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 the ten most common questions asked by our first home buyers.
How much can I borrow?
Once you’ve made the decision to buy your first home, it is important to know how much you can afford to borrow. To find out your borrowing capacity, speak with a lending specialist. A good lending specialist will become your home buying guru; they will ask questions such as your income and living expenses to estimate the maximum dollar amount you can borrow.
Want to Check Your Borrowing Power?
To get an idea of how much you may be able to borrow, check out the MOVE Borrowing Power Calculator at the end of this post
How much should I save before I buy?
You may have heard that you should aim to have a 20% deposit before you buy. This is because if you borrow more than 80% of the purchase price, you’ll have to pay lenders mortgage insurance (LMI).
While having a 20% deposit in the current housing climate means you’ll need a significant deposit, it can save you several thousand dollars in LMI. However, if a 20% 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% of the property value. For example at MOVE, you may only need a 5% deposit as a first home buyer.
What is lenders mortgage insurance?
Lenders mortgage insurance (LMI) is a type of insurance which covers your financial institution if you default on your home loan. It also helps borrowers to get into the property market with a deposit of less than 20%. To give you an estimate of how much LMI is likely to cost you, we recommend speaking with your MOVE home loan specialist.
What is a pre-approval?
Getting a pre-approval is one of the most important phases of purchasing your first home. 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 6 months). Getting a pre-approval for your first home loan will mean that you will know exactly how much you can spend and will assist you in negotiating prices and making offers on a property.
What is a guarantor?
A guarantor is someone (usually a parent) who uses 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.
Fixed or variable?
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). At the end of the fixed rate term, the loan will usually change to the standard variable rate offered by the lender. While fixed rate home loans ensure that fluctuating interest rate rises do not affect you, this also means that rate drops won’t apply to you. Fixed rate home loans can also restrict features such as redraw facilities, extra repayments and break fees often apply.
If you decide not to fix your home loan, your interest rate will move with the changes in market interest rates. This means that your interest rate could rise and fall over the life of your loan, which may affect your repayments. 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. As eligibility for the scheme depends on which state you intend to purchase in, be sure to check out http://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 buyers grant, stamp duty costs vary from state to state. To find out how much stamp duty will cost you; take a look at our stamp duty calculator.
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?
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 home loan features should I look out for?
When shopping around for your first home loan, be sure to check out and compare the features each home loan offers.
- Do they offer an offset facility?
- Do they allow you to make extra repayments?
- Do they allow you to make unlimited redraws?
- Do they charge any ongoing fees or early payout fees?
Every lender is different, so it’s important to make sure you’re aware of all the features and possible restrictions on each home loan you’re comparing. This information should be available on the lender’s website which can make comparing products easier for you.
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:
- Home loan application fees
- Stamp duty
- Legal fees
- Mortgage registration fee
- Building and pest inspections
- Moving costs
- Building and contents insurance (this is a condition of loan settlement)
Buying your first property is probably one of the biggest financial decisions you’ve made up to this point, so it makes sense to have someone in your corner that you can turn to for advice. That’s why it is important to get to know your lending specialist at the beginning of your home-buying journey.
Saving up for your deposit?
Ready to buy?
Get in touch with a MOVE lending specialist here or call us on 1300 362 216.
Check My Borrowing Power
Get an idea of how much you can borrow using MOVE’s Borrowing Power Calculator
Disclaimer: Whilst every effort has been made to ensure the accuracy of this calculator, the results should be used as an indication only. They are neither a quote nor a pre-qualification for a loan.
This blog post 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. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article.
Railways Credit Union trading as MOVE ABN 91 087 651 090. AFSL/ Australian Credit License number 234 536 | ABN 91 087 651 090.