Confused by Dad’s mortgage lecture and really want to know where to start? We have you covered.
In normal circumstances it’s really hard to know where to start when buying or building your first home. There is a lot to think about like:
- Should I buy an existing property or build?
- How do I research property?
- How much can I borrow?
- What deposit do I need?
- Can I access any government incentives like the Fist Home Owner’s Grant?
And that’s just to get you started!
To help you get up to speed with the financial aspects of buying property, we’ve compiled a list of the most commonly-asked questions from first home buyers and the answers, to put you one step ahead.
How much can I borrow?
Unsurprisingly, the most common question that first home buyers ask is how much they can borrow. There is no one size fits all when it comes to how much you can borrow (also called your borrowing capacity), so partnering with a lending specialist who can crunch the numbers for you can take much of this uncertainty away.
All lenders will assess your income and expenses and you’ll need to show that you can afford a home loan – and that you’re a good money manager. When lenders assess your borrowing capacity they will use repayments based on a few percentage points higher than your loan, in case rates were to increase in the future. But there may also be some ways to increase your borrowing power by reducing your expenses. Some examples of how this can be done include creating and sticking to a budget, and looking for ways to save by shopping around for cheaper insurances, reducing your credit limits, paying off personal loans or other debts, taking packed lunches to work, and using public transport.
How much of a deposit do I need?
Just like borrowing capacity, the required deposit will vary depending on a number of factors including the purchase price and the borrowers’ circumstances.
Generally speaking, a 20% deposit plus the costs of purchasing a property may be enough to avoid Lender’s Mortgage Insurance (LMI). However, if you don’t mind paying LMI, 5-10 per cent of the purchase price may be acceptable to some lenders depending on the type of home being purchased. Having a guarantor may also help you avoid needing to have a 20% deposit.
There are also some products, like the LJ Hooker Home Loans 5 Star Home Loan, that may allow you to borrow up to 98% of the purchase or total land and construction price.
The 5 Star Home Loan is designed to offer First Home Buyers a low deposit option, combined with a fully featured home loan with no application or ongoing fees. The pre-approval service is free and can provide real peace of mind when you set out looking for your first home.
What is lender’s mortgage insurance?
Understanding the lingo of buying and financing a property can help make the process less stressful, and LMI is just one of the many acronyms that you’ll become intimately familiar with during the course of buying your first home. LMI typically applies if you buy a home with less than a 20% deposit. It’s an insurance that protects the lender if you can’t keep up with your payments.
What are the costs involved in buying a home?
Understanding all the costs involved in buying a property upfront is important, and many first home buyers ask this question early on when meeting with a lending specialist. Costs of buying a property may include:
- Stamp duty
- Legal / conveyancing fees
- Mortgage or loan application fees
- Pest and building inspection reports or a Strata search (for apartments)
- Utility connections
The costs of purchasing a property vary by state/territory and also by service provider, so it’s good to get a few quotes before agreeing to go with the first conveyancer or insurance provider you find. Your lending specialist can help you work out what costs will apply to you based on where you live, the type of property you’re buying and other factors, like the type of home loan you want and the size of your deposit.
So don’t stress if you don’t know where to start. It’s as easy as getting in touch with a lending specialist who can simplify things for you. They can also help you apply for any government grants you may be eligible for.
Our lending specialists also offer free property and suburb reports to help with your research.
At this time we’re “covid-capable” and isolation enabled which means we’re here to help get your loan approved over mobile or web.