Purchasing your first home should be a time of excitement and intrigue, not one of stress and confusion. All too often we come across home buyers ‘scurrying’ around trying to find the perfect property and then seek finance with complete oblivion as to what is involved. The purpose of this blog is to enlighten first home buyers as to what you can expect to encounter whilst looking at making your first step towards fulfilling the ‘great Australia dream’ and making the process as stress free and rewarding as possible.
What you need to know:
Obviously one of the main factors when purchasing a first home is obtaining a substantial deposit. Along with serviceability these are the two most common factors you need to take into consideration when attempting to purchase a new home. Serviceability simply refers to an individual’s ability to meet regular loan repayments based on their overall financial position. We see all too often clients being advised they can borrow an amount much higher than they can actually afford which would ultimately leave them in financial stress from the outset.
It is imperative to seek professional advice from a finance consultant when determining borrowing capacity and serviceability on a home loan.
Typically speaking, a deposit needs to be around 10% of the purchase price of the property. This takes into account 5% of the deposit to satisfy lender policy and the remainder is to cover Government costs (Stamp duty, Land transfer registration etc.) To give you an example of these costs see below:
Purchase Price: 300,000
South Australian State Charges are as follows-
Land Transfer Registration- $2,145.00
Stamp Duty- $11,330.00
Mortgage Registration Fee- $152.00
Servicing the loan will require meeting monthly, fortnightly or weekly repayments dependent upon the overall amount borrowed and its corresponding interest rate. As to how much a lender will borrow to a particular customer corresponds with the purchase price paid for a property. Different lenders will offer a loan amount of up to 95% of the Purchase price. This is what is known as a Loan to Value ratio (LVR).
One of the most unfamiliar aspects of a first home buyer’s transaction is a fee called Lenders Mortgage Insurance (LMI). This is a fee charged by the lenders insurance company which protects the BANK (not you) should you potentially fail to meet the loan repayments and default on the loan.
This fee is charged once the Loan to Value ratio of a property exceeds 80%. It increases accordingly with the % borrowed up until 95% LVR. Some lenders will allow the purchaser to add this fee to their loan amount and some will require the fee to be paid as an upfront charge upon date of settlement. It must be noted this fee can costs thousands of dollars and depending on the individual circumstance, it is advised to avoid where possible.
Getting you into your home sooner:
Irrespective of uncertainty in the economy, saving a substantial amount of money is difficult at the best of times. There is no real secret to saving and managing your money, it requires a great deal of discipline. Fortunately, there are some other options available should you not be able to meet the above mentioned deposit criteria. One of the most trending scenarios we are seeing in today’s market is the guarantor option.
Essentially a guarantor loan is a type of mortgage where a family member will use equity in an existing security as an additional security on your purchase transaction. This allows the bank to have an additional safeguard against the loan you wish to take out. Guarantor loans are exceedingly popular in the first home buyer category that are finding it difficult to save for a deposit but not limited to purely this category. The guarantor scenario allows the borrower to access funds for both the purchase and the government charges, ultimately requiring no upfront deposit at all. Providing there is necessary equity in the guarantor’s security and the applicant can service the loan, the bank is quite happy to proceed with this type of loan. It must be noted that not all lenders facilitate this option. To seek more information on which lenders specialise in this area, contact a finance consultant like myself who will be able to assist.
Choosing the right lender for YOU:
Along with saving for a deposit, finding a suitable lender is arguably the next most crucial part of the buying process. It is important to note all lenders have differing policies and criteria that an individual must meet in order to borrow funds from their institution. We see clients coming to us regularly after visiting their local branch and are unable to access funds due to not meeting the banks policy. Common issues that arise include but are not limited too; casual employment, High LVR’s, length of employment, acceptable income.
Perhaps cliché, but one of the main advantages of using a mortgage broker is you are immersed with options. We are able to present options that fit an individual’s situation and find a suitable lender. We are fortunate enough to have access to over 25 lenders on our panel including hundreds of loan products. Taking a personalised approach, I firmly believe in presenting a variety of suitable options to clients and including them in the selection process. Ensuring the client understands why they are suited to a particular product is crucial and hence why educating before advising is a high priority for me.
For more information on anything included in this blog or to seek assistance with your finance needs don’t hesitate to contact me.
0411 110 151