First Home Buyer Loans
Taking out your first home loan is the first step toward achieving the great Australian dream of home ownership. It’s a long-term commitment and likely to be the most important financial decision you’ll ever make.
The standard home loan term is 25 years, though 30-year or shorter terms are available. Home loans for first home buyers can be daunting, but they don’t have to be! If you’re thinking about buying your first home, it’s important to understand three key things:
- home loan fundamentals
- your entitlements as a first home buyer
- and how much you can afford to borrow.
First Home Buyer Loans
1 STEP ONE: Home loan fundamentals
There Australian home loan market is very competitive. There is a huge range of lenders and home loan products available. Even what might seem like small differences in the terms, conditions and features of home loans offered by different lenders can make a big difference to your repayments.
Always use the comparison interest rate when comparing different home loan products. Lenders typically advertise two rates on their home loans – a comparison rate and a nominal rate. The comparison rate is higher because it includes the cost of any loan fees and charges. The lower nominal rate only includes the cost of the interest. Lenders in Australia are legally required to provide you with the comparison rate on their products before you take out a loan.
It’s important to understand whether it’s worthwhile for you to pay fees for any additional optional loan features like offset accounts or redraw facilities.
2 STEP TWO: Your entitlements as a first home buyer
If you’re an eligible first home buyer in Australia, you can potentially receive all of the following entitlements:
- the First Home Owner Grant (also known as FHOG, the first home buyer grant or the first home loan grant),
- a stamp duty exemption or reduction, and
- participating in the First Home Loan Deposit Scheme.
The First Home Owner Grant in the Victorian metropolitan area is $10,000 if you’re eligible and you’re buying or building a new home. It is $20,000 if you’re buying or building a new home in regional Victoria up until 30 June 2020.
If you’re buying your first home in Victoria you’ll also be eligible for a stamp duty exemption (if it’s valued below $600,000) or a reduction if it’s valued between $600,000 and $750,000.
Both the first home buyer stamp duty exemption and concession could save you tens of thousands of dollars.
The First Home Loan Deposit Scheme is a federal government guarantee to help you avoid the cost of lenders’ mortgage insurance (LMI). The cost of LMI varies between lenders, but it can be $10,000 or more on an average home loan.
3 STEP THREE: How much can I afford to borrow for a home loan?
It’s important to work out how much you can afford to borrow before you apply for a home loan. Lenders in Australia are legally required to lend responsibly. That means they must determine whether or not you can afford your repayments when you’re applying for a home loan.
The amount you can borrow will depend on the regular home loan repayments that you can afford based on your income and other expenses. It’s a good idea to get a loan pre-approval to put you in a strong bargaining position before you start looking to buy your first home.
First Home Buyers Tips
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The more deposit you can save, the more you’ll be able to afford to borrow to buy your dream home. You’ll find it easier to save if you prepare a budget of your monthly income and expenses. Eliminate or reduce and non-essential expenses to help you save money.
Once you have prepared your budget, it’s important to stick to it. Getting into this disciplined will also help you to make your home loan repayments once your home loan is approved.
In addition to your own savings, if you’re eligible you can also take advantage of the following to help you with your deposit:
- the First Home Owner Grant,
- the First Home Loan Deposit Scheme,
- and the First Home Super Saver Scheme.
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Getting a pre-approval for your home loan before you start looking will let you know what you can afford to buy. Having pre-approved finance in place will also put you in a strong negotiating position when you find a home that you like, and you want to make an offer on it.
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The Australian home loan market is highly competitive. There is a huge number of lenders and home loan products available. It’s important to understand that even small differences in home loan features, terms and conditions can make a big difference to how much you’ll repay over the life of your loan.
That makes it crucial to compare lenders and their home loan products. However, it can be time-consuming and confusing to try and do that yourself. Mortgage brokers specialise in sourcing home loans. They know the market and they can help save you time and money by finding a suitable home loan for your individual needs. They can also help you with your home loan application to give you the maximum chance of having it approved.
It’s important to remember the old saying that “you don’t get what you deserve, you get what you negotiate.” Mortgage brokers negotiate with lenders for a living. They may be able to negotiate a better home loan deal with a lender than you can yourself, especially if you’re not a confident or experience negotiator.
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It’s easier than ever before to research the real estate market online these days. Look for properties in good locations that you like and that are near your pre-approved budget. Make sure that you also you take advantage of open homes and inspections so that you’ll know a good deal when you see one.
Good locations for properties tend to have the following characteristics:
- close to shops, schools, entertainment and public transport facilities
- close to where you (and/or your partner) work
- and they are safe.
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This is especially important if you’re buying an older home. Make sure you hire the services of independent inspectors.
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Your home is likely to be the most valuable asset that you’ll ever own. Make sure that you take out an appropriate amount of home and contents insurance coverage to protect your investment.
First Home Buyer Questions
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The comparison interest rate includes the cost of any loan fees and charges. Lenders in Australia are legally required to provide you with the comparison rate on their products before you take out a loan.
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A honeymoon interest rate is a lower rate for first period of your home loan (usually the first 6 or 12 months).
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A fixed interest rate on a home loan stays the same for a defined period (usually one to five years). If market interest rates change during that time, the fixed interest rate on a home loan (and the repayments) will stay the same.
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A variable interest rate on a home loan can move up or down based on market interest rate movements. If rates decrease, repayments will decrease. If rates increase, repayments will increase.
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A split loan has a portion of the loan with a fixed interest rate and a portion with a variable interest rate.
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An offset account allows you to reduce the amount of interest you pay on your home loan account.
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A redraw facility allows you to access the equity that you build up in your home over time if you need to borrow additional funds.
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25 or 30 years, though you can get home loans for shorter terms.
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That depends on the criteria of the lender and their assessment of your ability to make your home loan repayments. Lenders in Australia are legally required to lend responsibly.
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That depends on the amount you borrow, the loan term, the interest rate and any other loan fees or charges.
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The First Home Owner Grant in the Victorian metropolitan area is $10,000 if you’re buying or building a new home and you meet the other eligibility requirements. It is $20,000 in regional Victoria up until 30 June 2020.
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No, you must be buying a new home.
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You can apply for the First Home Owner Grant in Victoria online through the State Revenue Office.
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Yes, you’ll be eligible for a stamp duty exemption (if it’s valued below $600,000) or a reduction if it’s valued between $600,000 and $750,000.
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Yes, provided that your home falls within the values outlined in the answer to the question above.
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Yes, but only if you take advantage of the federal government’s First Home Super Saver (FHSS) Scheme. It’s possible to withdraw up to $30,000 worth of your voluntary contributions for a deposit on a home
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Lenders’ mortgage insurance protects lenders if borrowers default on their repayments. Most lenders will require you to take out LMI if your deposit is less than 20% of the value of your home.
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The First Home Loan Deposit Scheme [JC1] is a federal government guarantee to help you avoid the cost of lenders’ mortgage insurance (LMI). The cost of LMI varies between lenders, but it can be $10,000 or more on an average home loan.
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Yes, provided that you satisfy the eligibility requirements of the First Home Loan Deposit Scheme as well.
How we can help
Taking out your first home loan is a big financial decision. At ARG Finance, our experienced team of mortgage brokers can help you to find the right home loan for your needs. First-time home buyer loans are one of our specialties. We’ll take the time to understand your goals and financial circumstances before recommending an appropriate lender and home loan for you.
Contact us today to find out how we can help you to get your first home!
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