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First Home Buyer Loans
Guidelines for First Home Buyers
Buying a Property
It is important if you have a low deposit, that you buy the property at a price that is at least it’s true value or less. The reason why this is important is that if the bank will only lend you 80% of the property value and you are looking to buy the property and are paying over it’s value, that means that you will need a higher percentage because of the property amount. Depending on the state you are in, there are options to have an independent valuation, at an affordable level, made of your property to ensure that you are not paying more than it’s value.
Let me show you an example of how this works in practice with a 20% Deposit
You put in an offer on a $500,000 house. If that is its true value and you have saved $100,000, then you have 20% deposit. At 20% deposit, you will not pay for loan mortgage insurance.
But let’s say that the house was only really worth $450,000. As far as the bank is concerned you would need $90,000 as a deposit plus the additional $50,000 overpaying on the property. In actual fact you would need $140,000. You can see under these circumstances, this would push your deposit amount higher than this needs to be. Of course logic dictates that you would probably go back to the seller of the property and offer the true value of $450,000. In a competitive market that is moving up quickly you may not be able to pay a lower price. This is why you need to be aware the banks criteria.
Buying a Home with a 5% Deposit
Loan Mortgage with No Guarantor Assistance
You can buy a house with a 5% deposit amount but the bank or lender will generally insist on loan mortgage insurance (LMI) which can be in the thousands depending on the lender and depending on the amount that you are borrowing.
Loan Mortgage with Guarantor Assistance
Younger couples have also started using a different way of bridging the gap between the deposit that has been saved and the 20% deposit amount. There are loans that parents or guarantors can take out for the deposit amount or the deficit between what the borrower has saved and the amount that is required to reach 20%. Previously these loans required the guarantor to be fully liable for the total amount of the loan, but now they generally they only need to guarantee the deposit amount.
Do First Home Buyers Get Discounted Rates?
Many Banks or lenders give a discounted period for first home buyers for a specific time period.
Generally this will be about 1% and it can be anything from 1 to 5 years. Of course this depends on what the lender can offer.
Do First Home Buyers Get Any Other Help?
Due to the high cost of houses in most capital cities in Australia, the government is keen to assist first home buyers to find a way for affordable housing. The reasoning is that it is cheaper than providing housing commission rent subsidies and capital costs that are involved with purchasing and buying. Generally state government’s will give a first home buyer free stamp duty up to about $430,000. This will vary from state to state. There are also discounts for stamping of documents related charges. Stamp duty over that $430,000 will attract a discounted percentage generally but each state has a different threshold.
Also some state government’s Australia will also include a first home buyers grant and in some States like Western Australia there are schemes where the government will actually share-buy the house, taking on a percentage of the equity. There are generally limitations to this based on income and family circumstances. You will need to talk to state government authorities to get Clarity on the scheme available where you live.
Should I Choose a Fixed-Rate or a Variable Rate?
In order to decide on this you need to be aware of the current economic circumstances in Australia. There are a number of ways of looking at this decision, one is based on whether you want to to guess on the direction of the interest rates and the other is whether you want to ensure that you have no risk in the repayment of your home loan. If interest rates are trending down, you may go with variable rates, expecting they will reduce. We live in an uncertain world and this may not be entirely predictable.
Generally, I would go with the fixed-rate if you can get it, given how low interest rates are currently.
If you are in a circumstance where a small change in the interest rate would have a significant effect on your lifestyle or ability to repay, then I would suggest in a fixed rate loan.
In this way, you can ensure that the amount of your repayment will not go up for a fixed period of time. Generally this will be 3 to 5 years but there are loan options also for 1 to 2 years.
In many ways it comes down to your acceptance of risk but I think if you have a family, then it may be a good idea to lock in a fixed rate loan so that you can sleep at night knowing that at your level of income, you can always pay your mortgage repayments on your loan.
How Do I get Started on a First Home Buyer Loan?
We suggest you get a Free Credit Report by filling out the form on the website, so we can assist in looking at loan options.
Do First Home Buyers Get Special Treatment When Buying Property?
Yes, generally they get stamp duty waived from the state government up to a certain level. Some state governments offer a first home buyer grants or co-buying of property with shared equity. Lenders also offer discounted introductory rates.