Straight answers for first home buyers

With so many changes in lender's home loan policy and various conditions from state and federal government, who can you turn to for accurate help. We would like to think that as a professional mortgage broker, that is our role - in fact with the new Australian Credit Licence regulations it's now law. This web page is for first home buyers and includes information on first home owners grant

The first question to ask is should I buy or rent

One of the most common comments we hear is "paying rent is dead money". We understand that the current rental market is frustrating with difficulty finding, affording and keeping a good property however, in a market with little or no capital growth ie: prices aren't increasing to keep up with inflation, money spent on mortgage interest is just as dead as rent. With interest rates increasing that becomes an each way bet, but at higher rates in some circumstances renting can be a cheaper option.

We have prepared a calculator for you that allows you to see in dollar terms just how much you will save or lose by buying now. With interest rates increasing slowly the difference in cost is still marginal, however as home loan interest rates rise further the gap between rent and buying will widen . Click here to compare cost of renting against cost of buying. or call us for assistance.

How much can I borrow?

You can save yourself a lot of time and expense if you take a minute to figure out how large a home loan mortgage you can afford. Unfortunately online borrowing capacity calculators are often inaccurate or are really intended to capture your contacts details in order to sell the lead to mortgage brokers and lenders (something privacy act would never allow us to do).

In reality lenders use a wide variety of measurements to calculate your 'serviceability' (ability to repay), resulting in wide variations from one lender to another. A lender who is generous to your mum and dad for investment loans may not be so generous for your first home. That's where a professional mortgage broker can assist because we have the lender's real serviceability calculators - not the ones on their web sites, the real ones.

You also need to consider current home loan interest rates. The lower the interest rate, the more expensive the home you'll be able to afford - but don't forget, interest rates can go up.

What will my repayments be

Here is a simple home loan repayments calculator.

How much deposit do I need

Don't confuse your 'deposit' with your 'genuine savings' or your 'funds to complete'. Your savings are part of your deposit but the rest may come from the sale of car or a gift from parents. However genuine savings is money (usually at least 3% more often 5%) saved and accumulated by you in an account over a minimum 3 months ie: the amount must have been in the account for at least 3 months in order to be counted. Funds to complete is the total of your savings and all other funds being used for the settlement including your first home owners grant (FHOG).Most lenders will want to see evidence of a very stable employment record, the lower your deposit the closer your income and employment history is scrutinised.

What is Genuine Savings

This varies slightly from lender to lender, the following is an example

Genuine savings must be demonstrated with supporting records to confirm the applicant has accumulated a minimum of 5% of the purchase price (3% for some lenders) by way of progressive and regular savings over a period of not less than 3 months. Any lump sums or large deposits are excluded unless they can be clearly shown via documentary evidence to come from the sale of an appreciating asset (e.g. shares or real estate) understand that a car or motor cycle is not an appreciating asset. Gifts from any source are excluded from genuine savings, unless held for a minimum 3 months (some lenders otherwise it is excluded ). Whilst the FHOG can make up part of your deposit, it does not qualify as genuine savings.

Other exclusions from genuine savings:

• Advances on wages/commission from an employer (this may include bonuses);
• Inheritance
• Financing of a deposit (borrowed funds eg: credit card)
• Builder discount/finance ( some builders offer cash rebates)
• Vendor discount/finance
• Proceeds from sale of motor vehicles
• Windfall gains (eg:lottery or gambling)
• One-off government payments (e.g. baby bonus)

If genuine savings cannot be demonstrated as per the above, the LVR must be usually less than 85% .

What other costs are involved

Apart from home loan application fees and administrative costs which vary enormously depending on which lender and which package you select, you will be up for government stamp duty charges on your property transfer and your mortgage contract - these charges vary depending on which state you are buying in.

You will then be up for legal fees for conveyancing and settlement representation, home insurance is a condition of the mortgage and of course you have to move your furniture and pay to have utilities such as power, telephone and gas connected. If the vendor has paid rates in advance you will probably be required to reimburse the pro rata share of this

If your deposit is below 20% of the value of the property, you will be required to pay Lenders Mortgage Insurance - LMI. This insurance covers the lender if you should default - don't think that this lets you off the hook because the insurance company then chases you for the money. Click here for more information on LMI. And remember it isn't cheap ranging from 0.60% to 4% of the loan amount.

Filling out your application forms

This can be the most daunting aspect for many people again a good reason to use mortgage broker as we assist you step by step over the phone or we can provide you with a PDF version of a generic loan application. We pioneered virtual loan processing and we will provide you with everything you need to make the process as painless as possible.

First Home Buyers Grant

The First Home Owners Grants (FHOG) of $7,000 are funded by the Australian Federal Government however they are administered by the various state and territory governments. In addition to these grants some state governments are providing additional cash grants and/or stamp duty waivers or reductions. So for example in NSW you pay no stamp duty on purchases below $500,000 a saving of $18,000 plus they are providing an additional grant on new homes.

There are many permutations on purchase price, eligibility based on previous ownership and residency requirements. As a mortgage broker we are not authorised to advise you on your eligibility and so we suggest that you contact your solicitor or the office of state revenue in the state that you intend to apply with.

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