Buying Your First Home
Buying your first home can be an exciting and rewarding experience, especially if you are unfamiliar with how the process works, or even where to start, and the costs associated. Committing to buying a property is possibly one of the biggest decisions you can make, so it’s important to do your research and ensure you buy the right home for you.
To help you navigate through the process and assist you with making informed decisions, we’ve put together some information and general advice around purchasing property for the first time
Knowing how much you need to save for your deposit
Understanding how much you need for a deposit is the crucial first step in making your dream of homeownership become a reality.
There’s a lot of information bantered around on how much you’ll need – some myth and some reality. Is it 20% percent? Is it 10%? We hear you ask, ‘what about those secure your new home with only $1000 down type deals?’.
Well – the answer is that the amount of deposit you need is based on a few factors, like how much you earn, how long you’ve been employed, whether your loan is ‘guaranteed’, what type of property you’re hoping to buy, how much of the purchase price will be financed and which lender you intend to borrow from.
So, let’s break it down a little.
If you can contribute 20% of the purchase price, you’ll more than likely be able to secure finance for any property that piques your interest. If you can’t come up with a 20% deposit however, you’re not out of luck – many lenders will lend on 10%, and some will lend on as small as 5%. The details of just how you can secure the property with less than a 20% deposit are something you can talk to a finance or mortgage broker about.
There is a catch if you intend to front a deposit of less than 20% though – and this comes in the form of Lender’s Mortgage Insurance (LMI). LMI is a mandatory insurance product a lender needs to take out to secure their own interest in your loan, if your loan has a higher level of risk attached to it than the bank is comfortable with. However, as of 1 January 2020 the Federal Government has introduced the First Home Loan Deposit Scheme, designed to help a number of eligible first home buyers across Australia secure a property with as little as 5% down payment, and avoid LMI. There is a government issued FAQ document available for the scheme which can be found here for more information.
It sounds complicated – and in reality, it is. But just remember this; if you have to think ‘less than 20% deposit’, don’t be alarmed and don’t be put off. Just talk to a broker, think ‘LMI’, and remember two things: LMI is designed to protect the bank if you default on the loan, and is an extra cost you’ll need to budget for - however it can usually be rolled into the cost of your loan, so will only marginally effect the amount you need for a deposit.
How to secure a loan
Once you’ve got the savings ball well and truly rolling and you’re thinking it’s getting time to make that dream become a reality, it’s time to start thinking about how you’ll finance your purchase.
The best thing you can do at this point is talk to a mortgage broker about options that are specific to you, your property goal and your financial circumstances; however, you should go in ready to talk to a mortgage broker about a few things.
- Understand how much you (and if purchasing with another, your co-purchaser or partner) earn, including having an understanding of your regular expenses and credit risk (i.e. how much credit you have access to through loans, lines of credit and credit cards).
- Speak to your broker about different lender and package options for finance – they can talk you through the details, but this will include interest rates, fees, flexibility options in terms of repayments and redraws, off-set accounts and length of loan details.
- Once you’ve settled on a package you think is right for you, you can seek ‘pre-approval’ finance from the lender. Subject to a few additional conditions, this is basically getting the green light from the lender that, once you’ve found the property that’s right for you, they’ll be happy to lend you the money.
- When you’ve got your pre-approval sorted, things are serious. It means the door to the property market has well and truly been unlocked for you, and it’s time to find your dream home.
- Once you’ve found ‘the one’, you’ll need to speak to your mortgage broker about the process for securing finance over the property. With pre-approval sorted, you should be in a position to commence negotiations or make an offer on the property you want, and as long as your circumstances haven’t changed since the pre-approval, you should have no issues securing finance, and more importantly the keys to your dream home!
What assistance is available for First-home buyers?
Each state and territory have different level and types of assistance; however, focussing on the ACT market, you should know that:
- The First Home Owners Grant scheme is still currently available. This provides $7000 toward the purchase of your first home, if the value of that home is less than $750,000, and the property is new or substantially renovated.,
- A Home Buyer Concession Scheme also exists that allows buyers who meet an income threshold test to avoid paying stamp duty. To pay no stamp duty, the purchasers’ combined income should be $160,000 or less (and this figure increases incrementally for those couples with dependent children).
Similar programs exist across other states; however the details do differ slightly so if you’re looking over the border you should check out what grants and concessions may be available to you.
How to find the right home for you
When you’re looking for your dream home, there are a few places to head – with the most accessible and versatile being the major online property portals for the region.
You will also find some amazing properties for sale in local print publications – you can’t go past the Canberra Weekly to see some absolute stunners.
How to purchase the property when you find the right one
Once you sorted your deposit, finance and negotiated a price you’re happy to pay for the property you want to call home, the last step is to make sure you have a good Property Lawyer/Conveyancer on your side. There are some great teams across the Territory that work on these transactions day in day out – and it’s vital to remember that if you want the deal to be closed smoothly, you’ll need to do your due diligence on the business you entrust with managing the settlement process.
Our advice is get in touch with a few solicitors that offer these services, and when you speak to them remember that price is a consideration, but you need to make sure the deal is smooth and successful – and a good conveyancer can make a complicated process extremely simple and safe on your behalf.