Purchasing property for the first time can all be very confusing! First home buyers usually have a lot of questions so let’s look at a few basic questions and answers regarding property, first home buyers, lenders, deposit and all that other tricky stuff!

Where do I start on my First Home purchase journey?

Check out my post on the First Home Buyer’s checklist!! Start researching the areas that interest you, the type of dwelling you’re looking for, the amount of money you’re looking to borrow. Just get stuck in and do a lot of research!! The internet is a great place to start!!

now this is my idea of a first home! friends over by the pool on a summers day!!

How much deposit do I need to purchase my first home?

It varies and is really up to you! Lenders will consider lending you 100% of the purchase price if you do not have a sufficient deposit and have adequate capacity (income) to service the debt! The larger your deposit the lower your repayments will be and the larger the equity in your home will be, and if you have 20% deposit you can avoid paying Lenders Mortgage Insurance!!

What is Lenders Mortgage Insurance (LMI)

If your ‘Loan to Value Ratio (LVR)’ is above 80% then it is mandatory to pay LMI. It is a fee to protect the Lender incase you default on your home loan. The higher the LVR, the larger the LMI fee will be!

What’s an easy way I can increase my borrowing capacity?

The best way besides earning more income (lol if only it were that easy!) is to reduce your personal debt such as a reduction in your credit card limit.

How many types of Home Loans are there and which one is best for me?

There are tons!! And it’s important to find the best one for you! If you can’t afford too many rate rises then it may pay to fix your loan. If you want to pay off your loan quickly and make extra payments then you may want a variable rate with additional features such as offset.

How much is the First Home Owner Grant?

$7000 and in NSW you are exempt from Stamp Duty for purchases up to $500,000 and a reduction in stamp Duty for purchase over $500,000. Check out my post on First Home Owners Grant (FHOG)

Are there any ways my parents can help me out?

Yes! Many lenders have products where your parents can assist by using equity in their home. Products such as Family Pledge (St George) and Fast Track (Rams) can help with First Home Buyers.

What is a Non-Bank Lender?

Non Bank Lenders such as Rams and Wizard provide alternatives to the main stream Banks such as Westpac and CBA etc.. and have been very important in increasing competition in the Mortgage Industry the last 10 years. Without Non-Bank lenders we would have much less choice and even much higher fees due to lack of competition in the marketplace. Non Bank lenders have really struggled the last 6 months due to the Global Credit Crisis as they need to borrow money to lend you money and the cost of this has dramatically increased, thus seeing the closure and/or re-structure of many of these lenders. For example, Rams is now funded by Westpac. Non Bank lenders offer the same products as the Big Banks and are very competitive with rates.

What is a non-conforming lender?

If you have bad credit or poor repayment history, or have just arrived in the country or have issues elsewhere etc. then a non-conforming lender will often look ‘outside the box’ and consider your application! Basically if your application won’t be approved anywhere else, then we may try a non-conforming lender often as a ‘last resort’.

What should I be aware of when taking out a Mortgage?

Purchasing property for most of us is a huge decision so find a broker you can trust and always watch out for loans that seem too good to be true!!

What should I ask you as my Mortgage Broker?

Ask if i’m member of the MFAA! Ask about loan types, rates, comparison rates, features, fees, any additional costs involved, the process…ask anything and i’ll do my best to support you from application to settlement!

The First Home Owner market is huge and Banks are more than willing to accommodate all types of First Home Buyers! And guess what? You don’t even need a deposit these days to get into the real estate market! This post covers important basic mortgage terminology that you will learn about while purchasing your first home and the criteria that Banks look at when assessing an application for a First Home Buyer with limited deposit and/or limited employment history. Nowadays you don’t need to save for 5 or 10 years just for a deposit to gain entry into the property market!! Do your research, find out how much you can borrow, and take the first step into property ownership!!

take the first step towards owning your first property!!

Deposit

You really don’t need a deposit to purchase property as Banks will lend you 100% of the purchase price (if you meet the Lender’s criteria as discussed below) and the Govt offers you a First Home Owners Grant (FHOG) for the fees and legals. But having a deposit will save you money on both fees and repayments and the larger the deposit the greater the saving!! Your deposit can fall into one of two categories and this will affect the Lenders Mortgage Insurance Premium (LMI) which is further explained below:
1) Genuine savings: these are savings you have saved for at least a 6 month period and can be evidenced via bank account statements. Other forms of genuine savings include shares or investments but must be held in your name for at least 6 months and evidence provided.
2) Non-genuine savings: if you do not have savings it does not mean you cannot buy your first property. Banks can lend up to 100% LVR (Loan to Value Ratio). Or, you can use gifted funds from family members to lower your LVR and thus reduce your LMI premium. However the LMI premium on non-genuine savings is higher than that for having genuine savings. Gifted funds or funds from another source are known as non-genuine savings.

Loan to Value Ratio (LVR)

LVR is a term used by every institution and basically explains what percentage of your property is secured by the loan amount. The greater your deposit in either the form of genuine or non-genuine savings, the lower your LVR will be which is a good thing as this means you have more equity in your property! And the lower the LVR, the lower your Lenders Mortgage Insurance (LMI) fee will be!

To find out your LVR you divide your loan amount by the security value x 100
Let’s look at a simple example:
Purchase price: $200,000
Savings for deposit: $20,000
Therefore loan amount must be $180,000
LVR = loan/security x 100 = 90%

If you have savings of $40,000 your LVR will be 80% ($160k/$200k = 80%)

Now, there’s a big difference between having 80% and 90% LVR. Firstly, you have a lower loan balance and will therefore have lower repayments. Secondly, at 80% you do not get charged Lenders Mortgage Insurance!! (LMI)

Lenders Mortgage Insurance (LMI)

If your LVR is over 80% you’ll get slugged with LMI which is a fee charged by every institution as with the increase in LVR becomes a higher risk associated to the Bank for your loan if things were to go bad! LMI is a fee charged to protect the Bank, not the applicant! In most cases for First Home Buyers it can’t be avoided, I certainly had to pay it…it’s just one of those things! However, like many fees, it can be capitalized on top of your loan amount so you gradually pay it off along with your loan balance.
LMI is roughly 2% of your loan amount. It differs but allow for 2% is the general rule! LMI will also be more for those with no-genuine savings than for those with genuine savings.

Employment for First Home Buyers

Most Bank policies are similar when it comes to criteria for First Home Buyers or non-genuine savings applications with LVR over 95%. The policy is usually 12 months in your current job but there is flexibility when it comes to a stable job history over the last 2 years! Meaning, if you have changed jobs within the last 12 months, then your previous job history must be in the same industry going back at least 18 months. Evidence of this will need to be provided.
At 95% LVR or below, having 6 months in your current position is enough to satisfy Bank criteria and a payslip is enough to evidence this!

Serviceability

Banks use their own assessment rates to give them comfort with servicing criteria and to make sure if there are any rates increases that the applicant has adequate income to service the loan at a higher rate. Wow, it even sounds like they care right?? Well actually, afterall, if a loan goes into arrears and the applicant is forced to sell, the Bank doesn’t make anything on that loan! Ok so for servicing on a non-genuine savings product, the minimum servicability level is usually a little higher than that of a standard product.

Always remember…

Banks may very well approve you at 100% LVR but always always leave room for additional spending and worst case scenario if something were to happen to your income!! Don’t borrow so much that you have very little left over as rates can rise and the last thing you want to happen is to be a slave to your mortgage. Purchase property within your price range and use the First Home Owners checklist. Owning property should be an enjoyable first step to wealth creation!!

So you want to buy your first property and get into the real estate market?? You’re ready to fulfil the ‘Great Australian Dream’ of home ownership!! You’ve saved up enough money for a deposit and then it hits you, “I’m happy with where I’m renting, it’s not costing me too much, it’s close to work, so why do I want to purchase?” Because, buying your first property is like a natural progression through life, and although rates have risen lately it’s not all doom & gloom!!…there are bargains to be found!

think about your first home as a long term investment

So then the dilemma begins…”should I purchase an investment property or an owner occupied property first?”

Both forms of ownership definitely have their benefits but which one is right for you? If you’re a couple who want to purchase and live in your home/unit long term then that is fine! But for those who are considering a purchase for either owner occupied or investment use, you need to consider all the pros & cons associated with both forms of ownership. Especially if you’re currently renting in inner Sydney or Melbourne, as mortgage payments can be almost double what rent payments are! You may be renting in a 2 bedroom unit worth $500,000 and paying $600 per week rent ($300 per room) but mortgage payments on the same unti would be much higher! The facts are that we usually need to live relatively close to where we work, so if you work in the inner city is it best to stretch yourself with buying an owner occupied in expensive inner city or buy something more affordable further out?

It’s not an easy decision but it doesn’t mean you can’t get into the property market!!

You just need a change or shift in your way of thinking. You should think about renting where you want to live, and become a landlord in other areas where affordability is more realistic, returns are greater, and where you won’t stretch yourself too thin!! The fact is, renting is a lot cheaper! Sure, it’s great to say you own property, but not if it costs you everything you earn!!

So does this mean I should purchase an investment property first?

No, it doesn’t…although turning your property into an investment property is what you should think about doing eventually. I previously wrote a post on the First Home Owners Grant and while this is available to first home buyers it should be taken up!! It’s too big a saving for anyone to pass up!! You will need to live in your property for the first 6 months and then you are free to rent it out and turn it into an investment. So keeping with the theory of renting where you want to live and purchasing in more affordable area, you may need to travel a bit further everyday for a few months before you go back and rent where you were before and turn your property into an investment.

The benefits of buying an owner occupied first are obviously the FHOG and stamp duty concessions (in NSW). The benefits of turning your property into an investment and then renting again are that there a lot of tax deductions you can receive on an investment property.

But how can I pay for a mortgage and rent payments also?

Because your rental income will need to exceed your rent payments (which it usually will) which will also give you extra to put towards your mortgage. And on top of that there is depreciation on building, fittings, fixtures you can receive and your accountant will help you with all this to reduce your taxable income!

Utilize the Govt grant (FHOG) while it is available, but shift your mindset to that of an investor…owning your own property and living in it is a great thing, but living in the Capital cities is expensive and it may be better to make your money work for you and reduce your taxable income!! And in a few years time you’ll have equity in that property that you can use to purchase another one!!

Are you currently thinking about entering the property market?? Well, buying your first property is definitely the most difficult!! The other day on the news I heard that average house prices in Sydney are amongst the most expensive in the world!! So how on earth are we supposed to purchase our first property when prices are so high? It seems so daunting that we probably have to save, save, save for years only come up with a deposit, and only then be able to afford a small shoe-box of an apartment!! Luckily, the Government has a subsidy called the ‘First Home Owners Grant’ (FHOG) to help us out!!

the FHOG is great incentive to get into the property market!!

How Much $$ is the First Home Owners Grant?

The First Home Owners Grant is there to assist in the purchase of a first home. In New South Wales the Grant is $7,000 and first home owners are also exempt from paying stamp duty (a mandatory tax in Australia when the sale/transfer of land or real estate is involved) up to a purchase price of $500,000 and for those purchasing over $500,000 pay a reduced amount of stamp duty. That’s a huge saving!

Let’s look at an example for a purchase in NSW:

purchase price $300,000
loan amount $270,000 (assuming FHOG & savings will make up the 10% deposit + costs)
usual stamp duty amount on a $300k purchase price = $8990
stamp duty payable as a first home owner = $0!

Unfortunately for those in Victoria the above example isn’t quite as beneficial:

usual stamp duty amount on a $300k purchase price in Vic = $13,660
stamp duty payable as a first home owner = $13,660
the FHOG in Vic is $7,000 but there is a First home Bonus also for $3,000 or $5,000 which can also be obtained but stamp duty is unfortunately not waived

So why does the FHOG amount differ from state to state?

Each state administers the grant, so each state will determine the rules for the grant. The common rule is that you must purchase for an owner occupied purpose, and you must live in the property for six months out of the first twelve months of ownership! In other words, you can purchase and rent it out for six months but then you must move into it for the remainder of the twelve month period! It also must be your first property purchase and this can get a little tricky if you’re in a relationship and one person has owned before and one hasn’t.

The FHOG is essential to enter the Property Market!

I know from personal experience that the FHOG was essential for me in order to purchase my first home, I simply could not have considered entering the property market when I wanted to without it!! I figured while it was available I would utilize it because who knows when the Govt may change the rules!! The application form is submitted to the lending institution during the loan approval process and they will liaise with the appropriate people and get the FHOG approval done. Or, you can actually submit it yourself but is way more hassle this way. It’s best to let the Bank handle it!

Other resources for First Home Buyers

I wrote a previous post for evey first home owner looking to purchase on an Essential Checklist Every First Home Buyer Should Have! Be sure to use the checklist when considering your purchase!!

For further info on FHOGs in NSW go to
go here!
For further info on FHOGs in Vic go to
go here!

If there are any questions regarding the FHOG, please feel free to drop me a line or post a comment so everyone can benfit from the discussion!!

Looking for your first home is exciting!!

After all, home is the centre of your life! It can be an overwhelming process deciding where to buy and what the best property will be for you, and selecting the right home is much more involved than being happy with glossy fittings and style!!

Every First Home Buyer should review the below checklist before deciding to purchase!

You need to imagine what your life is going to be like in a certain home and what you will gain and what you’ll lose when you purchase the property. In other words considering the big picture and how it will affect you.

use the checklist to select the right house for you!!

The number one consideration for First Home Buyers is: how much can I afford?

This will determine the suburb where you can buy. For example, the inner circle in Sydney holds its value and is pricey whereas the further out you go, the more realistic prices are for First Home Buyers. Of course, there are many other determining factors listed below in the checklist.

I first worked out what I could afford before I started looking for property.

I also knew I needed to be relatively close to the city for work, and I wanted an apartment with lots of amenities and close to transport. Once I had narrowed it down to a few specifics of what I was looking for, it saved me so much time and made the choice a whole lot simpler!!

Here is the checklist for all First Home Buyers!

* What are you able to pay? Is this realistic considering what you want?

* Do you need to be near transport, schools and work?

* What area or suburb do you want to buy in?

* Do you want a house, terrace, semi, apartment or townhouse?

* How many bedrooms and bathrooms do you need?

* How much storage space do you need?

* Do you need parking or a garage?

* Do you want a garden, courtyard or balcony?

* Do you have any special needs?

* Are you prepared to renovate if the property requires repairs or upgrading?

What next?

Once you’ve used the checklist and narrowed it down to a few specific locations, talk to me about a getting pre-approval for your finance so you have piece of mind when it comes to making an offer or attending an auction!!

This is an exciting time and can often be a bit stressful, be confident in the decisions you make, but most of all enjoy the experience!!