First Home Buyers

As a first home buyer, to find a good home loan you should investigate all your home loan options and government grants and entitlements you may be eligible for. There’s a lot to consider before you take out a home loan, and PreApproveMyLoan have created a free guide to help you through the process. Click here for your free guide.

Banks and lenders have very specific policies around lending to first homebuyers and the pricing of their home loan products can vary substantially. To help secure the right home loan for your finance needs talk to The Mortgage Approval Company on 1300 855 670 or contact us info@mortgageapproval.co today.

How Much Deposit?

As a first home buyer it’s helpful to know how much you need to save for a home loan deposit. Minimum deposits vary between lenders and depend on the loan product you choose.

As a general rule, if you are an owner occupier you will require a minimum 5% of the purchase price as a deposit. If you are an investor, you will ideally require 5-10% of the purchase price.

Low deposit home loans can be great for first home buyers who haven’t been able to save a large deposit for their home loan due to high rental payments.

Family equity loans are another great way to help you with your home loan deposit, if you have family willing to help as a limited liability guarantor – then Family Equity loans may be right for you.

Low Deposit Home Loans

Low deposit home loans, where a buyer needs a deposit of only 5-10 per cent (plus any fees or costs), may be available depending on your circumstances. Some lenders may even waive the requirement to show genuine savings, instead allowing you to use a combination of savings, gifts, inheritances and the first home buyer grants offered by your State or Federal governments. Low deposit home loans may not available from all lenders, or for all situations.

Family Equity Loans

Family equity can be a good way to stop renting and buy now, if you have a good income but lack the deposit required by most lenders. With family equity, a family member – usually your parents – assists you with the purchase of your home either by providing security using the equity in their home to cover the deposit amount, or by guaranteeing a portion of your ongoing home loan repayments.

Put a Budget in Place

Putting a budget in place can assist you to bring forward your purchase plans and stop renting sooner, see our free PDF the First Home Buyers guide. A good mortgage broker or financial planner can assist you to tailor a budget to your needs that enables you to save without taking away all of life’s little pleasures. Alternatively, you can try our budget calculator to help get you started on your savings plan.

Rent to Buy

Rent to buy is cited as an alternative method of beginning the property purchasing process in comparison to sourcing a traditional home loan from a bank or lender. Rent to buy agreements typically combines a standard rental/lease agreement with an additional option to purchase the property after a specific timeframe. Rent to buy is not the same as purchasing using a lease purchase or through vendor financing.

Be Wary of Rent to Buy Schemes

There are a number of things to be wary of if you are considering a rent to buy scheme, including:

• it is difficult to gauge whether a vendor is genuine, and there are few, if any, safeguards for buyers
• you will almost certainly pay significantly above market rates for the property
• the interest terms will be 1-2 per cent higher than a standard home loan
• you do NOT own the property until the full purchase price is paid
• as a first home buyer, you are not eligible for any grants and concessions until the full purchase price is paid and the title of the property is transferred to you
• even after the option period is over, you may not qualify for a home loan and stand to lose not only the property, but all the option fees you have paid
• you have limited legal rights if something goes wrong

The safest path you can take is to work with your mortgage broker on ways to get you into a position to make use of a home loan sourced through a reputable and secure bank or lender. Your mortgage broker can help you to determine your options and develop a plan to qualify for the finance you need.

If you do decide to use a rent to buy agreement, it is essential that you consult your solicitor for assistance and advice, particularly when reviewing the contracts.

Your state Office of Fair Trading (or equivalent) may also have some useful information on rent to buy, including any notifications of false or misleading schemes, contact your state Department of Fair Trading.

Borrowing Capacity

One of the most frequently asked questions in home finance is – how much can I borrow? Your borrowing capacity will give you a good idea of how much you can borrow to purchase property.

Your borrowing capacity will vary between banks and lenders because they all use different methods to assess your capacity and have different lending criteria. As a guideline, when determining how much you can borrow banks and lenders will generally look at:

• Credit card limits
• Income and types of income e.g. casual, contract, full-time, self-employment
• The size of the loan compared to the property value
• Number of dependents and their situation
• Type of loan
• General living expenses, and
• Existing asset position (including the size of your deposit)

Tips to Boost Your Borrowing Capacity

• If possible pay off and close any credit card or overdraft facilities
• Do the sums and stick to a budget to improve your deposit and savings history
• Pay off outstanding term debts (e.g. personal loans)

Stamp Duty

• In the same vein as taking out a home loan, try to avoid unexpected fees when purchasing a property. Stamp duty charges are government fees that are paid as part of the property purchase process.
• There are a few different types of stamp duty you may need to pay. We have put together a short list of government fees to consider when budgeting for your new home.
• Property Transfer Stamp Duty
• Transfer stamp duty is payable to your State Government on the purchase price of your property and covers the transfer of title of the property from one person to another.
• The rate of duty you pay will vary depending on the state you are buying in, some states and territories may charge a set fee while others are on a sliding scale. You can check your stamp duty requirements using our Stamp Duty Calculator.
• Stamp duty is generally due on the date of settlement.
• The Mortgage Registration Fee
• The mortgage registration fee is payable when a mortgage is either established or discharged against a property and is an administrative charge imposed by the land titles office in each state or territory for registering the lenders mortgage on the title record for the property.
• First home buyers can avoid paying a mortgage registration fee and no other fees and charges apply.

For more information about how you can stop renting and buy now complete your home loan pre-approval form now.