First Home Buyers Guide - 5 Essential Questions.
- Buying your first home whether it be an investment or to live in is both very exciting and daunting. It’s important that you receive the right advice, as it will likely to be one of the biggest investments you’ll make. As a result, we have compiled our top 5 essential questions and answers to guide you.
1. How much deposit will i need?
When it comes to a deposit most loan products allow you to borrow up to 95% of the property value. This means you will at least need a deposit of 5%. For example on a $500,000 loan you will need a deposit of at least $25,000.
If you are struggling to obtain a deposit there are a few things you can do:
- You can borrow without a deposit using a Guarantor loan. A guarantor loan is a way for parents to help their children purchase a home without actually providing the cash for a deposit. Instead of a cash deposit, the money for the deposit comes directly from the equity in your parents home.
- Ask a close relative or your parents for a gifted deposit (if available to them).
- Split the loan with like minded friends and family (can have up to 4 applicants) who also want the opportunity to own a home but can’t do it on their own. This way you can pool your resources.
- Go into a joint venture with someone who does have a deposit and then negotiate the repayments structure.
2. What is LMI and how much is it?
Lenders Mortgage Insurance is a fee charged by finance lenders. It's generally charged when you have a deposit which is less than 20% of your property's purchase price. LMI acts as a security to the lender, who considers you a high risk borrower with anything under 20% deposit. LMI protects the mortgage lender in the event that you, the borrower, defaults on their loan.
For example: If your loan amount is $475,000 and the property value is $500,000 your LVR (Loan to Value Ratio) would be 95%. With LMI costing you approximately $15,960.
This $15,960 may be an extra upfront cost or it could be capitalised on the Loan product and paid off in monthly instalments over the life of the loan.
Speak to us to find out whether you qualify for a home loan product that capitalises on LMI.
3. How much does a home loan cost?
Home loans aren’t always about the property purchase amount and the interest you pay. A home loan has a number of other associated fees that you must be mindful of. Such as:
Stamp duty is a tax on a property transaction that is charged by each state and territory, the amounts can and do vary. The stamp duty rate will depend on factors such as the value of the property, if it is your primary residence and your residency status. As a first home-buyer, you will get stamp duty concessions so your costs will be a lot lower.
Mortgage registration fee
Mortgage registration fee is a State Government charge for the registration of a home loan. Because the property acts as security for a home loan, the government requires a home loan to be registered so that all claims on a property can be checked by any future buyers of that property. In NSW the fee is $136.30.
A fee to replace the vendor’s name with your name on the property. Transfer fee in NSW is $136.30.
Conveyancing fee (Legal)
Conveyancing costs can varying depending on the Lender. Some lenders will not charge a legal fee as it is part of the application. Others will charge separately anything from $200-$800.
Sometimes lenders will provide a free valuation as part of the application. Other lenders will charge a valuation fee. A valuation fee can range from $236 - $600 depending on the property, location and the final valuation figure.
Like some of the other associated costs it is dependant on the Lender. A lot of lenders these days don’t charge a settlement fee. However, there are still plenty of lenders that do. This fee can range from $100-$400.
Home loan fees
Depending on the loan product you may also have to pay an upfront fee, monthly fees and annual fees. These fees vary greatly amongst lenders. Some lenders won’t charge any upfront fee but you may have to pay an annual fee. While other lenders charge an upfront fee and no ongoing fees.
Other ongoing expenses
Strata fees for community managed properties
Utility costs such as water, gas and electricity
Home improvements and renovations
Loan repayments can be made weekly, fortnightly or monthly, with monthly being the most popular option. You also have a choice to pay off your loan in two ways. The first being Interest Only (IO). IO loans are usually for a maximum period of 5 years. Under an IO loan you will only pay the interest of the loan - making initial repayments lower per month. After 5 years your repayments revert to the the second form, being Principal & Interest (P&I). P&I is the principal monthly amount of the loan plus interest calculated daily. At this stage your repayments will increase monthly as you’re now paying off the loan amount and not just the interest.
Ask us to help you find a product that keeps as much money in your pocket as possible.
4. Can i get a First Home Owners Grant?
The First Home Owners Grant (FHOG) is a one off Government grant designed to help first home owners get into the property market.
The FHOG varies significantly across Australia. Currently in NSW the FHOG is $10,000.
In order to be eligible for the FHOG you must meet certain criteria. Get in contact with us today and find out whether you are eligible. You may also be eligible for additional grants and stamp duty exemptions as a first home buyer.
5. What documentation is required?
You will need to provide documents that show evidence of your income and identity. These documents can include the following:
- Current Drivers licence
- Current Passport
- Medicare card
- Letter from Employer
- Letter from Accountant
- Tax returns
- Banks statements
If you’re currently in the market for a home loan or would like further information around the points above, please give us a call on 0414 856 713 or email firstname.lastname@example.org