June 17, 2016
Taking the first steps towards owning your own home is both exciting and sometimes a little overwhelming. We understand how confusing the home loan market can be, especially for first home buyer's. Home ownership gives you a valuable asset, the security of a roof over your head and the rewards of creating a home that is uniquely yours.
As a home owner your mortgage repayments might be higher than your rent, and yes, a home loan is a long term commitment. But in many ways repaying a loan is a form of forced saving. You’re not just paying for a roof over your head, you are building equity (ownership) in an asset that will grow in value over the years and you are not paying off someone else’s mortgage.
As an owner you have the power to improve the value of your asset independent of market movements. You have the freedom to decorate or renovate your home, stamping your character on the property and making it a more comfortable place to live as well as boosting its value.
Saving for a Deposit
Saving for a deposit is a key step in home ownership. You will need some savings - typically a minimum of 10% of your home’s purchase price, but if you can save more, this will give you some advantages.
A bigger deposit gives you big advantages - Building a deposit demonstrates that you have a strong saving history, something lenders like to see. There are plenty of other reasons to aim for a bigger deposit.
Save on monthly repayments and interest - The bigger your deposit, the less you have to borrow, and that means lower monthly repayments. You’ll also pay less in long term interest charges - money you could use to invest or renovate your home.
Better choice of lenders, lower rate - some lenders will want to see more than a 10% deposit, so having a bigger deposit gives you a wider choice of lenders. It also puts you in a better position to negotiate a lower interest rate.
First Home Owners Grant (FHOG)
The First Home Owner Grant is designed to help first home buyers purchase or build their first home. The grant is a national scheme funded by the Federal Government, but administered through the State Revenue Office.
The First Home Owner Grant (FHOG) is a one-off, tax-free payment to people buying their first home in Australia. Lenders may consider it as part of your deposit, although not as part of your genuine savings. It is only paid on the settlement of your property or on the first progress payment if building.
However, there are some general conditions that apply Australia-wide:
- Must be 18 years of age
- You must be buying or building your first home as a person, not as a company or trust.
- You or your co-purchaser (typically a spouse or partner) must be an Australian citizen or permanent resident of Australia.
- You may still be eligible for FHOG if you own an investment property/s purchased after 1 July 2000 as long as you haven’t owned property prior to 1st July 2000, and you have never lived in the investment property/s.
- You’ll need to live in your first home within 12 months of construction or purchase (minimum periods of occupancy vary between states and territories).
- Couples can only make a single application FHOG, and will only receive one payment.
- The value of your first home (home plus land) must be below a certain value
How much can I afford to pay?
Your property spending limit will be shaped by your borrowing capacity. A golden rule of property buying is not to overextend yourself. You need a clear idea of how much you can comfortably afford to repay – even if interest rates rise.
Check out our Home Loan Repayments Calculator at https://www.mortgagechoice.com.au/robert.causovski/calculators to identify the loan size you could afford to service.
Up front Buying Cost
There are costs associated with buying property to be aware of, besides the property buying price. A general rule of thumb is to allow an extra 5% on top of the purchase price of your home for additional buying costs. Key buying costs to budget for include:
A pre-purchase pest and building inspection will show up any building defects, illegal work or pest issues that could be costly to fix further down the track. If you’re buying an apartment, a strata search will provide information on any levies, insurance details, disputes, history of repairs and more.
Your lender may charge a number of upfront loan costs such as:
- Loan application fee - allow for up to $700
- Lender’s property valuation costs - these could set you back around $300
- Lenders Mortgage Insurance (LMI) - this one-off payment applies unless you can put down a deposit of 20% or more.
Property transfer stamp duty is a state government tax payable by the buyer and is calculated on the price paid for the property. As it is a duty for transferring the title of a property, it will be imposed whether or not the purchase is financed with a mortgage.
You could also face a number of other government charges including a property transfer fee, mortgage stamp duty and a mortgage registration fee.
These vary between providers but property conveyancing fees typically cost between $1000 to $1500.
Choosing a home loan that’s right for you...
There is a wide variation of types of mortgages.
Variable rate loans
Unlike a fixed rate loan, the interest rate on a variable loan will move up and down in line with market interest rates. As a result, your monthly repayments can vary widely during the term of your loan, and it’s worth allowing for the possibility of future rate rises before committing to a variable rate loan.
Fixed rate loans
This loan locks you into a particular interest rate for a set period (e.g. 1-5 years). Your repayments will remain the same irrespective of how market rates move during the fixed term, which can make it easier to budget for your monthly loan payments.
A split loan divides your loan into fixed and variable rate portions. This gives you certainty of repayments on the fixed rate part of the loan while still being able to enjoy the savings of possible future rate falls on the variable part of your loan.
This is a loan in which, for a set period, the monthly payments comprise only interest without any repayment of principal. The interest-only period may run from one year to several years. After this you need to start repaying the principal or renegotiate another interest-only term.
Other loan features…
The interest rate may be the key factor most of us look at when choosing a mortgage but loan features are just as important.
Fee-free extra repayments – paying just one extra dollar a day off your loan will mean big savings in long-term interest and see you mortgage-free far sooner. That makes extra repayments (at no extra charge) a feature worth having.
Portability – this lets you take the loan along with you when you move house, thereby you could avoid the need to pay break costs for your old loan or establishment fees for a new loan.
Nice-to-have but not essential
Redraw facility – provides access to any extra repayments you’ve made. Handy if you’re short of cash in an emergency but it will put you behind in terms of interest savings.
Mortgage offset – an offset account lets you put any savings to work to reduce your loan interest charge. The balance of your savings is deducted from the loan when interest is calculated, so you pay less interest, with more of each repayment reducing the loan balance.
Finding your dream home...
You’ve done your homework, now comes the exciting part... searching for your first home.
Your home is a major investment; one that should grow in value over time. A number of factors can help to identify a home with healthy growth potential. These include:
- Condition of the property: Inspect the roof and its insulation, are neighbouring properties in good condition, inside – check for damp patches and cracks, particularly if you found problems outside.
- Location: Is the location offering proximity to transport, medical facilities, schools, shops and lifestyle facilities like restaurants?
- Suburb value: Is the suburb you are looking to buy in growing in value or are adjoining suburbs experiencing rising value?
- Development: Check with the local council to see if any developments are planned for the area. These could have a significant impact on the value of your home.
- Noise: Make sure you consider the noise generated by nearby commercial operations, schools, busy roads, railway lines or flight paths.
- Parking: Does the home have off street parking? This could be a crucial detail in an inner city area.
- Outlook & Features: Coastal, river or bushland views are attractive. Distinctive features, from a period fireplace to a landscaped garden create scarcity, and in property, that adds value.
- Privacy: Even the perfect home will be compromised by a block of units overshadowing the back fence.
Why choose Mortgage Choice – Brimbank Melton?
There is no charge to you for our home loan service because the lender pays us after your loan settles.
We are paid the same rate of commission regardless of which home loan you choose, as long as it’s a residential home loan with one of the lenders on our panel.
We have access to up to 28 of Australia’s leading lenders, including the major banks.
We make it easier for you by preparing the paperwork, lodging the application and doing all of the follow up on your behalf.
Talk to us Today
Call Robert on 0415 920 585, or email Robert at email@example.com.
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