First Home Buyer
Congratulations on finally taking this step! Buying a first home is everyone’s dream and truly an Australian dream. The path is adventurous and overwhelming at the same time.
If you’re buying your first home, then do not be inundated, for we are here to arm you with the right information and help you pick the right loan for you.
We compare hundreds of loans from a wide variety of lenders and work with you to find the right loan that suits your individual needs and circumstances.
Before starting to look for your dream home, you need to work out two very important aspects– How much is your borrowing capacity (how much can you borrow) , and how much is your affordability (you can afford to repay)?
How much can you borrow?
Borrowing capacity depends on your income, financial commitments, loan type, credit history, employment history, loan type, savings, and assets, etc. Knowing your borrowing capacity will help you narrow down your property search and allow you to understand what your financial commitments will be.
Tip: For buying a property through auction, consider applying for a pre-approval.
How much can you afford to repay?
Not only is your borrowing capacity important, but your repayment ability matters too. Being realistic about repayments will allow you to service your loan without over-exerting yourself. So, start planning your budget once you’ve understood your range of borrowing.
Home Loan Deposit
Home loan deposit is perceived as ‘your contribution’ to the purchase amount of your desired property.
Your deposit determines the kind of loan and amount you may be eligible for to buy your home. This is generally a percentage and depends on your individual circumstances and Lender’s criterion.
Various factors that count towards a home loan deposit?
Genuine Savings
Genuine savings are cash stashed away into an account for a period of three months at least. These savings act as an evidence to the lender of your regular repayment ability of a home loan.
Lenders are often willing to offer loans of up to 97% of the property’s value. However, most appreciate a good history of general savings of at least 5% of the property’s value.
Other Investments
Other investments that are counted towards savings are:
- Term deposits
- Shares
- A gift of money from a close family member (perceived as non-repayable)
- Inheritance
- Equity in an existing property
Generally, all these savings must be held in a savings account for a period of at least three months to be counted as genuine savings.
Receipts of Regularly Paid Rent
For your rental ledger to become a proof of your genuine savings, you should:
- Still be renting when applying for the loan
- Have a rental ledger of minimum of 12 months within a single property
- Currently be leasing through a registered real estate agent
Note: Not all lenders accept rental repayment history as genuine savings. So, it is advisable to talk to a mortgage broker to have a look at your unique circumstances and help you identify the right lenders and loan type for you.
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., 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 that might happen if you are unable to pay off your loan or default in payment terms.
An alternative to LMI premium is having a family member sign as a security guarantor for your home loan.
First Home
Owner Grant
For those eligible, First Home Owner Grant (FHOG) is a fabulous bonus for budgeting the purchase plans of the first home. However, factoring it correctly into the calculations is important.
FHOG is included while calculating your Loan to Value Ratio (LVR) and thus can avoiding LMI premium, given that FHOG coupled with your other savings must add up to total of at least 20% of the property’s value.
Note:FHOG is paid only when the construction stage arrives. So, you must not consider it into your land purchase calculations.
Since the regulations and grant value vary from state to state, consult a mortgage broker to assess your eligibility for the FHOG. They will also work with you in planning the purchase better and ensure that everything is done correctly.
Picking The Right Home Loan for your needs
Types of Home Loan Features
| Fee- free extra repayments- These repayments help you go mortgage free sooner at no extra charge | Redraw facility- This allows access to the extra repayments that you’ve made in case of emergency |
| Portability- This allows you to take another loan on a different property when you move house without having to pay break costs for your older loan or stamp duty | Mortgage offset- An offset account helps your savings work towards reducing your loan interest charge. While calculating interest, savings are deducted from the loan, so your interest charge stoops down with every repayment |
Other loan features
- Offset account
- All-in-one loan account
- Professional package
- Direct salary credit
- Repayment holiday
- Switch to fixed rate
- Topup
Additional associated costs
As a general rule, have a budget of approx. 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 constructional faults and 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, Income protection insurance.
- Legal and conveyancing fees- (~ 2% of the price of the property)
- Moving in costs- Furniture removal, utility connections, strate fees, and postal redirection.
Note: These figures are indicative only and can change based on market conditions and individual circumstances. Please reach out to ARG Finance to get the more accurate estimates.
The home buying process
The process of refinancing a loan is very similar to the process of applying a home loan. Still, here are the following steps that usually people follow:
Step one: Go for a pre-approval or apply for a formal approved loan (unconditional)
Once you have decided which type of loan suits your lifestyle and your individual circumstances, you can apply for a loan and expect full approval within few weeks. Every bank is different when it comes to processing time, having us by your side can be smooth as we follow-up on your behalf to expedite sometimes.
STEP TWO: Start looking for property
Make a list of features that you will be looking in the property . This list can be a good head-start and will help you weigh the property Vs the features you are after. Consider various aspects about the condition of the property, location, suburb value, upcoming developments, noise, parking, outlook, privacy, etc before you proceed. It also helps you narrow down the properties for which you can then plan to place an offer or bid during auction.
STEP THREE: Once you find a suitable property, make an offer. In case the property is up for auction, prepare yourself to bid.
Making an offer can be quite distressful and nerve racking. However, you must always play it cool.
Private sale: Don’t let the emotions of finding your dream home takes the toll on you, dont rush and take your time to make informed decisions. It might cost you around $500 to arrange for a property inspection, perhaps it may save you hassle down the track. Be careful to identify the defects found to negotiate the price you are willing to pay, as some defects might not be repairable at all. So you may have to work out whether to proceed or not.
Also, discuss about the time-frame of moving in so you can plan other things accordingly.
Auction: If you’re buying at an auction, it is suggested to do not bid until your solicitor has given you a heads up. Also, a pre inspection is indispensable here. Stick to your limit as going over your limit may mean that any interest change might put you in greater risk of missed repayment or tight on budget later on. Keep your cheque book ready with 5-10% of the purchased price to be deposited immediately after you win the auction. Paying deposit on auction is generally required and buying home at auction is unconditional.
STEP FOUR: If the offer is accepted, exchange contracts.
Private sale: Deposit is given at the time of signing of contracts after the offer has been accepted. Contract is negotiable as well as conditional with a cooling off period that may vary from state to state.Auction: deposit amount is given right after you win at the auction and the contract is unconditional. So, the pre-purchase inspection of the property prior to coming to the auction is essential.
Once the contracts are signed, there are few more steps like providing documents to bank for final approval, organizing conveyancing to do final check and prepare for settlement time, etc. While the list goes on until you have keys upon successful settlement, let ARG Finance do the rest and you prepare yourself for moving into your home.
STEP FIVE: Congrats!
You now have the keys to your dream house. Move in!