Buying residential property in NSW

It’s important to understand how much you can afford to pay for a home. There are a range of costs associated with buying a property, not just the purchase price.

Make a budget

If you’re planning to buy a home, having a budget is key to calculating what you can afford to spend on a home and how much you need to save for a deposit. 

Budgets are important because they are a practical way to understand your overall financial situation and help to:

• figure out how you spend your income
• identify areas where you can save money

For most people, their financial situation won’t stay the same forever. For example, new expenses might come up or your income changes. 

This means you’ll need to make time to consistently review and adjust your budget so it’s always reflecting your actual financial situation. 

Save for your home deposit

When buying a home, you’ll generally need to put down a deposit that is equal to at least 5% of the value of the property. 

Ideally, you’ll want to save as much as you can for a deposit because you won’t have to borrow as much from a bank or lender. This means you'll pay back a smaller amount of interest.

If you have a smaller deposit, your bank or lender might request proof that you can pay back a loan before agreeing to let you borrow a large amount. Examples of evidence, include:

• high credit score or rating
• ongoing employment
• consistent savings plan

A bank or lender might charge you Lenders Mortgage Insurance (LMI) or a low deposit premium if you have a smaller deposit. This is to protect themselves financially if you default or can't pay back your loan. 

You can check how long it will take to reach your home deposit savings goal using the Moneysmart savings calculator

Costs when buying a home

It’s important to keep in mind, it’s not just a deposit you’ll need to save for when planning to buy a home.  

Upfront costs

There are a number of upfront costs when buying a home, such as:

• transfer duty or stamp duty, which is based on the value of your home 
• Lenders Mortgage Insurance (LMI) if you’re borrowing more than 80% of your home’s purchase price
• pest, building, or strata reports
• legal or conveyancing fees
• mortgage registration fees
• land tax and registration of title
• loan application fees including, independent valuers fees

Be aware that you may have to pay some of these upfront costs such as, building reports or legal fees multiple times if you offer or place bids on more than 1 home. 

Ongoing costs

Ongoing costs of buying and owning a home can include:

• council rates
• connecting and paying for utilities like water
• insurance
• strata levies, if applicable
• maintenance

These costs will affect the money you have available to make your mortgage repayments and pay for everyday expenses.

It’s worth adding these costs into your budget so you can calculate how much you’ll need to save to buy and manage a home.

In most situations, it’s common for people to borrow money to buy a home. This is known as getting a home loan or a mortgage. 

A home loan is made up of 2 parts:

• principal, the amount borrowed from a lender
• interest, the cost of borrowing the money

Choosing a home loan

A home loan is a long-term debt, so even a small difference in interest adds up over time. This is why it’s important to check the interest rate when you’re looking for a home loan.

When choosing a home loan, know the loan repayment options and how they might impact your budget.You’ll need to consider principal and interest repayments or interest only repayments.

If you're unsure, talk to your bank, lender or a financial professional to understand what may work best for your financial situation.

Types of home loans

When you’re deciding which type of home loan to get generally, you’ll be choosing between either a variable-rate loan or a fixed-rate loan.

Variable-rate loan

This is the most common type of home loan. It means your interest rate will change over the term of your mortgage depending on the current interest rate offered by your lender.

Some months you might pay less interest, while other payments can be higher.

Fixed-rate loan

A fixed-rate means your interest rates are set, no matter what the official interest rate charged by your lender is. 

Interest rates are generally fixed for 2 to 5 years and then they revert to a variable rate for the remaining term of your mortgage.

Fixing your rate can give you a level of financial security, where you know how much your mortgage repayments will cost you each month.

Get conditional finance (pre-approval)

If you’re actively thinking about buying a home, it can be useful to check how much you’re eligible to borrow from a bank or lender. This process is called home loan pre-approval or conditional approval.

The process of getting pre-approval involves applying with a lender who will check your finances and assess whether you’ll be able to repay a loan. 

If a lender approves your application, you’ll be given pre-approval to borrow up to a certain amount. This will last for 3 to 6 months.

Going through the pre-approval process is not a compulsory part of applying for a home loan but it can be beneficial in a number of ways, including: 

• becoming familiar with loan applications
• understanding how much you can afford to spend on a home
• demonstrating to sellers you’re ready to proceed with a purchase

Getting pre-approval is not a guarantee that you will be approved for a home loan.

Once you find a home you want to buy, you’ll need to get full or unconditional approval from a lender. This requires a more detailed application including a valuation of the property to check you haven't offered too much for it.

If you’re buying a new home or vacant land to build a home for the first time, the NSW and Federal Government have a range of financial assistance available to help with these costs.

First Home Buyer Assistance scheme

This type of financial assistance is available for people who are looking to buy:

• a new home
• an existing home
• vacant land

If your home is valued at less than $650,000, you can apply for an exemption so that you don’t have to pay transfer duty, also known as stamp duty.

If the value of your home is between $650,000 and $800,000, you can apply for a discounted rate of stamp duty. The amount you’ll have to pay will be based on the value of your home.

The First Home Buyer Assistance scheme also applies to vacant land if you're planning to build a home on it, which means you:

• won’t pay any stamp duty, if your land is valued at less than $350,000
• get a discounted rate of stamp duty for land valued between $350,000 and $450,000

To work out how much stamp duty you’ll pay for a home, use the NSW Revenue calculator

To receive the First Home Buyers Assistance scheme, you or one of the other first home buyers must:

• move into the new home within 12 months after buying it
• live there for at least 6 continuous months

There are other requirements set by Revenue NSW that you'll need to meet to be eligible to access the scheme. Consider checking these before you start your application. 

First Home Owner's Grant (New Home) scheme

The First Home Owner’s Grant is $10,000 and is available for people who are:

• buying a new or substantially renovated home for no more than $600,000
• buying land and building a home with the total for both at no more than $750,000

There are 2 ways to apply for the grant:

1. through an approved bank or lender when you’re applying for finance to buy a home
2. directly with Revenue NSW if you’ve already purchased your home, or construction of it has started

There are certain requirements you’ll need to meet to receive the grant, such as:

• be over 18 years old
• be an Australian citizen or permanent resident
• not previously owned a residential property in Australia
• not previously received a grant under the First Home Owner Grant Act 2000 in any state or territory

To receive the First Home Owner's Grant, you or one of the other first home buyers must:

• move into the new home within 12 months after buying it
• live there for at least 6 continuous months

First Home Super Saving Scheme

The First Home Super Saver Scheme lets first home buyers save a deposit through their superannuation.

You can make up to $15,000 of voluntary super contributions a year that can be withdrawn to buy your first home.

To be eligible for the scheme you need to be a first home buyer, and:

• live in the home you're buying, or intend to as soon as is practical
• intend to live in the home for at least 6 months within the first 12 months you own it

First Home Loan Deposit Scheme

The First Home Loan Deposit Scheme is a Federal Government initiative run by the National Housing Finance and Investment Corporation (NHFIC).

The aim of the Scheme is to shorten the time first home buyers have to save a deposit to buy a home. 

The Scheme works by giving first home buyers the opportunity, to:

• purchase a home with a 5% deposit
• avoid paying Lenders Mortgage Insurance (LMI)

You're required to pay LMI if you’re borrowing more than 80% of your home’s purchase price. Under the Scheme, the Federal Government acts as a guarantor for up to 15% of your home loan meaning you won't have to pay this cost.

Each financial year, the NHFIC releases 10,000 Scheme places through participating banks and lenders. 

Applications to take part in the Scheme are done directly through a lender. This can be competitive as places are limited, so it's best to talk to your lender about availability. 

There are requirements set by the NHFIC that you'll need to meet to access the Scheme, including:

• income limits
• prior property ownership test
• minimum age
• a deposit requirement
• an owner-occupier requirement

Consider checking the eligibility requirements before starting your application using the eligibility tool

It’s worth understanding the different types of homes available to purchase, assessing what home will suit your needs and what you can afford to buy.

Researching location

It’s important that you spend time researching the area you want to buy in, so you can decide which location is right for you and your situation. 

From there, you can settle on what kind of property to buy. Options include existing houses or apartments, off-the-plan units, townhouses or even vacant land.

There are many online tools offering data and insights about suburbs, individual properties and the housing market. The search tools available through the government are either free or low cost, but you’ll generally have to pay for services offered through private companies.

Valuation Portal

The NSW Valuer General Valuation Portal is a government service where you can search land values and property sales information for free.

CITEC Confirm

NSW Land Registry Services has authorised CITEC Confirm as a property information broker. You can pay to search their list of databases to retrieve information, including: 

• national land titles, plans, dealings and instruments
• national property settlement and manual services
• national telecommunications cable search
• electronic contract of sale and duties returns
• land tax clearance certificates 

You can use the CITEC Confirm service when you’re buying or selling land as well as purchasing, selling or renovating a home.

Property Value

CoreLogic is a leading private property data company that has a free service called Property Value. You can use it to access broad insights around suburb and area profiles as well as median home prices.

Residex

CoreLogic has another online service called Residex where you can download a report containing detailed suburb information including:

• median value of properties in an area
• number of people living in an area
• number of properties within a suburb

You are limited to accessing 2 free reports per month.

Home Price Guide

The Domain Group has a free service called Home Price Guide which gives you the selling history of a building, street or suburb as well as estimating prices for homes.

Looking for homes

Finding the right home is one of the most important steps in the property buying process. You need to find a property that matches your budget and lifestyle.

Most people start their search with online property sites or through local real estate agents. Websites like Domain or realestate.com.au will show you what is on the market and give you insight into what homes have sold in a location.

Alternatively, you can find individual homes for sale in the property section of many newspapers.

Another idea to consider is attending home auctions in the area you want to buy. This can give you a realistic picture of how much properties are going for compared to the advertised price.

To avoid problems and extra costs later on, you should know as much as you can about the condition of a home before you buy it.

Attending inspections

You can usually take an online, virtual tour to see if a home is right for you before inspecting it in person.

If you do attend an inspection in person, make sure you have a thorough look at the home to identify defects as well as stand-out features. 

As most inspections are quick, make the most of your time by noting things, such as:

• the general condition and age of the home
• fixtures and fittings such as air conditioners or carpet
• storage space
• car parks or garages
• proximity to public transport or other facilities like schools
• orientation of the home and natural light

It can be daunting taking in everything during one inspection. Fortunately, most homes have multiple open inspections which you can go to. 

Further visits will give you a chance to check if repairs are needed and for signs of any structural problems. 

Pre-purchase property inspection reports

In addition to inspecting a home yourself, you can also have building, pest or strata inspection reports done through licensed professionals.

You can organise these inspections yourself or if you're using a conveyancer, they can do it for you. 

The aim of getting these reports is to identify any significant building defects inside or outside a building, within the roof and underfloor space. 

Consider using a third-party professional rather than one suggested or provided by the seller, so you know you’re getting independent advice. 

Before making an offer on home, whether it's for sale by private treaty or auction, make sure you look over the contract of sale. 

Review a contract of sale

A contract of sale is a legal document which includes terms and conditions of the sale as well as information about the property and land.

If you're interested in purchasing a home, ask the seller or real estate agent for a copy of the contract of sale. Requesting the contract as soon as you can will give you time to review it. 

Before signing the contract, it's very important to check it for information about the property and the sale, such as:

• deposit amount and due date
• settlement details
• title documents, including zoning certificate and drainage diagram
• special conditions, including whether the home will be vacant or tenanted
• inclusions, such as floor coverings

It's possible to review the contract yourself, but there are risks in doing this including, being personally liable if there is a problem with the sale. 

You might choose to use a professional such as a conveyancer or solicitor to help you review the contract of sale. 

Broadly, a licensed conveyancer specialises in providing advice and information about the sale of a property. When reviewing a contract of sale, a conveyancer will:

• identify your obligations as the purchaser of a home 
• help you understand the various clauses within the contract 
• give you advice and assist you to make an informed decision about the sale

Ways to buy a home: auction

In NSW, the 2 most common ways to buy a home are at an auction or through private treaty.

Before you go to an auction

Before you bid at an auction, ensure you have: 

• your finance conditionally or unconditionally approved including, confirming with your lender the maximum amount you can borrow 
• enough money to pay or transfer the deposit
• thoroughly inspected the property and know its condition including getting building, pest or strata reports
• reviewed the contract with your solicitor or conveyancer and are comfortable with its terms

You can negotiate the conditions of a contract of sale, it just has to be finalised before auction day. 

It’s very important to understand there is no cooling-off period or time to change your mind about the sale if you're the successful bidder at an auction. 

Buying at auction

The auction process involves interested buyers competing to place the highest bid for a property.

The role of an auctioneer is to manage offers made by bidders and control the negotiation process.

Before auctioning a home, the seller will nominate a reserve price, which is not usually made public. If the reserve price is reached and bidding continues, the home will be sold at the conclusion of the auction.

Sometimes auctions can be fast paced with lots of bids being made at once. It’s important to keep track of the bids made and only offer what your budget allows. 

If you are the successful bidder, you must sign the contract of sale and pay your deposit immediately after the auction finishes.

Ways to buy a home: private treaty

Buying a home through private treaty involves the home being listed on the market for a set price with no deadline for the sale to be completed.

As a buyer, there is a process that you can generally follow if you'd like to buy a home this way, including:

• ask the seller for the contract of sale as soon as possible and have it reviewed by a licensed conveyancer or solicitor
• organise or have your conveyancer get building, pest or strata reports carried out
• get conditional finance or pre-approval
• make an offer for the home verbally, such as over the phone or in writing like an email
• negotiate the sale price of the home with the real estate agent or seller

Unlike buying a home at an auction, purchasing through private treaty means you can negotiate a sale price in private with the seller or real estate agent. 

This private process of sale is not always transparent because you don’t know how many other people are placing offers for a home.  

Sometimes real estate agents are eager to finalise the sale of a home. But, remember they can't use high pressure tactics, harassment or unconscionable conduct to persuade you to make an offer. 

Once negotiations are complete and your offer has been accepted by the seller, the next step is to exchange the contract of sale. 

Until contracts are exchanged, the sale of the home isn't finalised. This means the buyer or seller can pull out of the sale, or the seller may negotiate with other buyers for a higher offer.

After reviewing and discussing the contract of sale with your solicitor or conveyancer, making the proper inquiries and necessary financial arrangements, you will be ready to take the final step to purchase a home, exchanging contracts. 

Exchanging contracts 

Exchanging contracts legally completes the property sale process. It means the seller has accepted the buyer's offer on the home and both have signed the contract of sale.  

At the time of the exchange you will be required to pay the deposit for the home you are buying.

Cooling-off period

Private treaty sales in NSW have a 5 business day cooling-off period after contracts are exchanged.

The cooling-off period starts as soon as you exchange contracts and ends at 5pm on the 5th business day after exchange.

During the cooling-off period, buyers can withdraw from the sale as long as you give written notice. Usually there are financial penalties if you do this and it's worked out as a percentage of the sale price. 

There is no cooling off period for homes bought at auction. The contract of sale must be finalised after the auction is completed. It is recommended you consult a solicitor or conveyancer before you attend an auction.

Settlement

Settlement is the process of paying the remaining sale price and becoming the legal owner of a home. At settlement, your lender will disburse funds for your home loan and you'll receive the keys to your home.

Generally, settlement usually takes place around 6 weeks after contracts are exchanged. Your conveyancer or solicitor can check and negotiate the settlement period with the seller. 

You'll need to have budgeted and have money to cover settlement, including:

• legal costs 
• conveyancing fees 
• transfer duty, also known as stamp duty
• unpaid lending charges such as Mortgage Lenders Insurance (LMI) or loan establishment fees, if applicable

Some sale contracts will allow buyers to carry out a final inspection of a home on the day of settlement. This inspection is to make sure the home is in the same condition as when contracts were exchanged.

After settlement and a final inspection is complete, you can move into your new home.