First home buyer
Buying your first home is very exciting and is probably the biggest purchase you will ever make. To help you get started, we have put together a list of questions that should be considered as you prepare to buy your first home.
How much the banks/lenders will allow you to borrow depends on two main factors:
- your household income
- your commitments (current loans, leases & credit cards)
The amount a bank is prepared to lend you may be inconsistent with the amount you are comfortable borrowing. It is vital that you work out for yourself what loan repayments (and in turn what loan size) you will be comfortable repaying both now and in the future.
A good way to work out what you can afford is to set up a budget for all your expenditure. It will help you assess what you can afford now. Alternatively, you can calculate how much you need to cut from your existing spending to afford the new home you desire.
Click here to use our loan repayment calculator & see what the loan repayment are for different loan scenarios.
In most cases, lenders want you to contribute at least 5% of the purchase price plus cover the additional costs associated with buying a property. Click here to find out more about the other costs involved with buying a home.
With some lenders, your contribution does not need to be your own savings. It can be a gift from your family or even borrowed funds.
There are lenders that will lend you 100% of the purchase price of a property and even a few that will lend you 100% of the purchase price plus enough to cover the additional costs such as stamp duty.
With these loans you do need to be aware that:
- You need a very stable employment record
- Sometimes there are higher costs or fees associated with these types of loans
First home buyers are entitled to a one-off federal government grant of $7000 which is typically received upon settlement of the home loan. In addition, until June 2007 the State Government is giving first home buyers an additional $3K provided they sign a Contract Of Sale before that date and the house price is less than $500,000.
For more information visit the government's first home owners grant website. To find out if you qualify for the First Home Owner's Grant you can either go through the First Home Owner Grant questionnaire with your adviser or you can answer the questions below. If you answer is "yes" to any of the below questions, place a tick in the box next to that question.
Aside from the purchase price there are other costs involved with buying a home. These include:
- Stamp duty on the Property Transfer - this is calculated on the purchase price of the property. Click here to go to our Stamp Duty Calculator.
- Lenders Mortgage Insurance (LMI) - an insurance premium you pay to insure the bank against the risk that you may not repay the loan. This only applies if you borrow more than 80% of the purchase price and is a one-off premium - not an annual fee.
- Registration of title - government fees for transferring and registering the property into your name.
- Registering/discharging mortgages - government fees associated with setting up or paying out mortgages.
- Legal/conveyancing fees - fees charged by your lawyer/conveyancer to look after the transfer of the property into your name.
- Loan application fee - a fee charged by the lender for setting up a loan (if applicable).
The good news is that Hatch Financial Services does not charge you a fee for our service. We are paid directly by our lenders which means you receive our expert assistance at no charge.
Finding a loan that is right for you depends on:
Consider the following questions as you try to determine what you need from your loan:
- Do you intend to only make the minimum repayments or do you want to pay extra amounts?
- Will you want/need to take back out of the loan some of the extra payments made at any stage?
- How much additional money will you be able to save or pay towards the loan on an ongoing basis?
- How do you do your banking at present and how do you want to be able to access your loan? Through internet banking? Phone banking? At a branch? Direct debit or direct salary credit?
- Do you get paid weekly, monthly or fortnightly? How often do you want your loan repayments to be made?
- Do you want to be able to take a break on loan repayments later on when your family grows?
- Do you want a credit card attached to the loan?
- Do you want the loan to finance other things like renovations, a new car, investments etc?
There is no point paying higher fees or interest rates for a loan that gives you features you do not really want or expect to use.
Some of the most commonly sought after loan features are:
- The ability to make additional repayments - this can result in significant interest savings
- Redraw - allows you to take back out from your loan account any amounts you are in advance on your loan if you need to. Some lenders charge a fee for this or have a minimum redraw amount
- Portability - enables you to move your loan from one property to another as you move homes. This may involve a fee but it will usually be less than the cost of establishing a new loan
- The ability to switch products - at some point in the future you may wish to switch from one product to another (e.g. from a variable loan to a fixed interest rate). Some lenders charge a fee or make you pay out the loan and establish a new one
- Refix - lets you lock into another fixed rate at the end of the fixed rate period. Some lenders charge a fee for this
Many lenders offer similar products, however, it is their cost structures which set them apart.
The main cost associated with a loan is the interest rate, but there may also be a loan application fee, ongoing fees charged at different intervals throughout the year (i.e. monthly, bi-annually or once a year), and other fees which will apply only in certain situations.
Here is a list of some of the fees you may be charged by your lender:
- Ongoing fees - a periodic fee (monthly/annual) on your loan account
- Application fee - a one-off fee for setting up the loan
- Split loan fee - a free for setting up your loan in 2 or more parts e.g. part fixed or part variable
- Deferred establishment fee/Early repayment fee - a fee that is charged if you exit the loan early (usually 3 to 5 years)
- Lenders Mortgage Insurance - often overlooked but where you borrow more than 80% of the purchase price and LMI is applicable, it stands to be one of the biggest costs. The premium charged will differ between lenders by up to $2K.
Make an appointment with one of our Hatch advisers. Click here to request an appointment online and an adviser will call you back to arrange a suitable time.