Are you thinking about buying a house in Australia? While renting is perfect for many students and short-term residents, owning your own home could be a great investment in your future. In fact, if you’re in a secure financial position, buying a house can be surprisingly affordable. Plus, your property becomes an asset as soon as you purchase it. In saying that, buying a house is a serious financial commitment. Here are the most important things to consider before getting started.
What’s your budget?
Maybe you have managed to build up your savings, or your parents want to give or lend you the money to buy a house. If that’s not the case, you’ll need to look at your options for securing finance through a home loan.
A mortgage secures a loan from a bank or lender that helps you pay for the home. You pay off your mortgage in regular instalments until your home has been paid off, with the understanding that the bank or lender can take back your home if you fail to repay your loan. The size of the loan that you take out will depend on your current savings and how much you can afford to repay in the future, as well as the value of the property you wish to purchase.
Securing finance with the help of your parents
As an international student, securing finance requires a little research. Most students are not able to earn enough income to qualify for a home loan in Australia. Instead, the most common method of buying a property for international students in Australia is for your parents to buy an investment property in Australia in their name and to rent it to you. Your parents will likely be eligible to borrow up to 70% of the property price.
Securing finance by yourself
On the other hand, if you are over 18 and have a stable, well-paid job within the restrictions of your student visa, you may be able to secure a home loan on your own. To do this, you must be able to prove that you can afford to live and repay the home loan without help from your parents. You will also need a good credit history in Australia.
Unfortunately, scholarship income is usually not included when banks are looking at your ability to repay the debt. However, some lenders will allow international students to borrow up to 80% of the value of the purchase price. You can borrow more than 80% of the value of the purchase price, but your lender will require that you pay for Lenders’ Mortgage Insurance. Find out more on the Mortgage Choice website.
Whether you’re buying the property in your or your parent’s name, you will probably need to provide a 20% deposit. Most major banks will accept money given to you by your parents as part of the deposit.
Securing finance with someone else
If you are married to or in a de facto relationship with an Australian citizen or permanent resident, it may be easier to buy the property in their name so you do not have to go through the Foreign Investment Review Board approval process (more on this below) and can avoid the foreign buyer surcharge.
This means you can have both names on the home loan but only the Australian citizen on the property title, which will make the whole process a lot simpler. If you are in a long-term relationship or have other family in Australia, this will help your joint loan application.
How your visa affects your home loan
Getting a home loan on a student visa can be tricky, as most banks have a strict set of criteria when considering an application for a home loan. In fact, you may even end up paying a higher interest rate because you are a temporary resident.
Your visa must have at least 12 months left when you apply for a mortgage. It is important to advise the bank if you change visas during the duration of your mortgage, but it isn’t likely to be a problem as long as you remain a temporary resident.
The visas generally accepted by banks include:
- Student Visa (Subclass 572 – Vocational Education & Training)
- Student Visa (Subclass 573 – Higher Education)
- Student Visa (Subclass 574 – Postgraduate Research)
- Student Visa (Subclass 575 – Non-Award)
- Student Visa (Subclass 576 – AusAID/Defence)
- Skilled Regional Sponsored Visa (Subclass 487)
- Skilled Graduate Visa (Subclass 485)
- Skilled Recognised Graduate Visa (Subclass 476)
A mortgage broker like Mortgage Choice can help you navigate the process with expert advice on how much you can borrow, loan repayments, interest rates, taxes and everything else you need to know.
Things to check
All foreign investors must meet standard Australian bank lending criteria and qualify for approval by the Foreign Investment Review Board (FIRB). Under FIRB regulations, temporary residents, including international students, can only buy one established dwelling and it must be to live in. (An established dwelling just means a house or apartment that has already been built and lived in.)
If you want to buy an investment property, it must be a new property or vacant land to build a new property, not an established dwelling. If your parents are buying the property as foreign investors, it must also be a new property or vacant land to build a new property.
You should also research the cost of stamp duties and other legal fees, foreign surcharges and bank fees that you will need to budget for. Stamp duty is a tax that applies to all property purchases in Australia. The exact amount may depend on whether it is a residential or investment property, and varies from state to state.
You will need to have a plan in place for when your student visa ends. Do you hope to transition onto a working visa? Will you or your parents sell the property, or keep it and rent it out?
The loan application process can be complex depending on your circumstances. It’s often best to meet with a mortgage broker who can guide you through the process and help prepare the necessary forms.
During the loan application process, you’ll need to provide a number of financial documents and undergo a credit check to make sure you don’t have too many outstanding debts. The whole process can take between one and two months.
You should apply for a mortgage as soon as possible to ensure you are not caught out when it comes to buying a house. You don’t want to find your dream house only to then lose it because you haven’t sorted out your mortgage. Also, it helps to know exactly how much you can afford before looking for a house.
Once you have your money sorted, you can start looking for your dream home!
Find your dream home
You can use online searches and local real estate agents to search for a home that suits your needs. It’s important to consider factors like the location, condition, value of the suburb, any proposed developments, noise, parking, privacy and any special features, as well as the price, when checking out potential properties.
Make an offer
Once you’ve settled on a house or apartment that is perfect for you, try not to seem too enthusiastic. Otherwise, the owner may push for a higher price. Before making an offer you should arrange a pre-purchase pest and building inspection and get a copy of the contract of sale. If everything is correct, you can make an offer and potentially begin to negotiate with the seller.
If the seller accepts your offer, it’s time to exchange contracts and settle. You’ll need to pay the full deposit and sign the contract. Your lawyer and mortgage broker will handle most of the settlement process, but you’ll need to be ready to review and sign documents and provide any extra information.
This is the fun part! You finally get to move in and make your new house a home. Your mortgage broker will help you plan for your future mortgage repayments, so you can enjoy a stress-free life in your home for years to come.