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.