Tips for buying an Australian property

2011 March 29

A family of migrants to AustraliaMoving to a new country and buying a home in a foreign land can be a daunting task! Without any knowledge of the local real estate market or an understanding of the legal system it is easy to make mistakes that can cost you a small fortune.  In addition to this many new migrants have no credit history in Australia, are on a temporary visa and don’t know which banks can give them a mortgage.

Here are some basic tips to help you get started on the path to home ownership.

1. Find out if you need government approval

Did you know that if you are not a Permanent Resident or Australian Citizen then you may require approval from the Foreign Investment Review Board (FIRB) before you buy a property? Don’t worry, the vast majority of FIRB approval applications are approved. However you must make sure that you adhere to their guidelines. These include;

  • Foreign citizens living overseas: You can buy an investment property in Australia as long as the property is brand new. You are also allowed to buy land and build a new property. You cannot buy an existing residential property however investment in commercial property is allowed. You cannot buy a home to live in as you do not have a valid visa which allows you to live in Australia.
  • Temporary residents: You are allowed to buy a home to live, however you must sell the property when your visa expires and you leave Australia. If you successfully apply for Permanent Residency then you are allowed to keep your property.  As a temporary resident you may not be required to submit a formal application for FIRB approval.
  • Foreign citizen spouses of Australian citizens: No FIRB approval is required.

As you can see, most temporary residents have nothing to worry about! However you should talk to the FIRB to confirm if you need to submit a formal application before you begin looking for a property. When you find a property please make sure you put a clause in the contract allowing you to pull out from the purchase if you are not granted FIRB approval.

2. Select your professional advisors

Incredibly some new migrants try to handle the legal paperwork and loan application on their own! This is something that most Australian citizens, even those with a background in law, do not attempt to do themselves. It is essential that you seek help from the right people, to make sure that you avoid making costly mistakes.

There are two main professionals that you will need help from when buying a home in Australia; A conveyancer or solicitor and a mortgage broker.

A conveyancer, solicitor or settlement agent (in WA only) is used to help you take care of the legal paperwork, review the contract of sale, order inspections & checks on the property, liaise with the vendor, help you obtain FIRB approval & to guide you through the buying process.  You can expect a conveyancer to cost between $800 and $2,000. You should find a good conveyancer before you begin looking for a property.

A mortgage broker will first complete a credit analysis & needs analysis to work out which lenders you can qualify for a loan with, and then which loan products suit your situation.  There are some mortgage brokers that specialise in non-resident home loans for temporary residents. It is critical for you to seek expert advice as many banks have restrictions on lending to people who do are not Australian Citizens or Permanent Residents.  In most cases you will not even pay a fee for the services of a mortgage broker as the banks subsidise their services for arranging the loan, completing much of the processing & managing the relationship with you as the borrower.

3. How big will your deposit / down payment need to be?

How much of a deposit will you need? How much will government taxes (known as stamp duty) and other purchasing costs amount to?

As a general rule you should allow 4% to 5% of the purchase price to cover the costs associated with buying a property in Australia. The majority of this is stamp duty paid to the State Government however this figure also includes conveyancing fees, registration fees , mortgage fees and inspection costs.

In addition to these costs you will need funds to make up the difference between your mortgage & the purchase price of the property. In most cases this is 10% to 20% of the purchase price, depending on how much you are allowed to borrow. So in total you need 15% to 25% of the purchase price to be able to buy a property in Australia.

4. How much can you borrow?

As a general rule if you are foreign citizen living overseas or a temporary resident of Australia then you can borrow up to 80% of the value of the property you are buying. From a banks point of view, the property value is the lesser of the purchase price or of the valuation they obtain as part of their loan approval process.

However, if you are a temporary resident and have been in your job for 12 months then a select few banks can make an exception to their normal lending criteria and lend you up to 90% of the property value! If you are married to or defacto with an Australian Citizen or Permanent Resident then you may even be able to borrow up to 95% of the property value!

The most common types of temporary residents that buy properties in Australia are those on either a Employer Sponsored Work Visa (Subclass 457) or a Partner Visa (Subclass 820).

You can read more about temporary resident mortgages on the Home Loan Experts website.

5. What do you need to know about Australian Mortgages?

There is just too much to say about this topic in this one article. However, you should at the very least arm yourself with a basic understanding of how borrowing money in Australia works.

Expect the banks to cause delays and make some mistakes! They are a long way behind their UK & US counterparts that have invested heavily in their computer systems. A good mortgage broker will help you to avoid these problems.

Most banks now assess loans using a credit scoring system. Effectively your loan is assessed by a computer! This will take into account the savings you have, your employment & residential stability, the area you are buying in, your credit history (or lack thereof) and many other aspects of your situation. Some banks can take a common sense approach and override their credit score if their system declines your loan, however most can’t do this!

In particular making too many applications for a mortgage or credit card will damage your credit history and may result in the banks seeing you as a “credit junkie”. You should just put in one application for a mortgage and get one approval. If you want to shop around then do it by speaking to the banks, not by lodging multiple loan applications!

Australian lenders love to see someone that can save a deposit on their own! Open up an Australian bank account, move any funds you have overseas into the Australian account and then continue to add to these savings on a regular basis. Once you have a three month history of “genuine savings” then you will be seen as a low risk by the Australian Banks.

Your living expenses will be taken into account when assessing your ability to afford the debt. This includes a notional living expense for you, your spouse and the children you have. In addition to this they may take into account private school fees, health insurance, gym membership, pay TV subscriptions and other expenses.

Some banks do not accept applications from foreign citizens under any circumstances! Apply with a foreigner friendly bank and you’ll find it much easier to get an approval.

6. Do your due diligence on your property market

The best way to start your house hunting is by choosing some suburbs or areas that interest you. You can use RP Data or Residex reports to find out more about the median house prices or even the demographics of a suburb.

Drive around and get to know the suburb well. By talking to local real estate agents and small business owners you can get to know the streets to avoid and where the best streets are. You can use Google Maps to look at available public transport, find local schools and commercial centres.

When you find a property that you like then consider talking to the neighbours to find out more about the property, in particular to find out if there are any problems that you should be aware of. When you are in the final stages of your negotiations then you should order a pest inspection, building inspection and strata report (for units and townhouses) to make sure there are no nasty surprises!

One of the biggest problems that new migrants have is to work out the value of a property. Most properties in Australia are relatively unique, and prices can vary significantly between neighbouring suburbs. This is a stark contrast to the UK where property values are easier to estimate as there are more older houses and they tend to be relatively similar to their neighbouring properties.

The easiest way for you to work out the value of a property is by using comparable sales in the same area in the last six to twelve months. You can read this article on how to value a property for more information.

7. Avoid the common mistakes!

Without a doubt, the most common mistake that new migrants make when buying a property in Australia is to assume that they will get approved for a mortgage. You should always obtain a pre-approval before you make an offer to buy a property. If you sign a contract, and then can’t come up with the funds to buy the property, then you may lose your deposit or be sued by the vendor!

Do you have a property overseas? What about foreign credit cards and mortgages? Most banks are actually very conservative in the way that they assess your foreign assets & liabilities. In many cases they will take the foreign debts into account when assessing your ability to repay a debt, yet will completely ignore any foreign rent, investment or business income!  It all comes down to presenting your application in the right way, to the right bank.

Whatever you do, don’t skip doing a pest and building inspection. For units & townhouses you will also need to do a strata inspection. These inspections will cost you just a few hundred dollars. However the potential loss if you buy a property with rising damp or a termite infestation is so high that it just isn’t worth the risk.

As a foreign citizen or a temporary resident you will not be eligible for first home buyer concessions such as the First Home Owners Grant (FHOG). These are only available to Australian citizens & Permanent Residents that are buying their first home. Some states have concessions for people buying a new property, or who are building a property in a country town. You should refer to your conveyancer or solicitor for more information about any government incentives that you may be eligible for.

The secret to successfully buying a home in Australia is to get the right advice from professionals that understand the additional requirements for temporary residents.

Can you qualify for a mortgage?

You can talk to the specialist mortgage brokers at The Home Loan Experts to find out if you qualify for a mortgage. They can have access to a range of lenders with non-resident mortgages to suit you, no matter your visa or citizenship status.

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