Quick – tell me what I need to get a first home buyer loan
- stable employment history – same job for 6 months or 2 years in the same field
- sufficient income to meet the repayments – when calculating your borrowing capacity lenders can’t use today’s very low rates, they have to allow for rate increases
- equity made up of a deposit or guarantee:
- 5% genuine saving plus costs such as stamp duty and mortgage insurance, or
- sufficient funds to keep the loan below 95% of the purchase price, and evidence of 6 months rental payments paid to an agent, or
- sufficient deposit to keep the loan below 90% of the purchase price, funds can be any source including gifts, or
- a family member prepared to be a guarantor and offer another property as additional security for the loan
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.
How much can I borrow?
Don’t confuse servicing capacity with borrowing capacity. Servicing capacity is your ability to meet the repayments on a home loan but this 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 $20,000 deposit the lender and their 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 ( how much you own) 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..
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 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
These grants and stamp duty concessions can make or break the deal for you. Unfortunately it administered by each state and territory and so it has become a nightmare for us to keep track of the various offers. We do however have a calculator that can tell exactly how much your entitlement is just follow this link
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.
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