How Much Can You Borrow & Repay?
Before starting to look for your dream home, you’ll need to work out two very important aspects –your borrowing capacity (how much can you borrow) and how much you can afford to repay.
Your borrowing capacity depends on your income, financial commitments, loan type, savings, credit history, employment history, assets and other factors. Knowing your borrowing capacity will help you narrow down your property search and determine what your financial commitments will be.
Tip: For buying a property through auction, consider applying for a pre-approval.
Lender’s Mortgage Insurance(LMI)
Loan to Value Ratio (LVR) calculation is used by lenders to assess their risk of lending a loan to you. It considers your borrowing amount against the value of property you’re wishing to purchase. A higher ratio means higher risk for the lender.
In general, if your LVR score is more than 80% (i.e., if you want to borrow more than 80% of your desired property’s value), the lender will ask for an LMI premium. This premium, paid by you, will insure the lender against any loss if you’re unable to pay off your loan or default in payment terms.
An alternative to an LMI premium can be a family security guarantee; a family member with sufficient equity in their home can use this equity as a security guarantee for your loan.
For those eligible, the First Home Owner Grant (FHOG) is a fabulous bonus to help budget the purchase of the first home. However, factoring it correctly into the calculations is important.
The FHOG is included while calculating your Loan to Value Ratio (LVR) and thus can avoid LMI premium so long as the FHOG coupled with your other savings add up to at least 20% of the property’s value.
Note: The first home buyer’s grant in Melbourne/Victoria is paid only when the construction stage arrives. Therefore, you must not factor it into your land purchase calculations.
Since the regulations and grant value vary from state to state, be sure to consult a mortgage broker to assess your eligibility for the first home owner’s grant in Melbourne/Victoria. They will also work with you in planning the purchase to ensure that everything is done correctly.
Additional associated costs
As a general rule, have a budget of approximately 5% on top of your home’s purchase price for additional things associated with buying a house, such as:
- Pre-purchase inspections for pests and construction faults or defects, illegal work, insurance, disputes, levies, history of repairs, etc.
- Borrowing costs – Loan application fee (~$700), Lender’s property valuation fee (~$300), and Lender’s Mortgage Insurance (LMI) (these fees can be reduced or made nil depending on the bank’s own discretion).
- Government charges – Stamp duty, property transfer fee and mortgage registration fee.
- Insurance – Home and contents insurance, mortgage protection insurance and income protection insurance.
- Legal and conveyancing fees – (~ 2% of the price of the property)
- Moving in costs – Furniture removal, utility connections, strata fees and postal redirection.
Note: These figures are indicative only and can change based on market conditions and individual circumstances. Reach out to our mortgage broker for first home buyer for more accurate estimates.
Frequently Asked Questions
How do you apply for the First Home Buyer’s Grant?
There are several steps involved in applying for the FHOG in Melbourne and greater Victoria. Firstly, it’s important to determine your eligibility by checking with government authorities for up-to-date information. At the very least, you’ll need to be an Australian citizen or permanent resident, 18 years old, and have never owned a property in Australia.
After finding a suitable property, you’ll need to apply for pre-approval from a lender and lodge an application with the State Revenue Office of Victoria. Supporting documents such as a copy of your pre-approval, proof of income and identification will need to be submitted as part of this process. Approval can take four weeks, after which you can settle the purchase and receive the grant.
How much is the First Home Owner’s Grant in Melbourne?
The FHOG in Melbourne is currently $10,000. However, government policies and grant amounts can change over time, so it’s important to check this amount before applying.
Schedule a Consultation Today
If you’re a first home buyer in Melbourne, our mortgage broker for a first home buyer can help you navigate the process. Contact us today to schedule a consultation.