With interest rates at a record-low levels, there has never been better time for first home buyers to take a leap into the market.
It’s an exciting time but it can also be daunting.
So, to help take away some of that stress, here is a list of important questions you need to answer before buying your first home.
- How much money do I need to buy a house?
There are two key factors to consider when buying a house – how much you need for the deposit and how much money you will need to borrow or loan.
The deposit is the amount of money you need to put directly towards the purchase of your house. Most lenders require your deposit to be 20% of the property price, however some may accept a deposit of 5% or 10%. It’s important to note that if you have a smaller deposit, you may have to pay lenders mortgage insurance (LMI) on top of the deposit.
The loan amount is the money you’ll borrow from a lender to buy your home. Essentially, it’s the house price, less your deposit.
- How much should I borrow?
This comes down to your ability to repay your loan. Start by looking at your income and expenses. You can then determine how much per week, or month, you can commit to for your repayments.
Check out Greater Bank’s mortgage repayment calculator for a guide to what your monthly repayments may be and whether you can afford them.
- How do I save for a deposit?
Here are a few tips to help you start saving for a deposit.
- Cut back on non-essential spending and put that money aside.
- Look at ways to earn extra money, such as asking for a promotion or pay rise or finding other ways to earn a passive income.
- It might be worth considering buying a cheaper house in a more affordable area.
- Find a home loan that only requires a 5% or 10% deposit (you may need to factor in LMI costs with this option).
- How do I find the right home loan?
There are a number of home loan options available, so understanding some of the key terms will help you navigate this process more confidently.
Fixed vs variable rates
Fixed interest rates don’t change during the fixed period, which is usually between one and five years. This means you know exactly what your repayments are for that period. Fixed loans can be less flexible and sometimes more expensive to refinance.
Variable rates, as the name suggests, can go up or down at any time. These loans provide more flexibility as they usually have lower fees and no breaking costs if you choose to refinance. On the downside, you don’t know exactly what your repayments will be in the future.
The comparison rate provides a better understanding to the overall cost of your loan and allows you to compare it with other loans. It is calculated by factoring not just the interest rate but the loan amount and term, as well as fees and charges that may apply to the loan.
Principal and interest or interest-only repayments
Most people choose principal and interest loans, which means they repay the money they borrowed (principal) as well as the loan’s interest.
Interest-only loans only charge you interest in the beginning. This means the repayments are initially much lower but because you’re not repaying any of the principal home loan, the value of your home loan doesn’t decrease. An interest-only loan may appear cheaper at first but in the long run, it ends up costing you more.
- What documents do I need to apply for a loan?
While each lender will have their own lending criteria, you will be required to provide a range of documents to confirm who you are and your capacity to repay the loan. These include:
- Identification documents such as birth certificate, drivers licence or passport.
- Proof of income documents, such as pay slips.
- Asset and liability documents related to any debts or assets you own such as investments or HECS debt.
- An outline of your budget and spending habits
- What help is available for first-home buyers?
There are Federal and State Government support schemes available to help first-home buyers, depending on the type of property you’re buying and how much it costs, as well as its location.
First homeowners grant
Some Australian states offer a one-off grant for first-home buyers to put towards their property purchase. There are several criteria you must meet, such as you must live in the home, it must be your first home and you must be buying a newly built property under a certain value.
Stamp duty concessions
Stamp duty is the tax you have to pay on your property based on the purchase price, location and loan purpose. Most states offer a concession on stamp duty for first home buyers when the property is under a certain value. Above that value, you pay stamp duty but at a discounted rate.