FIRST HOME LOANS
Congratulations on finally taking this step! Buying a first home is everybody’s dream. The path is adventurous and daunting at the same time. If you’re buying your first home, then don’t fear, for we are here to arm you with the right information and help you pick the right loan for you.
We compare hundreds of loans from a wide variety of lenders and work with you to find the right loan that suits your individual needs.
Before beginning to look for your dream home, you need to answer two key questions –
How much can you afford to borrow, and How much can you afford to repay?
How much can you afford to buy?
Borrowing power depends on one’s income, financial commitments, loan type, credit & employment history, loan type, savings, and assets, etc. Knowing your borrowing power will help you narrow down your property search and allow you to understand what your financial commitments will be.
Tip: For buying a property through auction, consider applying for a preapproved loan.
How much can you afford to repay?
Not only is your borrowing power important, but your repayment abilities matter too. Being realistic about repayments will allow you to service your loan without overextending yourself. So, start planning your budget once you’ve understood your range of borrowing.
Home Loan Deposit
Home loan deposit is perceived as ‘your contribution’ to the purchase amount of your desired property.
Your deposit determines the kind of loan and amount you may be eligible for to buy your home.
Benefits of having a home loan deposit
1. Having a home loan deposit gives the lender an idea of what you can afford to repay regularly.
Use our Borrowing Power Calculator to get an estimate.
2. Your deposit will also impact the interest rate of your loan giving you a higher negotiating power and choice of lenders.
3. It will ensure that you pay off lesser in future.
What counts towards a home loan deposit?
1. General savings
General savings are cash stashed away into an account for a period three months at least. These savings act as a proof to the lender of your regular repayment ability of a home loan.
Lenders are often willing to offer loans of up to 97% of the property’s value. However, most appreciate a good history of general savings of at least 5% of the property’s value.
2. Other investments
Other investments that are counted as savings are:
- Term deposits
- A gift of money from a close family member (as they are perceived as non-repayable)
- Equity in an existing property
Generally, all these savings must be held in a savings account for a period of at least three months to be counted under genuine savings.
3. Receipts of Regularly Paid Rent
For your rental ledger to become a proof of your genuine savings, you should:
- still be renting when applying for the loan
- have a rental ledger of minimum of 12 months within a single property
- currently be leasing through a registered real estate agent.
Note:Not all lenders accept rental repayment history as genuine savings. So, it is advisable to talk to a mortgage broker to have a look at your unique circumstances and help you identify the right lenders and loan type for you.
Lender’s Mortgage Insurance(LMI)
Loan to Value Ratio (LVR) calculation is used by lenders to assess their risk of lending a loan to you. It considers your borrowing amount against the value of property you’re wishing to purchase. A higher ratio means higher risk for the lender.
In general, if your LVR score is more than 80%, i.e., you want to borrow more than 80% of your desired property’s value, the lender will ask for an LMI premium. This premium, paid by you, will insure the lender against any loss that might happen if you are unable to pay off your loan or default in paying.
An alternative to LMI premium is having a family member sign as a security guarantor for your home loan.
First Home Owner Grant
For those eligible, First Home Owner Grant (FHOG) is a fabulous bonus for budgeting the purchase plans of the first home. However, factoring it correctly into the calculations is important.
FHOG is included while calculating your Loan to Value Ratio (LVR) and thus, can totally avoid LMI premium. The only condition is that FHOG coupled with your other savings must total at least 20% of the property’s value.
Note:FHOG is paid only when the construction stage arrives. So, you must not consider it into your land purchase calculations.
Since the regulations and grant value vary from state to state, consult a mortgage broker to assess your eligibility for the FHOG. They will also work with you in planning the purchase better and ensure that everything is done correctly.
Picking The Right Home Loan for your needs
Types of Home Loans
|Must haves||Great to have|
|Fee- free extra repayments-
These repayments help you go mortgage free sooner at no extra charge.
This allows access to the extra repayments that you’ve made in case of emergency.
This allows you to take another loan on a different property when you move house without having to pay break costs for your older loan or stamp duty.
An offset account helps your savings work towards reducing your loan interest charge. While calculating interest, savings are deducted from the loan, so your interest charge stoops down with every repayment.
Other loan features
- Offset account
- All-in-one loan account
- Professional package
- Direct salary credit
- Repayment holiday
- Switch to fixed rate
You can learn more about them in our eBook, First Home Buyer’s Guide
Additional associated costs
As a general rule, have a budget of 5% on top of your home’s purchase price for additional things associated with buying a house, such as:
- Pre-purchase inspections for pests and constructional faults and defects, illegal work, insurance, disputes, levies, history of repairs etc.
- Borrowing costs- Loan application fee (~$700), Lender’s property valuation fee (~$300), and Lender’s Mortgage Insurance (LMI).
- Government charges- Stamp duty, property transfer fee, and mortgage registration fee.
- Insurance- Home and contents insurance, Mortgage protection insurance, Income protection insurance.
- Legal and conveyancing fees- (~ 2% of the price of the property)
- Moving in costs- Furniture removal, utility connections, strate fees, and postal redirection.
The home buying process
Step 1: Try for a preapproved loan or apply for a home loan.
Once you have decided which type of loan suits your lifestyle, you can apply for a loan and expect full approval within next eight working days.
Step 2: Start hunting houses.
Make a features list that you will be looking in your house. This list will help you do a reality check on the properties available and keep you on track of features you cannot live without and features that are good to have. Think deeply about the condition of the property, location, suburb value, upcoming developments, noise, parking, outlook, privacy, etc.
Step 3: Once you find a suitable property, make an offer. In case the property is up for auction, prepare yourself to bid.
Making an offer can be quite distressful and nerve racking. However, you must always play it cool.
Private sale: Don’t let the ecstaticness of finding your dream home take the best of you. It might cost you
around $500, but do arrange for a property inspection. Be careful to use the defects found to negotiate the
price as some might not be repairable at all. Also, talk about the timeframe of moving in.
Auction: If you’re buying at an auction, do not bid until your solicitor has given you a heads up.Also, a pre inspection is indispensable here. Stick to your limit as going over your limit may mean less percentage increase in future value of the property. Keep your cheque book ready with 510% of the purchase price to be deposited immediately after you win the auction.
Step 4: If the offer is accepted, exchange contracts.
Private sale: Deposit is given at the time of signing of contracts after the offer has been accepted. Contract
is negotiable as well as conditional with a cooling off period that may vary state to state.
Auction: deposit amount is given right after you win at the auction and the contract is unconditional. So, the prepurchase inspection of the house prior to coming to the auction is essential.
Step 5: Congrats! You now have the keys to your dream house. Move in!