IT'S supposed to be one of the most exciting times of your life, but in reality being a first home buyer can be extremely daunting.
Before you become overwhelmed by all the things you DON'T know, we answer some of most common questions asked by our first home buyers.
How much can I borrow?
Your "borrowing power” is calculated by looking at your current income and expenses as well as cost of living factors, to determine how much you can afford to borrow.
A good lending specialist will be able to help you work out your borrowing power, so make sure you have as much information as possible about your income and financial commitments before making your appointment.
How much should I save before I buy?
Ideally, you should aim to have a 20 per cent deposit. This is because if you borrow more than 80 per cent of the purchase price, you'll have to pay lenders mortgage insurance (LMI).
However, if a 20 per cent deposit seems unachievable don't panic. In many cases, you can include the cost of LMI in the total amount you are borrowing. As for your deposit, some financial institutions will allow you to borrow up to 95 per cent of the property value. For example at MOVE, you may only need a five per cent deposit as a first home buyer.
What is a pre-approval?
In essence, a pre-approval locks-in the amount that you can borrow, subject to certain conditions and for a set period of time (usually six months). Getting a pre-approval for your first home loan means you know exactly how much you can spend, so you'll be able to make an offer on a property safe in the knowledge that you haven't over-committed yourself.
What is a guarantor?
A guarantor is someone (usually a parent) who provides their property or the equity in their property as security, allowing a borrower to reduce the overall deposit required and avoid paying LMI. Guarantors are especially useful for first home buyers as it can help borrowers get into their first home sooner.
Should I choose fixed rate or variable for my home loan?
A fixed rate home loan means that you lock in an interest rate for a set period of time (usually 1, 3 or 5 years). While fixed rate home loans ensure that fluctuating interest rate rises do not affect you, this also means you won't benefit if interest rates are reduced.
If you decide not to fix your home loan, your interest rate will move with the changes in market interest rates. However, variable rate home loans are generally more flexible with your repayments, redraw facilities and offset options.
If you're still unsure about which interest option is best for you, we recommend getting in touch with your lending specialist.
Am I eligible for the first home buyers grant?
As a first home buyer, you may be eligible for the First Home Owners Grant. Eligibility for the grant varies from state to state so visit www.firsthome.gov.au to find out how much you could be entitled to.
What is stamp duty and how much will it cost me?
Stamp duty is a tax imposed on legal documents usually in the transfer of assets or property. Like the First Home Owners Grant, stamp duty costs vary from state to state, but most offer concessions to first home buyers which can reduce the stamp duty you need to pay.
What is a comparison rate?
A comparison rate is a tool to help you identify the true cost of a loan. It is a rate that includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. When shopping around for a home loan rate, make sure you are judging against the comparison rate.
What is an offset account?
A mortgage offset is a transactional or savings account which is linked to your home loan. The money that you put in this account will reduce the amount of interest payable on your mortgage.
For example: If you have a $260,000 home loan with $10,000 in your offset account, you will only be charged interest against $250,000.
By building up your savings in your offset account, you can cut years and thousands of dollars off your home loan.
What is a contract of sale?
Once you've found the property you like, you can make an offer to purchase it. The agent will formalise your offer in the form of a contract for you to sign.
The contract sets out:
The amount you are offering for the property
The details of when you will pay your deposit
The date of settlement Before you sign the documentation, be sure to discuss it with your solicitor. Never sign any contract without seeking legal advice first.
What other costs are involved with purchasing my first home?
Finding a property at the right price is important, but as you're already aware buying a home is more than just the sale price of the property. Other purchasing costs you should consider include:
Home loan application fees
Mortgage registration fee
Building and pest inspections
Building and contents insurance (this is a condition of loan settlement)
Saving up for your deposit?
Why not join our First Home Saver Club account? You'll have access to resources and tools plus exclusive special offers! Join today at firsthomebuyerclub.my
move.com.au or speak to a home lending specialist on 1300362216.
This article is for general information purposes only and is not intended as financial or professional advice.
It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product or other professional advice.