You can borrow up to 97% of the purchase price
The current regulatory clamp down on investment lending means that lenders are now turning their efforts to home buyers and first home buyers. Already some lenders are offering no mortgage insurance up to 85% or more for some professionals and many are offering cash bonuses of up to $2,000 to first home buyers.
Buying your first home and arranging your first home loan can be an almost overwhelming experience. There are so many forms and documents and fees and charges and many things have to be done immediately while other things should wait….it can be very intimidating for the first home buyer so rather than ploughing through the maze why not save time and stress by calling us – we will assess your options and give you recommendations based on what is best for you – we deal with first home buyers every day – call us now to discuss your options – no obligation and no cost to you.
This web page is intended for people looking for their first home loan and includes information that is generic in relation to the home loan application process ie: we have 20+ lenders and they all have different policies so this is general information to get you started. But our real advice is find a professional mortgage broker – not an accountant or real estate agent who writes loans on the side. Use a professional specialist mortgage broker – like us.
Don’t panic and don’t rush it
In a recent article by our head broker, Andrew Hunter titled “It’s Only A Home Loan” argues that especially for the first home buyer in today’s market with no exit fees and easy switching between banks your choice of home loan is no where near as important as your choice of which home to buy or even which home insurer to use – after all if you get the insurance policy wrong you could lose everything. The article was inspired by actual advice that Andrew was giving to his own son in the process of buying his first home.
That is not to say that you don’t need or deserve the best home loan – it simply means that if you get it badly wrong it isn’t the end of the earth. However if you take our advice you are on the right track to obtaining a good home loan – in over fifteen years we have never had a client say “this is a bad loan”.
But don’t rush into anything – don’t let yourself be pressured by developers, estate agents or lenders. Buying the right home is much more important than finding the right loan. Remember that if things happen in a rush eg: if you buy at auction without unconditional finance ( did you know that many pre-approvals are worthless ) – then you will be greatly reducing your options and increasing the opportunity for errors and potentially substantial costs for late settlements. So take a deep breath and take your time.
The first question first home buyers should ask is should I buy or rent?
One of the most common comments we hear is “paying rent is dead money” don’t get us wrong, we make our living out of arranging home loans, however we want you to make an informed decision. We understand that the current rental market is frustrating with difficulty finding, affording and keeping a good property however, unless you live in Sydney or Melbourne 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 now at historic lows the difference in cost between renting and buying may be marginal, however beware of the low interest rate trap. Just because home loan repayments may be lower than rental payments today doesn’t mean that will still be the case in 12 months. Interest rates today are around 4.0 percent so on a $400,000 home loan over 30 years your weekly repayments will be $440. In 2011 interest rates were closer to 8 percent and weekly repayments on your loan would jump to $676 per week – that’s more than $1,000 each month extra that you have to be able to afford.
How do I compare one home loan with another
This is an eternal question and one that creates probably the most confusion. In 2003 the regulators introduced “comparison rates” for this very purpose and as is so often the case comparison rates completely compounded the confusion rather than clarifying it.
How much can I borrow?
Don’t confuse servicing capacity with borrowing capacity. Servicing capacity ie: your ability to meet the repayments on a home loan but is only one measurement used by lenders and by no means the most important. It is not unusual for very high income earners to be rejected simply because they fail to demonstrate the ability to live within their means. After all if you earn $200,000 p.a. and can’t show the discipline to save 5% deposit the lender/insurer will wonder if you have the discipline to make your loan repayments. Therefore deposit (including genuine savings) is every bit as important as income when calculating your borrowing capacity.
Typically as a first home buyer you have no equity in an existing home and therefore you are treated differently as your deposit not only sets the equity margin but it establishes your credibility as a good money manager. 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 very superficial and often intended as a lead generators.
In reality lenders use a wide variety of measurements to calculate your ‘serviceability’ (ability to repay) and your borrowing capacity, 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 money you can spend on the home you want to purchase – but don’t forget, interest rates can go up and that is why at this time fixed rates are worth considering for first home buyers.
What will my home loan repayments be
We have a range of free home loan calculators that allow you to figure out loan repayments, compare loans, budget or check stamp duty etc.
For my first home loan how much deposit do I need
Once again 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 5%) saved and accumulated by you in savings accounts over a minimum 3 months ie: the amount usually must have been in the account for at least 3 months in order to be counted (as with everything there are exceptions). Your deposit or 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 also want to see evidence of a very stable employment record, the lower your deposit the closer your income and employment history is scrutinised.
Using family pledge or guarantor in place of deposit
This can be a very good outcome for some young first home buyers as it takes the mortgage insurers out of the equation and as a result removes the need for genuine savings – or in fact any deposit at all. However it is not a decision that should be taken lightly as a guarantee on a home loan is a very large commitment to enter into and in most cases the guarantor is a parent or sibling. However some lenders have reduced the degree of exposure by limiting the amount guaranteed to only 20% of the purchase price and some lenders do not require any income statement from parents. It is also possible to for the guarantor to offer a second mortgage which removes the need for both the purchase and the security property to be mortgaged by the same lender. We are very experienced in dealing with first home buyers so contact us for some good clear advice on your options.
What other costs are involved on your first home
Apart from any home loan application fees and administrative costs which vary enormously depending on which lender and which package you select, you may 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 as many have dramatically reviewed their first home buyer incentives. As a result we strongly advise you to check with Office of State Revenue in the state in which you intend to purchase – see below.
You will then be up for legal fees for conveyancing and settlement representation (approx $1,400), 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 home loan 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 – we are only a phone call away or we can provide you with a PDF version of a generic loan application. We pioneered virtual home loan processing and we will provide you with everything you need to make the process as painless as possible.
First Home Owners Grant
The First Home Owners Grants (FHOG) of $7,000 was funded by the Australian Federal Government however they are now funded and 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. Several states have removed the grant on all but new home purchases ie: a property that has never been occupied. This change in policy has severely reduced the number of first home loan applications in the states involved.
In regards to the stamp duty concessions and grants there are many permutations on purchase price, eligibility based on previous ownership and residency requirements. As a mortgage broker we are not really authorised to advise you on your eligibility and so we suggest that you contact the office of state revenue in the state that you intend to apply with.