First home buyers have some great advantages available to help them enter the market sooner rather than later.
Many states have grants available for construction or new homes. If you’re looking for something more established, then again most states are helping you out by reducing the stamp duty significantly or not charging it at all depending on the value of the property.
The first step a new home buyer should make is to check out exactly what grants and subsidies are available to them and to make sure they meet the criteria. With this in place it makes planning exactly how much you will need to have saved much easier.
Although bigger deposits will generally result in lower interest rates, and certainly in reduced mortgage insurance the decision needs to be made on if you want to keep renting and saving or if you’re happy to pay a little more now and stop renting. As a mortgage adviser I can help you with these numbers, so you can make informed decision.
So now you’ve decided to enter the market you’ve likely got questions! Let me answer as many as I can below but feel free to contact me here if you have any further questions:
1. How much deposit do I need?
This is a very important question. You will hear 5% thrown around a lot as the minimum you will need. There are still a couple of lenders out their offering 5 % deposit lending, but they have varying policies. Some may need you to be a member of a certain industry, some will need genuine savings, and some will only offer this on established or turn key properties. If you don’t meet these strict policies, you will more likely need between 8-10% of the purchase price + costs.
2. What is an LVR?
And LVR is a loan amount relative to the value of the property. So if your property is valued at $500,000 then a 95% lend would be $475,000 or 95% of $500,000. Banks will have policies on what their maximum LVR is and this can change from owner occupied to investment. For first home buyers there are some banks that will offer 95% + mortgage insurance to a maximum LVR of 98%, while others will offer a loan of 95% including the mortgage insurance.
3. What is mortgage insurance?
When you borrow more than 80% of the value of the property, the bank insures the loan in the event that you stop paying. The cost of this insurance is paid by you. You do have the option of paying for the mortgage insurance out of your deposit or what happens normally is that the bank adds the insurance on to the loan. So in our previous example, you were to borrow 95% and then add mortgage insurance on top your total loan will go up to around 98% of the value of the property. This is why if a bank will only go to 95% including the mortgage insurance, you will need to work backwards to make sure that you have enough deposit so that your loan amount + the mortgage insurance doesn’t come to more than 95% of the value of the property.
4. Deposits? Genuine Savings? First Home Buyer Grant? Gifts?
There are so many terms being thrown around that it can be hard to know exactly what is what! When you apply for a loan each bank has their own policy on what they will accept as a deposit. This can be broken down into genuine savings and non-genuine savings.
Genuine savings is money that you’ve held in your account for 3 months. Once held for three months the banks don’t usually ask where the initial money came from.
Non-genuine savings is any money from sales of assets, tax returns, gifts from parents etc. Sometimes you can mediate this with showing you’ve been renting for a period of time. Again, this is something I would be more than happy to help you with.
5. Pre-approval – does this mean I can get any property?
A pre-approval is a great way to get the security that the bank are happy with your application and would be willing to lend you money. It is not an offer of finance. Even if you find a property that is the exact price for your budget the banks will want to value the property and double check that nothing has changed so may ask for updated payslips etc. Keep in mind too what is realistic for you. Just because a calculator says that you can afford a $650,000 loan, spend some time thinking about the repayments and make sure you’re comfortable with them. If not it may be worth looking for something that fits better with your budget.
6. What other costs should I be aware of?
This is really important. You will have other costs so it’s best not to leave yourself too tight. Your savings will need to cover:
- Your deposit
- Your legal fees
- Your stamp duty and registration fees
- If you’re buying established properties there may be extra costs such as rates and electricity adjustments.
Buying your first home is a really exciting time and an area I have a lot of experience in. I welcome any questions you have and am happy to help you with a plan for the future.
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