Are you looking to purchase your own home but don’t know where to begin?
Because some of the jargon can be perplexing, we’ve attempted to clarify it here by responding to some of the most often asked questions by first-time home buyers.
What is pre-approval and how does it work?
When you contact a lender to buy a home, you can ask them to pre-approve you to borrow a certain amount, which is known as conditional approval. For example, the lender may guarantee you a $500,000 loan, allowing you to borrow up to that amount. This might help you determine whether or not you’ll be approved for a loan, as well as cut down your search for homes in that price range.
With Homestar, you can apply for a comprehensive home loan pre-approval. It’s important to keep in mind that certain lenders won’t accept loan applications for specific types of properties, and you could still be turned down if your financial status changes.
How much money do I need to put down as a deposit?
There is no exact figure for how much you should save for a down payment on a home. It will be determined by the property’s worth, your ability to make payments, and the lender with whom you apply. At Homestar, in most instances we need a minimum deposit of 10%.
Meanwhile, if you want to avoid the cost of Lenders Mortgage Insurance (LMI, see below), you’ll need to put down 20% of the property’s worth, which can be a lot. A 20% deposit on a $600,000 house, for example, would be worth $120,000.
What is the First Homeowners Grant?
The First Home Owner Grant (FHOG) is a programme that began in 2000 and provides a financial bonus to first-time home buyers. The amount of the incentive varies by state. This one-time payment can range from a few thousand dollars to more than $20,000 (depending on your state), and it comes with significant stamp duty discounts – or even stamp duty waivers – for certain properties.
This grant’s financial incentive can make a big difference for first-time home purchasers saving for a down payment.
Do I qualify for the First Homeowners Grant?
The FHOG is not for everyone. There are certain requirements that must be met, and these requirements vary by state and territory. The following are some general requirements that don’t alter much:
- Being 18 years old or over
- Being an Australian citizen or permanent resident
- Being an individual rather than a company or a trustee
- You must be a first-time recipient of the grant
- You must be a first-time residential property owner.
- You were also required to move into your new home within a year and live there continuously for at least 6 months.
In addition to these criteria, you can only buy homes up to a specific value, and certain states will only accept newly-built properties rather than existing ones, making the application process more difficult. New South Wales, for example, sets the payment at $600,000 for existing homes and $750,000 for new home construction.
Is a building and pest inspection required?
A building and pest inspection will almost certainly be necessary before signing off on a house purchase as a condition of the sale. These studies are completed by qualified inspectors and can reveal severe hidden issues such as termite damage, water leaks, structural damage, asbestos, and other hazards that you may have overlooked.
If concerns are discovered that were not identified in the initial building assessment, you may be able to save a lot of money in future damages while still obtaining payment from the vendor (the seller). The selling contract will almost always include an inspection clause, but even if it doesn’t, it’s still a good idea to do one.
What is Lenders Mortgage Insurance, and how does it work?
Lenders Mortgage Insurance (LMI) is a type of insurance that the lender (not you) purchases on higher-risk loans. This is where your deposit comes into play; if your deposit is less than 20% of the home’s worth, the lender will almost certainly need you to pay for LMI.
LMI can also be quite costly. Premiums might cost tens of thousands of dollars depending on the loan size and deposit size. In addition, first-time borrowers frequently pay a greater LMI premium than repeat borrowers.
What is stamp duty?
Another upfront fee you’ll have to pay when buying a home is stamp duty (in most cases). Stamp duty is a levy levied by all Australian state and territory governments to cover the expense of transferring the property’s title to you. Stamp duty is very costly, frequently adding tens of thousands of dollars to the total property price.
How much stamp duty do I need to pay?
As a general rule, the more valuable the property, the higher the stamp duty. In addition, stamp duty varies per state.
What are the extra costs involved in buying a home?
These two expenses, stamp duty and LMI, are two of the most significant additional costs to consider when purchasing your first property, since they can add thousands to the total cost. They aren’t the only ones, though. There are a variety of upfront and recurring fees associated with homeownership, which can be imposed by the lender, your local council, the government, or individuals such as conveyancers – which can include, but are not limited to:
- Legal and conveyancing fees
- Water and council rates
- Home and contents insurance
- Regular maintenance and repairs
- Mortgage registration fees
- Application and annual mortgage fees
- Valuation fees
- Redraw and offset fees
- Discharge and break fees
As a result, you’ll usually always have to spend more than simply the house cost. After accounting for all of them, you may need to budget an additional 5-10% simply to buy it.
How can I get a low interest rate on my home loan?
Your monthly home loan repayments are just as crucial as the upfront costs. You can’t afford to get caught with a mortgage that you can’t afford, which is why a low interest rate and cheap fees (together with decent features) are essential.
Homestar offers a variety of home loans with some of the lowest interest rates available and no monthly or annual fees. To discover more about how to buy your first home, contact one of our loan consultants now.
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.
