders and
governments however frequently change policies, and every mortgage
application is unique. The information provided here is a guide only and
decisions about your mortgage should be taken only after your personal
financial circumstances have been carefully discussed with a professional.

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

Having worked closely with several hundred first property buyers, I know that following these
guidelines will put you in a stronger position when applying for your first mortgage.
n Drive

a modest car. Often the first thing people do when they start earning a full-time
income is borrow money to buy a car. Car loans usually come with high repayments,
which significantly reduce how much you can borrow for a property. A less expensive car
often means a better first property.

n Holidays

should be funded by savings, not credit cards. Travellers tend to be more

prudent if they are spending their hard-earned savings. A large credit card debt will
weigh down a savings plan for your first property, and reduce your borrowing capacity.

n Open

a dedicated savings account that is separate from your everyday bank account.
A good online savings account will offer a better rate of return than conventional bank
accounts, and usually with no fees. Its better not to have ATM access to your savings
account so you can resist impulse spending. Name the account something like Deposit
for My First Property to encourage a mindset of saving and frugality.

n A

debit card is preferable to a credit card because youre spending your own money,
rather than spending the banks and incurring high interest. If a credit card is necessary,
the key thing in a mortgage application is the limit, not the balance. A high credit card limit
reduces borrowing capacity, even if the card is barely used.

n Theres

no better savings plan than living at home until you buy a property. If thats an
option, save at least the rent you would otherwise be paying.

n While

its tempting to rent somewhere expensive, youll have less savings for a deposit.
The more modest your rental accommodation, the more options youll have for your
first property.

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

Every person who invests

in well-selected real estate
in a growing section of a
prosperous community adopts
the surest and safest method of
becoming independent, for real
estate is the basis of wealth.
Theodore Roosevelt

Old-fashioned tips

STEP 1

STEP 2

STEP 3

Contact me

Income

Ongoing expenses

The first step on the journey of buying your first property

is to contact me. You are welcome to phone during
the day, the evening or the weekend. We can make an
appointment for you to come to my North Sydney office
or we can talk over the phone. Unless youve already
found a property and have a tight deadline, our first
meeting will be a general discussion so we can consider
your options and map out a plan.

The most important factor in any mortgage application is

income. Youll need to demonstrate your ability to repay
both the debt and the interest it incurs. Your income will
have a significant impact on the size of your loan and
therefore the purchase price of your property.

A borrower may well have a high income. But if they

also have high ongoing expenses, their loan size will be
significantly reduced. Ongoing expenses include:

My phone number is 02 9955 1176 or 0412 129512

My email is john@jrhl.com
My office address is Level 6/122 Arthur Street,
North Sydney, 2060

A key part of the mortgage application will be providing

documentation that confirms your income. It varies from
lender to lender, but for employees this can be as simple
as two recent pay slips. The rules around including
bonuses, commissions, foreign incomes, contractual
incomes, probationary periods, etc. vary from lender
to lender.

Car loans

Personal loans

HECS or HELP debt

Credit cards (remember, its the limit that counts)

Dependent children

General living expenses

Self-employed borrowers are usually required to provide

the last two years of personal tax returns plus company
tax returns and financials. One or two lenders will consider
a self-employed application based on only the most recent
tax returns.
If youre buying an investment property, lenders will factor
in a future rental income. They may also factor in the tax
deductibility of the interest you pay (theyll need to factor
in any rent or board youll continue to pay). As a result,
borrowers can generally borrow more if theyre buying an
investment property, although the interest rate is typically
a little higher.

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

CASE STUDIES
When you submit a mortgage application, the lender will
calculate your income and then deduct your expenses to
establish how much money you can put towards a mortgage
each month. Theyll assume a significantly higher interest rate
than todays interest rates so they can be confident youll still
be able to afford the repayments if interest rates rise. Here are
examples of three typical first home buyer calculations.
Note: These case studies are approximate guides,
accurate at the time of publication. They do not
consider the requirements for a deposit.
Please do not rely on these calculations.

Owning a home is a
keystone of wealth...
both financial affluence
and emotional security.
Suze Orman

Case study
two

Case study
three

Daisy wants to buy her first home.

Donald wants to buy his first

property as an investment.

Jack and Jill want to buy their

long-term family home.

n He

n Jack

n She

is buying the property by

herself.

n She

is employed full-time and earns

$80,000 p.a.

n Her

only debt is a credit card with

a $10,000 limit.

n She

will live in the property and

make principal and interest
repayments.

Daisy may be considered for a

30-year loan in the vicinity of
$440,000.

Case study
one

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

has been self-employed for

five years and owns 100% of his
company.

n His

personable taxable income is

$100,000 p.a., and his company has
a taxable income of $50,000 p.a.

n He

will continue to live with his

parents rent-free, and wants to buy
an investment property by himself.

n He

has a car loan that costs $500

per month, and a $20,000 credit
card limit.

n For

the first five years of the loan

he wants to make interest-only
repayments.

While the rental return on the

property will be quite important,
Donald may be considered for
a 30-year loan in the vicinity of
$1,100,000.

is employed full-time and

earns $125,000.

n Jill

is employed part-time and earns

$80,000.

n They

have a personal loan with

monthly repayments of $450, but
no credit cards.

n They

have two dependent children.

n They

want to buy a home and

make principal and interest
repayments.

Jack and Jill may be considered

for a 30-year loan in the vicinity of
$1,250,000.

STEP 4

STEP 5

Your deposit

What is Lenders Mortgage Insurance (LMI)?

You may have a good income and low expenses. But if you dont
have a sufficient deposit, you cant be pre-approved for a loan to
buy your first property. The only exception is if you have a guarantor
(see Step 6.)

Lenders Mortgage Insurance (LMI) is a one-off fee

payable on the settlement of the loan. LMI is paid
by the borrower to insure the lender against losing
money on the loan.

PURCHASE
LOAN AMOUNT
PRICE

COST
OF LMI

$600,000

$516,000 (i.e. 14% deposit)

$7,500

Here are the key facts regarding your deposit:

If you have a 20% deposit (or a guarantor see

Step 6) you dont need to pay LMI, which is good.
Not only do you avoid the fee, but your variable
interest rate is also likely to be lower. Lenders will
occasionally have a promotion where borrowers
with a 15% deposit can be considered for a LMI
waiver, but this offer is rare. Some lenders in 2016
may give certain professionalslawyers, doctors,
accountants, etc.an exemption from paying LMI
with just a 10% deposit.

$600,000

$552,000 (i.e. 8% deposit)

$22,000

$900,000

$774,000 (i.e. 14% deposit)

$11,000

$900,000

$828,000 (i.e. 8% deposit)

$33,500

$1,200,000

$1,032,000 (i.e. 14% deposit)

$17,000.

$1,200,000

$1,104,000 (i.e. 8% deposit)

$53,000

n 
A deposit

is usually cash in a bank account in your name.

Lenders will also consider other liquid assets as a deposit, such
as publicly listed shares.

n 
The

deposit can be anything other than the result of borrowing

money from outside your family, such as savings accumulated
over time, the sale of an asset, or a windfall gain.

n 
A family

member can agree to give you money as a gift. While

they may not need to put the money into your account to get
the loan approved, they will need to put it in writing that theyve
agreed to give you a certain amount of money to help with the
purchase.

n 
If the

family member insists on the contribution being classified

as a loan, the family member will need to confirm that no
repayments are necessary, and that the loan will only need to be
repaid when the property is sold.

n 
Almost

every lender will insist on a first property buyer having

genuine savings if they have less than a 15% deposit. If the
first property is an owner-occupier, the genuine savings will
need to be 5% of the purchase price of the property. And for
an investment property it can be higher. To verify these genuine
savings, the lender will want to see the last three months of
statements from your bank account where you have your
deposit. Theyll want to see a demonstrated ability to save
money, or at the very least that the balance has not reduced.

LMI is expensive. But its usually added to the loan

amount so you dont need to save up to pay it. Still,
its always better to use any savings you have to
make the deposit larger rather than pay for the LMI
yourself because the larger the deposit, the lower
the cost of the LMI.

As you can see, the two most significant factors are:

n 
The

dollar amount of the loan the larger the loan, the

larger the LMI cost.

n 
The

size of your deposit when compared to the value of

your property the larger the deposit, the lower the LMI.

The cost of LMI can vary from lender to lender.

Some charge a little more for investment loans
than the figures to the right which are based on
an owner-occupied loan in NSW.

n 
As

a general rule, if you have less than a 20% deposit you will
need to pay Lenders Mortgage Insurance.
31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

STEP 6

STEP 7

Should I use a guarantor?

Can I buy with someone who is not my partner?

Some mortgage applications involve a family guarantee, and are

often associated with a first property purchase. A guarantor serves
two helpful purposes:

Yes, you can buy a property and borrow money with a friend
or family member. However, there are two potential difficulties
with this structure.

They negate the need to pay LMI.

They can overcome the requirement for genuine savings.

Lets say Mickey and Pluto buy an investment property

together for $800,000 and borrow $600,000 which they
divide into two loans of $300,000. Mickey and Pluto may
have a handshake agreement that Mickey is only responsible
for one of the $300,000 loans and that Pluto will take
responsibility for the other $300,000 but in the lenders
opinion, they each individually owe $600,000.

In the past, guarantors could use their income to help a borrower

get a larger loan. This option is no longer available unless the
guarantor and borrower are married, or have been in a de facto
relationship for more than two years.
A guarantor is a family member who typically has significant equity
in a property, which means they either have no mortgage or the
balance is low compared to the value of the property.
The family member is agreeing to secure your mortgage (at least
partly) by a property they own. Its a significant commitment from the
family member, especially if the property securing your mortgage is
the family home. If you get into financial difficulty and fall behind in
your mortgage repayments, a guarantor can be forced to sell their
property to repay your debt. The guarantor needs to know that while
the chances of something going wrong (i.e. a forced sale of their
property) is low, the consequences are high. Several lenders only ask
the guarantor to guarantee a small portion of the overall debt, so if
something does go wrong they are only liable for that portion.
But the risk for the lender is significantly less if the loan is secured
by two properties and so theres no need to pay LMI, which can
save the borrower thousands. And the mortgage over the family
members property can be removed as soon as the mortgage
balance is less than 80% of the value of your property.
At the time of publication, only one major lender will consider a
guarantee from someone outside the family, such as a friend or
godparent.

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

This means that if Mickey applies for another mortgage in the

future (for example, to buy a home with his wife Minnie), the
lender will need to assume Mickey is fully responsible for the
entire $600,000 debt he shares with Pluto. Thats because
Mickey and Pluto are (in the eyes of both the lender and the
law) both responsible for the entire debt. If Pluto ran away
to Mongolia and was never heard from again, Mickey would
have to repay both $300,000 loans by himself.
The other difficulty in buying with a non-spouse is deciding
if, when and how to sell. When Mickey gets married, Minnie
may insist on him selling his share in the property he owns
with Pluto so they have a deposit for their own home.
But Pluto may not want to sell, believing the house will
jump in value over the next two years. Theres no room for
compromise, so someone wins and the other one loses.
Of course, Pluto could buy Mickeys share in the property.
But that could lead to a dispute when determining fair
market value, since one party knows the other has to sell.
Generally speaking, family members are better at resolving
these tensions than friends.

Note: One lender has recently introduced a new policy

Property Share that is designed for friends to buy either
homes or investment properties together. In this example,
the lender would treat Mickey as the borrower of one loan
and guarantor of the other loan (which would be in the name
of Pluto) and vice-versa. This means they can keep their
finances separate Pluto may want to pay interest-only on a
fixed rate whereas Mickey might want to make frequent lump
sum deposits and so would want a variable loan. Its strongly
recommended to ask a legal person to draft an owners
agreement that clearly spells out issues such as:
n

How to pay for renovations.

n 
What

happens if one party can no longer afford their

repayments?

When and how to sell.

This Property Share option means each borrower is only

responsible for their own debt. If they want to borrow more
money in the future, the lender doesnt need to assume they
are also responsible for the other debt. It also makes it easier
for one party to sell their share of the property to a third party.
Sometimes a parent (or parents) will sell their home, pool
their resources with their adult child (and usually their
partner) and buy a bigger property where they live together.
This can be convenient for retired parents who would own
a percentage of the property title but not be a borrower
on the loan. The parent isnt expected to contribute to any
mortgage repayments, but would be acting as a guarantor
of the loan, which means they are consenting to the property
they partly own being sold if the borrower seriously defaults
on the mortgage.

STEP 8

STEP 9

What is Stamp Duty?

What other costs do I pay?

Stamp duty is a one-off state government tax that must be paid

before or at settlement if youre borrowing money for the purchase.
If youre paying cash and dont need a mortgage, you can delay
the stamp duty for a short period after settlement.

As well as your deposit and stamp duty, you should also factor in
around $1,800 for your legal work and around $400 for either a strata
report or, for a house, a building/pest inspection.

The following stamp duty is payable for these purchase prices:

n $300,000

$8,990 (i.e. 2.99% of the value of the property)

n $500,000

$17,990 (i.e. 3.59% of the value of the property)

n $1,000,000

$40,490 (i.e. 4.04% of the value of the property)

n $2,000,000

$95,490 (i.e. 4.77% of the value of the property).

While some lenders will charge an application fee of around $600,

most charge a settlement fee of around $300. The state government
will charge around $450 in registration fees, and you should factor
in up to $1,000 (or more depending on price) in adjustments
reimbursements for any local council rates or strata fees the seller has
already paid in advance. As a general rule, you should assume costs
of around $4,000.

Unlike some states, the cost of the stamp duty in NSW is the same
whether the property is owner-occupied or an investment. Before
you submit your loan, you will need to demonstrate you have
money available to pay for the stamp duty, although a guarantor
can negate that requirement. Stamp duty becomes more expensive
as the property becomes more expensive, and the percentages
used in calculations also increase.

Real estate investing, even on a

very small scale, remains a tried
and true means of building an
individuals cash flow and wealth.
Robert Kiyosaki

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

STEP 10
Loan types
There are countless mortgage products in Australia. But nearly all
of them will fall under one of these categories:
STANDARD VARIABLE: This is easily the most popular loan
type in NSW. The interest rate is variable, and so generally moves
up and down when the Reserve Bank adjusts its official interest
rate. However, a lender will occasionally change its variable rate
for other reasons. A standard variable rate loan has an offset
account attached to it (see Step 11). Often it is best to pay
an annual fee of around $400 with a standard variable. That
fee brings the loan under a package that includes discounted
interest rates, a free credit card, free offset, discounts on
insurances, etc.
BASIC VARIABLE: This is the same as a standard variable rate
loan except it doesnt have an offset account. However, it does
have redraw (see Step 11). Basic variable loans usually have no
ongoing fees, and are generally more popular if the loan amount
is under $300,000 or so.
Warning: Many lenders have a track record of heavily promoting
a new basic variable with a very low rate, and then increase the
rate above the market average.
FIXED RATE: A fixed rate means the interest will not change for
a number of years. Most loans are for a 30-year term, but you
can arrange to fix your interest rate for one to five years. Some
lenders will even let you fix for up to 10 years. While its not
always the case, the longer you fix, the higher the rate. A fixedrate loan generally doesnt have an offset account or redraw, and
is very limited in its ability to accept lump sum deposits without
penalty. They usually have a steep break cost if you decide to
pay out the loan before the end of the fixed period. If the variable

10

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

rate rises above your fixed rate you have probably saved money.
But if the variable rate drops below your fixed rate youll be losing
money. Some people (often new parents or people approaching
retirement) want to fix their interest rate because they are
attracted to the certainty.
SPLIT LOAN: A common structure where you have some of
your debt at a variable rate and some of your debt at a fixed rate.
LINES OF CREDIT: A line of credit is effectively a big credit card
secured by your property. Theres a set limit that doesnt reduce,
and you only have to pay the interest due each month. You are
welcome to pay lump sums, and you can pay even pay the debt
in full and keep the facility. The interest rate is always variable,
and usually about 0.20% higher than a standard variable rate.
You can have your salary or any other income paid into the Line
of Credit, and you can treat it as a bank account where you
can withdraw and deposit money via BPAY or ATM. A Line of
Credit combines your debt, savings and everyday banking in
the one account. Lines of Credit can be used to buy a home or
an investment property, but I rarely recommend one to buy a
property. The interest rate is higher, and as the debt is paid the
borrower has instant access to the paid off balance to spend
however they want (e.g. a trip to Hawaii). And for tax reasons,
an offset is far more preferable for investors. Lines of Credit
are suitable for people who have paid off (or largely paid off) a
mortgage and therefore have a lot of equity, and want instant
access to their funds to invest.

CONSTRUCTION LOANS: These are variable loans used to

finance the construction of a property. The borrower is approved
for a certain amount of money, and the builder is paid from those
funds as various stages in the construction are completed. The
borrower only pays interest on the debt paid to the builder, and
the repayments are interest-only. With most lenders, the loan will
automatically become a standard variable loan with principal and
interest repayments when the property is complete. At that point
it is worth considering a restructure.

Interest rates in Australia

from 1996 to April 2016

STEP 11
What is redraw and offset?
Most people with a home loan today will have either an offset account
or a redraw facility, and in many cases both.
An offset account is like a normal everyday bank account except in one
positive respect.
Lets imagine you have a mortgage with ABC Bank of $1,000,000, and
$50,000 sitting in your offset account. In that case, you would only be
charged interest on $950,000 on this particular day because the bank
pretends the money in the offset is sitting in the mortgage when they
calculate the daily interest charge.
A good savings account these days returns around 3%, and you have
to pay tax on the interest you earn. Money in an offset account doesnt
earn any interest, but does prevent interest of over 4% being charged
to your mortgage. And theres no tax to pay for that saving.
Redraw is similar to offset in that it reduces the interest payable.
Redraw is simply depositing surplus cash directly into the mortgage
account itself. Most lenders will let you deposit spare money into the
mortgage and redraw it at no cost. While the money is sitting in the
mortgage, it is reducing the debt you owe and therefore the interest
youre charged. In most cases, redraw is not suitable for an investment
loan or for an owner-occupied loan that may one day become an
investment loan (see Step 13).

Courtesy of the Reserve Bank of Australia

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

11

STEP 12

STEP 13

STEP 14

Repayment Types

What if my home might

one day become an
investment?

Loan Submission

Most lenders will let you make repayments weekly,

fortnightly, or monthly. I find its usually best to match
your repayments to your pay cycle, and arrange for the
mortgage repayment to be direct debited a couple of days
after your pay arrives in your account.
At some lenders you will end up paying about a month
extra in repayments over the course of a year if you make
weekly or fortnightly repayments. This increases the cost of
the repayments, but youll reduce your debt more rapidly.
Most people with a mortgage over their home will elect
to pay principal and interest repayments, which means
every time you make a repayment youre not only paying
the interest but also reducing the debt. Some people
(often investors and people considering converting their
owner-occupied property into an investment property) elect
to only make interest-only repayments from the outset.
Assuming a 30-year term and an interest rate of 4.20%,
principal and interest repayments are about 40% higher
than interest only repayments.

This tip is critical for those with home loans, and even more
so for people looking to buy their first home. It is the most
overlooked factor with owner-occupied loans, and costs
countless people (usually those with an excellent debt
reduction record) a lot of money.
If theres a possibility your owner-occupied mortgage will
become an investment property one day, you should consider
paying interest-only repayments from the moment you buy
your home. It does seem counter-intuitivepeople who
are good with managing their money want to see their debt
reducebut you can effectively pay the debt off via an
offset account.
When the property becomes an investment property:
n You

will have much more cash available to use as a

deposit on your next owner-occupied property and so
that future home loan will be lower.

n 
The

investment loan you now have will give you greater

tax benefits.

All debt is bad. But owner-occupied debt isnt tax deductible,

which makes it worse than investment debt.
If youre in this position, but have a track record of not being a
great saver and not clearing your credit card debt each month,
you should probably avoid this strategy. It will result in a lot of
cash in your offset, which may be too tempting to spend.
If youre considering paying interest-only repayments on
your owner-occupied property because it might become an
investment property, you should first talk to your accountant.
12

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

Once you have sufficient income and deposit, and have

chosen a mortgage structure and lender, we can prepare
and submit your loan application.
Its usually a good idea to be pre-approved for a little
bit more money than you think youll need. It can be
frustrating to find the ideal property and having to waste a
few days asking your lender to increase the loan amount
so you can make an offer. As a general rule, its not a good
idea to borrow the very most your lender is prepared to
lend you. But if youre young and confident your income
will increase with time, borrowing towards your upper limit
can be a reasonable strategy.
Once youve provided the necessary documentation, I
will prepare your application. You will need to check it
carefully and make any necessary changes, as its critical
to get every detail accurate. When youre happy with
the application form and youve signed it, Ill submit the
application to the lender. I always include a Loan Summary
with your application. It spells out the details of our
application, and will be one of the first things read by the
decision-maker within the lender. The Loan Summary will
highlight your strengths, and address any weaknesses.
After submitting the loan we usually hear back in three to
four days. But it can be anywhere from a day to a month,
depending on the volume of applications being received
by the lender. Sometimes the lender with the most
attractive offer at the time and take the longest to assess
your application, which can be frustrating (but well worth
the wait).

STEP 15

STEP 16

STEP 17

Credit Report

Pre-approved!

The first thing a lender will do when they receive your

application is conduct a credit report. This will tell them
such things as:

The credit team within a lender makes the decision as

to whether to pre-approve a loan. Sometimes the credit
officer assigned to your application will request additional
documents. Once they are satisfied with your application,
they will issue a pre-approval, also known as a conditional
approval. Each lenders process is a little different, but a
document is usually emailed to me, which I then forward
to you.

Government benefits
for first home buyers

n 
Your

previous employers

n 
Your

previous addresses

n 
If you

are a director of any companies, and whether

any of those companies have been reported for being
late with either debt repayments or bills

n 
Whether

you have been reported in the past five to

seven years for being in default on a finance contract or
a bill (e.g. from a phone company)

n 
Whether

you have been bankrupt in recent years

n 
Whether

you have applied for a mortgage or other

finance in the past five to seven years.

Most borrowers have a clear credit report. But if youre

concerned there may be a negative entry, its important
to get the report before submitting your loan. If you need
a copy of your report please let me know. If there is a
negative entry, its best to address that up front in the
submission to the lender. It may be necessary to delay
the application and try to rectify the blemish.

Most pre-approvals are valid for three months, although

some lenders issue six-month pre-approvals. The
standard pre-approval will say the borrower is approved
for a certain amount of money subject to the lender
conducting a valuation of the property and inspecting
the contract for sale.
Unfortunately, some lenders issue flimsy, computergenerated pre-approvals that are worthless. Its important
to get what I call a fully verified pre-approval, where the
lender has carefully reviewed the documents associated
with the submission.
Even though a lender has officially said you are preapproved, if you change jobs or take on other debt the
lender has the right to revoke the pre-approval or reduce
the loan amount.
If your application is unsuccessful, it probably means your
property purchase has only been delayed. At that point,
we will map out a strategy to overcome any impediment.

These benefits are only available to people buying their first

owner-occupied property in NSW. Even then the benefits are
restricted to first home buyers buying a property thats being
constructed typically an off-the-plan purchase or a house and
land package.
n 
To

be eligible, you or your partner must be either a

permanent resident or an Australian or New Zealand citizen.

n 
If the

purchase price is less than $750,000 the government

will give you a $10,000 tax-free grant at settlement.

n 
If the

purchase price is less than $550,000 you wont pay

stamp duty, saving you $20,240.

n 
If the

purchase price is more than $650,000 you will pay

normal stamp duty.

n 
If the

purchase price is between $550,000 and $650,000

the stamp duty you pay will be reduced. A stamp duty
discount or exemption is also available on vacant land
purchases at reduced amounts.

n 
To

be eligible for these benefits you need to live in the

property for at least six months within the first 12 months,
and agree to refund the benefits if you dont fulfil those
terms.

n 
If you

own an investment property (or have owned an

investment property) purchased after 30 June 2000
you may still be eligible for the first home owners grant.
However, you will not receive the stamp duty exemption/
discount.

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

13

STEP 18

STEP 19

STEP 20

Property Hunting

Using a Buyers Agent

Price Negotiation

Armed with a pre-approval, you can now inspect

properties knowing you can make an offer. Of course, it
can only help if youve already been looking at properties.
The more properties you see, the sharper your eye
becomes at spotting good value and knowing whats
suitable for you. A common error people who have just
gained pre-approval make is to buy the first property they
see. It may well be the perfect property for you, but please
force yourself to look at a few others just to be sure.

When you engage with a real estate agent whos selling a

property, that agent is working for the seller of the property.
A buyers agent is a real estate professional you pay to act
on your behalf in the buying process. You explain what
you want in a property, and the buyers agent scours the
market for a property that fits your description. Often a
buyers agent will know of properties about to come on
to the market that the public hasnt been informed about.
They also conduct the negotiations on your behalf to buy
the property.

When youve found a property you want to buy, you

need to negotiate a price via the real estate agent.
Because the real estate agent is being paid to get the
highest possible price for the property, some buyers
dont bother building a positive rapport with them.
This is an error. The real estate agent is in a position of
power, and having a cordial relationship with them can
only help.

Excellent resources are the real estate websites

www.realestate.com.au and www.domain.com.au.
Saturday is the busy day of the week for real estate, so
mapping out a timetable of inspections on Friday evening
can help you make the most of the day. Inspections are
also available during the week.
If you find the ideal property before gaining pre-approval
you may still be able to buy it. But it does mean well be in
a rush, and rival buyers will probably have a head start
on you.

14

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

Relatively few purchasers are prepared to pay the buyers

agent, but they are increasing in popularity. I cant recall a
purchaser engaging a buyers agent who didnt report they
did a good job. The chances of buying a lemon through a
reputable buyers agent is low.

Every sale has its own dynamics, and most buyers will
negotiate by phone or in person. I find it can help to put
your offer in writing via email. Unlike other contracts to
buy or sell, emails regarding the purchase of real estate
in NSW are not binding.
Clients phone me around the time of making an offer.
Sometimes I can think of something that can help get
their offer accepted, but mostly Im just a sounding
board to talk things through at this critical juncture.

STEP 21
A Conditional Exchange of Contracts
Under NSW law, a property is sold with a five-day cooling-off
period unless its waived under what is known in the industry
as a 66W (see Step 22).
If youve had an offer accepted, the first option (which
grants you a five day cooling-off period) is to pay a 0.25%
deposit (e.g. $2,500 on a $1,000,000 purchase) and sign
the contract for sale which is given to the vendor or their
legal representative. At the same time the vendor signs the
contract with your name and the agreed price, and you or your
legal advisor takes possession of that signed version of the
contract.
Once the signed contracts have been exchanged, the vendor
cannot sell the property to anyone else for the next five days
even if theyre offered a higher price. You have the right to pay
the remainder of the deposit within the next five days, at which
point you have bought the property unconditionally.

1. FINALISE LOAN STRUCTURE

You may have been pre-approved for up to $750,000, but
you only need $625,000. The pre-approval may have been
for a variable loan, but now you want to fix half of it. When
you know the exact purchase price we can discuss and
finalise these key points and then inform the lender.
2. VALUATION
A valuation is a report prepared by a certified valuer acting
on instructions from your lender. Most lenders will pay the
cost of the valuation. Often the valuer will need to walk
through the property for five minutes before preparing
a report of around eight pages. Valuers are informed
whether a price has been agreed, and commonly report
that the value is the same as the purchase price.

But before you pay the remainder of the deposit you need
to conduct some checks. And if any of the results are
unfavourable (or you simply change your mind) you can call off
your purchase and forfeit only your 0.25% deposit, which is
kept by the vendor.

The valuation will also report on other factor, such as

flood or bushfire risk. Sometimes a lender will reject a
property for something unrelated to the price, particularly
if you have less than a 20% deposit. If the valuer says the
property is worth less than the agreed purchase price, it
usually delays or even derails the loan approval. But while
it can be frustrating, the valuer may be doing you a favour.

While under a cooling off period there are four things to do.

3. CONTRACT REVIEW
When a vendor decides to sell a property, their legal
advisor needs to prepare a Contract for Sale, which
is usually around 80 pages long. When your offer is
accepted, you need to ask the real estate agent to
forward that contract to you so you can forward it to
your legal advisor.

Your legal advisor can either be a solicitor or a

conveyancer. A conveyancer is someone who is qualified
in one specific part of the law property sale. Your legal
advisor will read through the contract and let you know of
any concerns. For example, the sale price of a property
may seem like a bargain until they inform you the local
council has plans to build a sewerage plant next door
within five years. Most of the time your legal advisor will
read the contract and report no significant concerns. But
if there are issues, its important to consider them carefully.
While it may look like a great property, you dont want
to buy a property with a cloud over it (legal or otherwise)
unless you can see a solution and buy the property at an
appropriately discounted price.
4: INSPECTIONS
Before fully committing to buying a property, you should
pay for an inspection. For a house you should get a
building and pest inspection, which will identify any
structural issues or pest damage. For a unit you should
get a strata report, which is an independently assessed
review of the strata building including its finances and
structural issues. Its important to pay for these reports
yourself, because if youre simply given these reports and
theres a problem down the track that wasnt identified,
you wont have any legal standing to sue whoever
prepared the report.

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

15

Home purchases that

are very highly leveraged
or unaffordable subject
the borrower and lender
to a great deal of risk.
Moreover, even in a
strong economy,
unforeseen life events
and risks in local real
estate markets make
highly leveraged
borrowers vulnerable.

16

Ben Bernanke

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

STEP 22

STEP 23

Unconditional Exchange
of Contracts with a 66W

Buying at Auction

If the real estate agent advises you that the vendor doesnt
want to exchange with a cooling-off period, youll need to sign
a 66W certificate acknowledging that youre waiving your right
to a cooling-off period. Some vendors prefer this it simplifies
the process, and makes buyers act as quickly as possible. If
youre going to buy a property with an unconditional exchange,
you need to complete the valuation, contract review, inspections
and confirm the final loan structure is approved before you
exchange.

Auctions are increasingly popular in NSW. If you

win an auction, youve unconditionally exchanged
contracts on the purchase of a property and waived
your right to a cooling-off period. As a result, youll
need to have your loan pre-approved (subject only to
valuation), the contract reviewed, and the inspections
completed before the auction (see Step 21).

STEP 24

STEP 25

Beware the Auction/Valuation black spot.

Unconditional Approval

The property buying process has checks and doublechecks at every step to ensure people avoid making a
catastrophic slip-up. If someone legally commits to buying
a property but cant get a loan to pay the vendor, it can
easily result in bankruptcy.

Once a lender has approved your final loan structure, your

property and its purchase price (and if necessary obtained LMI
approval), the lender will issue the Unconditional Approval. This
means the lender has agreed to lend you the money required
and has no further checks to make. Once we get to this
point, the pressure is off. The lender will email me a document
confirming the loan is 100% approved, which I will then
forward to you (and often your legal representative) via email.
You will then instruct your legal representative to complete the
exchange by paying the full deposit (less any amount youve
already paid).

However, theres a black spot in property buying and

mortgage lending in NSW. It relates to buying at auction
(or with a 66W) and the post-sale valuation.
Imagine Daffy is pre-approved for a loan of $950,000,
which assumes a purchase price of $1,000,000. That
means Daffy is borrowing 95% of the value of the property.
And lets say Daffys pre-approval is subject only to the
valuation of the property. If Daffy finds a property he wants
to buy for $1,000,000 going to auction he could instruct
the lender to conduct a pre-auction valuation. But like
most people, he probably wont because valuers are
usually a fraction conservative when assessing the value
of a property without an agreed sale price. If the lenders
pre-auction valuation says the property is worth $970,000
but Daffy buys it at auction for $1,000,000, the lender will
only lend 95% of either the purchase price or the valuation
(whichever is lower).
In this case, Daffy can only borrow 95% of $970,000. If he
cant come up with an extra $30,000 or so hell default on
the settlement and likely lose:
n 
10%
n 
the

Daffys lender might re-evaluate the property after the

auction and revise the valuation to the purchase price. But
theres no guarantee they will, and valuers can be reluctant
to amend a recent valuation. Another option at this point
would be to ask a second lender to value the property.
Since this would now be after the auction its likely (but not
a certainty) the valuer would agree with the auction price.
However, the second lender may not approve your loan
for 95% of the purchase price because their policy is to
only lend up to 90% of the value.
If Daffy didnt have the property valued before auction, the
lender will probably need to conduct a valuation postauction. Au auction is effectively a valuation of a property,
and so post-auction the valuer will almost always agree
with the purchase price. But I have known two occasions
when the valuer didntone where the borrowers
appealed the valuation and it was successfully increased,
and the other where another lender valued the property at
the purchase price and the borrowers switched lenders.
The bottom line is that if youre pre-approved to borrow
around 90% or more of the value of a property, the risks of
buying at auction (or without a five-day cooling-off period)
need to be carefully discussed in advance. It may be that
you simply cant buy a property at auction.

of the agreed price

vendors legal costs

n 
the

difference between $1,000,000 and a subsequent

lower sale price.

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

17

STEP 26

STEP 27

STEP 28

Paying your deposit

Loan Offer

Insurances

Under NSW property law, the exchange of contracts

requires a 10% deposit. However, the vendor can agree to
a lower amount, with 5% being quite common. Sometimes
the vendor will ask for the deposit funds to be released to
them before settlement. You should ask your legal advisor
whether this is advisable.

Once your loan is unconditionally approved your lender

will post a formal loan offer to you. This consists of several
important legal documents that you should read carefully,
sign and return. If you are unclear about anything in these
documents, you should discuss it with your legal advisor.
I often go through the loan offer with borrowers in person
as well.

Once youve exchanged contracts, you have a legal

interest in the property. But what if the property is
destroyed by a natural disaster between the exchange
and the settlement? And what if the vendor doesnt
have building insurance? This opens up a myriad of legal
questions, so its worth contacting an insurance company
and getting the property insured. This isnt necessary for a
strata unit strata insurance covers the entire building, and
is paid by the strata levies. Some lenders will make having
an insurance policy in place a condition of settlement.

If you dont have a cash deposit available (maybe you have

a guarantor, or a gift of money is yet to arrive), I can help
you get a deposit bond from one of several providers. A
deposit bond comes with a fee, but its easy to obtain once
you have an unconditional loan approval. A deposit bond is
a promise from a major insurance company to the vendor
that if you cannot settle on the purchase then the insurer
will pay the 10% deposit in cash. The insurer will then seek
to recoup that payment from you.

18

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW

Once the loan offer documents are signed, they are posted
back to the lender who will take a few days to process
them. Once thats complete, your lenders legal department
will contact your legal advisor to co-ordinate the settlement
which is typically six weeks after the exchange.

Taking on a mortgage is a significant responsibility, and

its well worth considering personal insurances such as
income protection, life insurance and total and permanent
disability insurance. If you already have these policies in
place, now is a good time to review them in light of your
increased debt. This is especially important if you have
dependent children. People understand the need to insure
their car, home, contents and property, but find it harder
to appreciate the need to insure their greatest asset their
ability to earn future income.

STEP 29

STEP 30

STEP 31

Settlement

Post-settlement

Congratulations!

Settlement is the big day when you get the keys to your
new property. A few days before, your legal representative
will have advised if there is any outstanding payment from
you to make for the deposit or fees and how to forward
those funds so they are available at the settlement.

If you set up internet banking, you can see your account

numbers and account transactions.

Buying your first property does change your life in a few

ways. You now have quite a responsibility in ensuring the
repayments are made but this can result in the borrower
being more focused on their career. Having your own home
from which a landlord cannot evict you at short notice also
brings greater peace of mind and hopefully with time will
also become a worthwile financial investment.

On the day of settlement you have the legal right to

conduct a final inspection. This is a final check to make
sure the property hasnt been altered or physically
damaged. For example, the vendor may have stripped it of
inbuilt appliances that the contract for sale said would be
sold with the property.
The settlement is a physical meeting thats usually
over in less than a minute. You do not attend. Instead,
representatives of your legal advisor, your lender, the
vendor and potentially others will get together to exchange
documents and cheques. At the end of that process you
are the legal owner of the property, and entitled to the keys
and occupation. Its also the day your mortgage starts.

A day or two after settlement its worthwhile speaking with

your lender to:
n 
Ensure

your direct debt is in place to make your

repayments.

n 
Check

when your first and subsequent repayments are

due.
n 
Record

if necessary, your new residential and postal

address with your lender.

n 
Double-check

that your offset account is plugged into

your loan (if you have an offset).

If you have a new bank account, remember to inform

your employers payroll department. If you have direct
debts coming out of an old account (such as for a gym
membership), its important to put aside some time to
phone regular recipients and advise them of your new
bank account details.

Copyright 2016 by John Ruddick Home Loans. All rights reserved. This book or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher.

31-STEP GUIDE TO BUYING YOUR FIRST PROPERTY IN NSW l

19

PRINCIPAL AND INTEREST MONTHLY REPAYMENTS BASED ON A 30-YEAR TERM

$300,000

$500,000

$700,000

$900,000

$1,200,000

$1,600,000

$1,800,000

$2,000,000

3.30%

$1,314

$2,190

$3,066

$3,942

$5,255

$7,007

$7,883

$8,759

3.40%

$1,330

$2,217

$3,104

$3,991

$5,322

$7,096

$7,983

$8,870

3.50%

$1,347

$2,245

$3,143

$4,041

$5,389

$7,185

$8,083

$8,981

3.60%

$1,364

$2,273

$3,183

$4,092

$5,456

$7,274

$8,184

$9,093

3.70%

$1,381

$2,301

$3,222

$4,143

$5,523

$7,365

$8,285

$9,206

3.80%

$1,398

$2,330

$3,262

$4,194

$5,591

$7,455

$8,387

$9,319

3.90%

$1,415

$2,358

$3,302

$4,245

$5,660

$7,547

$8,490

$9,433

4.00%

$1,432

$2,387

$3,342

$4,297

$5,729

$7,639

$8,593

$9,548

4.10%

$1,450

$2,416

$3,382

$4,349

$5,798

$7,731

$8,698

$9,664

4.20%

$1,467

$2,445

$3,423

$4,401

$5,868

$7,824

$8,802

$9,780

4.30%

$1,485

$2,474

$3,464

$4,454

$5,938

$7,918

$8,908

$9,897

4.40%

$1,502

$2,504

$3,505

$4,507

$6,009

$8,012

$9,014

$10,015

4.50%

$1,520

$2,533

$3,547

$4,560

$6,080

$8,107

$9,120

$10,134

4.60%

$1,538

$2,563

$3,589

$4,614

$6,152

$8,202

$9,228

$10,253

4.70%

$1,556

$2,593

$3,630

$4,668

$6,224

$8,298

$9,335

$10,373

4.80%

$1,574

$2,623

$3,673

$4,722

$6,296

$8,395

$9,444

$10,493

4.90%

$1,592

$2,654

$3,715

$4,777

$6,369

$8,492

$9,553

$10,615

5.00%

$1,610

$2,684

$3,758

$4,831

$6,442

$8,589

$9,663

$10,736

5.10%

$1,629

$2,715

$3,801

$4,887

$6,515

$8,687

$9,773

$10,859

5.20%

$1,647

$2,746

$3,844

$4,942

$6,589

$8,786

$9,884

$10,983

5.30%

$1,666

$2,777

$3,887

$4,998

$6,664

$8,885

$9,995

$11,106

5.40%

$1,685

$2,808

$3,931

$5,054

$6,738

$8,984

$10,108

$11,231

5.50%

$1,703

$2,839

$3,975

$5,110

$6,813

$9,085

$10,220

$11,356

5.60%

$1,722

$2,870

$4,019

$5,167

$6,889

$9,185

$10,333

$11,482

5.70%

$1,741

$2,902

$4,063

$5,224

$6,965

$9,286

$10,447

$11,608

5.80%

$1,760

$2,934

$4,107

$5,281

$7,041

$9,388

$10,562

$11,735

INTEREST-ONLY MONTHLY REPAYMENTS

$300,000

$500,000

$700,000

$900,000

$1,200,000

$1,600,000

$1,800,000

$2,000,000

3.30%

$825

$1,375

$1,925

$2,475

$3,300

$4,400

$4,950

$5,500

3.40%

$850

$1,417

$1,983

$2,550

$3,400

$4,533

$5,100

$5,667

3.50%

$875

$1,458

$2,041

$2,625

$3,500

$4,667

$5,250

$5,833

3.60%

$900

$1,500

$2,100

$2,700

$3,600

$4,800

$5,400

$6,000

3.70%

$925

$1,541

$2,158

$2,775

$3,700

$4,933

$5,550

$6,167

3.80%

$950

$1,583

$2,217

$2,850

$3,800

$5,067

$5,700

$6,333

3.90%

$975

$1,625

$2,275

$2,925

$3,900

$5,200

$5,850

$6,500

4.00%

$1,000

$1,667

$2,333

$3,000

$4,000

$5,333

$6,000

$6,667

4.10%

$1,025

$1,708

$2,392

$3,075

$4,100

$5,467

$6,150

$6,833

4.20%

$1,050

$1,750

$2,450

$3,150

$4,200

$5,600

$6,300

$7,000

4.30%

$1,075

$1,792

$2,508

$3,225

$4,300

$5,722

$6,450

$7,167

4.40%

$1,100

$1,833

$2,567

$3,300

$4,400

$5,333

$6,600

$7,333

4.50%

$1,125

$1,875

$2,625

$3,375

$4,500

$6,000

$6,750

$7,500

4.60%

$1,150

$1,917

$2,683

$3,450

$4,600

$6,133

$6,900

$7,667

4.70%

$1,175

$1,958

$2,742

$3,525

$4,700

$6,267

$7,050

$7,833

4.80%

$1,200

$2,000

$2,800

$3,600

$4,800

$6,400

$7,200

$8,000

4.90%

$1,225

$2,042

$2,858

$3,675

$4,900

$6,533

$7,350

$8,167

5.00%

$1,250

$2,083

$2,917

$3,750

$5,000

$6,667

$7,500

$8,333

5.10%

$1,275

$2,125

$2,975

$3,825

$5,100

$6,800

$7,650

$8,500

5.20%

$1,300

$2,167

$3,033

$3,900

$5,200

$6,933

$7,800

$8,667

5.30%

$1,325

$2,208

$3,092

$3,975

$5,300

$7,067

$7,950

$8,833

5.40%

$1,350

$2,250

$3,150

$4,050

$5,400

$7,200

$8,100

$9,000

5.50%

$1,375

$2,292

$3,208

$4,125

$5,500

$7,333

$8,250

$9,167

5.60%

$1,400

$2,333

$3,267

$4,200

$5,600

$7,467

$8,400

$9,333

5.70%

$1,425

$2,375

$3,325

$4,275

$5,700

$7,600

$8,550

$9,500

5.80%

$1,450

$2,417

$3,383

$4,350

$5,800

$7,733

$8,700

$9,667

These are some of the lenders we can work with on your behalf.

Level 6/122 Arthur Street, North Sydney, 2060 l P 02 9955 1176 l M 0412 129512

l E john@jrhl.com