Straight Answers for First Home
Buyers
With so many changes in lender's policy and various conditions from state and federal governments , who
can you turn to for accurate help. This web page is for first
home buyers and includes information on First Home Owners Grant
and First Home Owner Boost
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. At current rates that is an each
way bet, but at higher rates it can change dramatically
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 falling to record lows the difference in cost is
marginal, however as home loan interest rates rise the gap between
rent and buying will widen . Some pundits believe that the FHOB
has caused a bubble in property prices and that on it's conclusion
there will be a burst and prices could fall in some areas. Of
course keep in mind that if property prices start to rise, it can
happen quickly and the current First Home Owner Boost (additional
$7000 grant plus another $7000 on new homes) is available on
contracts made between 14th October 2008 and 30th June 2009. 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 mortgage you can afford.
Unfortunately online borrowing capacity calculators are often
inaccurate or intended to capture your contacts details in order to
sell the lead to brokers and lenders.
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 we 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% maybe 5%) saved and
accumulated by you in an account over a minimum 3 months (maybe 6
months). 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 is demonstrated where supporting records 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 / 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). Gifts from any source are excluded from genuine savings. Whilst the FHOG remains as an acceptable source of borrower’s
contribution, 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% .
Should I Sell My Shares
This is a question that has come up recently and the standard
financial advice is often no, because selling your shares makes
your loss a reality. However if you are considering the sale of
your shares to use as a deposit on a new home then you may be
recovering some of your losses. We recently had a client who sold
$30,000 shares at approximately 50% of their cost to use as a
deposit on a new apartment. By using her shares to buy now, she
cashes in on $7000 FHOG plus $7000 First Buyers Bonus plus $7000
new home bonus plus NSW Government $3000 new home bonus - that’s
$24,000. The alternative is hold onto your shares and miss out on
the $17,000 current bonuses and hope your shares recover…..it does
seem like a no-brainer.
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 3.5% of the loan
amount.
Filling out your application forms
This can be the most daunting aspect for many people and so we
assist you step by step over the phone or we can provide you with
an Excel 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 and Boost
The First Home Owners Grant (FHOG) of $7,000 plus the current
FHO Boost $7,000 (plus additional $7,000 on new property only) 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
$3,000 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.
Offices of State Revenue Web Links New South Wales | Victoria | Queensland | Australian Capital Territory | South Australia | Western Australia | Northern Territory | Tasmania |