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.
1. 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. 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. 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.
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!