Buying a new home is hard, no matter how many times you’ve done it before. You have to deal with home loan applications, not to mention all the other paperwork that comes with buying a property.
In addition, first home buyers also have to raise a deposit. However, there are plenty of things you can do to ease the burden.
Call on Your Parents
Many first-time buyers ask their parents to act as guarantors on their home loans. A guarantor is somebody who offers their own property as security for the loan. If you default on your payments, your lender will go to your guarantor to settle the bill.
Almost two-thirds of first-time buyers use guarantors. They can help you avoid Lender’s Mortgage Insurance (LMI), and cover the costs of the other fees associated with buying a home. For example, with a guarantor in place, you can spend the money you save on stamp duty and home loan application fees.
The First Home Owners Grant
First-time buyers can also benefit from the First Home Owners Grant (FHOG). You can use this to cover some of the costs of your deposit – though many lenders will want to see that you have some genuine savings as well. Note,you may not need any savings if you combine the FHOG with a guarantor.
Eligibility for the grant varies from state to state, depending on your circumstances and what you’re looking to do. It’s best to check beforehand so you have an idea of what’s available to you.
How Much Do I Get with the FHOG?
In most cases, the scheme offers a one-off payment, however, many states have other incentive schemes, which you can combine with the FHOG to get more money.
You’ll apply for the FHOG when you lodge a home loan application with a lender. However, you don’t receive the funds until your loan reaches the settlement stage.
As of the release of the 2017 Federal Budget, you can use a portion of your superannuation (super) to pay your deposit. From July 1st, 2017, you’ll be able to make voluntary non-concessional and concessional contributions from your super account to save for a deposit. Concessional contributions relate to those made before tax, whereas non-concessional relates to those made after tax.
From July 1st, 2018, you’ll be able to drawdown from these contributions at the marginal rate applying to your account. You’ll receive a tax offset of 30% to help with this.
Right now, you can’t drawdown from your current super account. Thus, you can’t currently use it to fund your deposit.
There are also some limitations. The government has capped the amount you can withdraw from your super to $15,000 per year. You can also only use a grand total of $30,000 from your super for your deposit.
The Costs of Buying a Home
Those are some of the ideas you can use to help secure a home loan. However, you also need to know about the extra costs associated with buying a home. They include the following:
- Mortgage Stamp Duty: A fee that differs from state to state. Many states waive this fee for first home buyers.
- Purchase Stamp Duty: Another government fee that differs based on the state and the value of your property. Many states have grants, waivers or concessions that can help you cover the cost of purchase stamp duty.
- Conveyancing: Conveyancers help you deal with the legal issues surrounding the transaction. This fee typically varies from $700 to $1,500, depending on the conveyancer.
- Title Registration: A $200 fee that covers the name and mortgage change on the property’s title.
- Lender Fees: Many lenders charge additional fees for processing and settling home loan applications. This can cost you hundreds of dollars, though some lenders will waive their fees in certain circumstances.
- Lender’s Mortgage Insurance (LMI): Lenders often take out LMI if you offer less than 20% of the home’s value as your deposit. The fee varies depending on the size of your deposit, the lender and the insurer. Some lender’s charge as much as 5% of the property’s value.
Speak to a home loan consultant to find out more about the fees you have to pay when buying a house.
Why You Need Home Loan Pre-Approval
Getting pre-approval on your home loan offers you the security you need to bid on a property while knowing that you can actually afford it.
Pre-approval comes to the fore if you buy a property at auction. Without it, you may find that you lose the deposit you paid for any properties you have won. This is because most states don’t allow a cooling off period after an auction, but expect you to pay the deposit instantly. In other words, if you find out you can’t get a loan, you lose the deposit.
Having pre-approval doesn’t guarantee that your home loan application will reach settlement. Lenders may take other factors into account once you’ve chosen a property. However, it’s much better to have it before sending out applications.
What Lenders Want from a Property
Most lenders have preferred property types. Your intended home should meet the following conditions:
- Has less than 2 hectares of land;
- Is zoned for residential use, or has a freehold, Torrens, or strata title;
- Has no seller incentives or rental guarantees attached;
- Is in good condition;
- There’s nothing that makes the property stand out as unique;
- Has over 50 square metres of floor space. This is especially important for studio apartments, as lenders discount car space and balconies from their floor space calculations.
Having a property that doesn’t meet these conditions won’t prevent you from accessing a home loan. It only makes the process more difficult.
What to do next
Now you know about the costs associated with buying a home, what lenders look for, and the help available to you as a first-time buyer. We recommend that you do the following:
- Learn more about buying a home.
- Work out how much you need to borrow.
- Speak to one of our home loan brokers using live chat.
This information is general in nature, and you should always seek professional advice when making financial decisions.