As a first home buyer, if you follow the below steps you could be well on your way to securing your new home.
1. Choosing the right home for you
Property type
- house and land OR apartment
- off-the-plan (first home owners grant) OR established (no first home owners grant)
Location
Establish and prioritise what the most important elements are for you and your family. Whether it’s proximity to schools, shops, public transport, work or friends and family but also check out the community “feel”, security, crime rates, flooding and the current house prices as these can also be factors in your decision.
How much to pay?
Do your research on how much similar properties in the area are selling for. Realestate.com.au is a great tool to use or speak with the local top agents. Even first home buyers can quickly become experts on property prices in their area of interest by simply observing sales and keeping record on the sales that are taking place in their local market.
2. Getting yourself financially ready
Interest rates are at historic lows but banks are really not making it that easy to get a home loan. For first home buyers, there is still potential to secure a 95% loan with interest rates around 4.5% or better – there are currently no 97% loan facilities. Banks are beginning to tighten up their lending requirements to ensure that first home owners have the capacity to commit to and service their long-term repayments. What this means is that banks are looking for squeaky clean applicants, with the ability to demonstrate strong income and saving pattern, a decent deposit and exceptional rental history.
Income
Banks look far more favourably on permanent full-time or part-time employment versus casual employment or temp work. Ideally a minimum of 12 months in the same position is optimal, however if you have changed job titles within the same company or even changed companies but remain within the same industry and line of work, six months is often possible. In the case where you work casually, the banks will take into consideration your past 12 months of pay and accept approximately 90% as your income to service the loan.
Deposit
Generally speaking, for a $400,000 home you’re going to need roughly:
5% deposit ($20,000) + lenders mortgage insurance (LMI approx. $12,000) + allowance for legal and other fees ($3,000)
= TOTAL $35,000
3. Mortgage insurance and guarantors
You’ll be charged mortgage insurance for any loan where you ask the bank to loan you more than 80% of the purchase price. For the majority of first home buyers mortgage insurance is an unfortunate requirement due to the difficulty to come up with a full 20% deposit (minimum $80K). There is however one option available to circumnavigate having to pay LMI – guarantors. This entails your parents or close friends or relatives putting up the equity in their own home or investment properties as a guarantee for any shortfall that may result in the unfortunate circumstances where the bank must sell your home due to you not meeting your loan servicing requirements. While this may potentially be a big ask from your parents, it can really assist in giving you a great head start by saving you many thousands of dollars.
Rental History
Banks are very serious about wanting to see you demonstrate an ability to make consistent payments or repayments in a regular and on-time manner. We’re seeing many banks become particularly stringent on rental ledgers and there are a few non-negotiables that must be met to meet the banks requirements.
- minimum 6 months (but more often 12 months) renting at the same address.
- no shared rental ledgers – all loan applicants must be able to demonstrate that they’re solely responsible for the payments of their rental property. In the case of a couple purchasing their first home, it’s ideal if you’ve been living together at the same rental property for the past 12 months with no other housemates included on the rental agreement.
- absolutely no rent owing or missed payments.
4. First home owners grant eligibility
You must be an Australian citizen or permanent resident (or applying with someone who is). You or your spouse must not have previously owned property in Australia. You must be at least 18 years of age. You must be buying or building a brand new home, valued at less than $750,000.
Stamp Duty
You can claim a first home concession if you:
- have never held an interest in residential land anywhere in the world.
- have never claimed the first home vacant land concession
- are buying a home valued less than $550,000 – though you can still buy a home as a first home buyer valued at more than $550,000, you can’t claim the first home concession. However, the home concession rate will still apply.
- will live in the home as your principal place of residence
- are at least 18 years of age (though we may waive this requirement in special circumstances).