The First Home Buyer Guide

Touching on all things to consider for a "first home buyer"

Buying your first home is an exciting time and a huge achievement, but what is required for that first leap into the housing market? and what options are available to help you?

In this article we will talk about all the things you need to know when buying your first home.

As a generalisation, when people talk about what is required to buy your first home, they usually only mention a 5% or 10% deposit reequipment. They don’t normally talk about the other significant associated costs like stamp duty and associated costs, conveyancing costs, Lenders Mortgage Insurance, bank fees or any other costs involved with buying your first home.

At Clime Finance our experienced brokers will educate you on all aspects on what is required for your first home purchase and break down all costs involved with purchasing as well as guide you through the whole process from first interaction until the day you move into your home.

The first thing you need to know is that to qualify for First Homeowner Assistance you must be

· buying a property to live in.

· all applicants need to be Australian Citizens or hold Permanent Residency

· all applicants must not have owned, or part owned a property before as a principal place of residence

· you must take up residency in then property as your Principal Place of Residence (PPR) within 12 months of settlement and you must live in the property for 12 continuous months from when you move in.

Deposit Requirement

Generally speaking, most banks require a minimum deposit consisting of 5% of the property value and most lenders require a minimum of 5% in demonstrated ‘genuine savings’. Lenders all have a different view of what genuine savings are. This can include, but is not limited to

· Funds accumulated in a Bank account over at least a 3-month period

· Rental payments made in lieu of accumulated savings

· Term deposit held for a 6-month period

You will need to refer to your broker to ascertain specific lender guidelines.

But there are other costs associated with buying a property, including

· stamp duty (varies state by state),

· conveyancing/legal costs

· the lender setup costs

· Lender’s mortgage insurance.

Once you add all these together you will have a far better understanding of the amount of money you will actually need to buy a property.

Government Costs

When buying a property each State Revenue office charges a different Stamp Duty applicable to Land Transfer. Your mortgage broker will be able to ascertain the total Govt. charges applicable to your situation.

These fees can include:

First home buyers are eligible for some reductions on Stamp Duty if you intend to live in the property for the first 12 months. For demonstration purposes I will use a Victorian purchase as an example.

If you purchase a property in Victoria for $600,000 or less, you are exempt from paying any Stamp Duty.

The Stamp Duty charge increases incrementally as soon as the purchase price goes over $600,000 and the concessions on the Stamp Duty go up until you reach a purchase price of $750,000 then normal stamp duty is applied.

Purchase Price Normal Stamp Duty in VIC First Home buyer Concession Cost in VIC

Up to $600,000 $31,070 $0 No Stamp duty payable

$650,000 $34,070 $11,356

$700,000 $37,070 $24,714

$750,000 (Concession stops) $40,070 $40,070

Lenders Mortgage Insurance

Lenders Mortgage Insurance (LMI) is Insurance taken out by you to protect the Bank from losing money when they lend on a small deposit. Historically, people needed to save 20% deposit before a Bank would lend money to them.

With the introduction of LMI, Banks were encouraged to lend to people with as little as 5% deposit.

So rather than you having to wait and save longer to reach that 20% they allow you to get into the market earlier. The larger the deposit you save, the less the LMI premium will be for you. This reflects the reduced risk to the Bank.

It is important to know that the LMI premium can be tens of thousands of dollars.

Parental Guarantee Loans

What is a Parental Guarantee loan?

If your parents are keen to provide support to you to enter the property market they can provide assistance in the form of a Parental Guarantee loan. So how does this work?

Say you wanted to buy a property for $800,000 but you do not have sufficient funds to cover the deposit and costs, your parents can offer a Security guarantee over their property to the value of UP TO 20% of the purchase price.

So, in effect you would have 2 loans

1. Your home loan for 80% of the value of the purchase price. - in this case $640,000. This loan would be secured by a mortgage over the property you purchase, and no LMI applies to this loan.

2. The second loan of UP TO 20% of the value - $160,000 to be secured by a Mortgage over your Parents property. Again, under 80% Loan to Value Ratio means you would not have to pay LMI.

(So, it is possible in this case to borrow 100% of the Purchase Price as long as you have sufficient funds to meet all other costs- Legal fees, Bank Fees and Stamp Duty)

And over time, as your property increases in value (or you reduce your debt with repayments) you can request the lender to revalue your property. When your property value increases to a point that the Loan to Value ratio (LVR) reaches 80%, the Bank can release the parents’ property from the loan.

Example: Assume over time your property increases in value from $800K to $900K and your debt reduces from $800K to $720K. At this point the LVR is 80% and the Bank would release your parents’ property.

The key benefits for your parents are

1. They are only at risk for 20% of the loan amount

2. Their liability can be released in a shorter time frame once your debt reduces and your property increases.

Legal or Conveyancing

Many people get confused between a conveyancer and property lawyer. They are both qualified to act for you in a conveyancing transaction, so what’s the difference and who should you choose?

The main difference is that a conveyancer specialises in the process of conveyancing, being the transfer of ownership of property between parties, and a lawyer has a broader range of legal services that they can provide in addition to property law and conveyancing.

A conveyancer is responsible for making sure

· the title to the property is transferred from seller to purchaser

· advising you on any legal issues along the way

· all parties involved have everything in order and make sure the correct amount of money is transferred to pay the Vendor (person selling the property)

· your loan is dispersed on your behalf and to make sure everything is finalised in a comprehensive manor.

· They also help in the home buying by reviewing the contract of sale and Section 32 to ensure there are no known issues with the property you are about to buy.

Most conveyancers have established relationships with Lawyers in case something complex arises in the property transaction, but generally a Conveyancer is able to meet your property needs.

Preparing to buy a Home for the first time.

There are other things you should consider as you plan toward your first home purchase. Knowing what banks look at when assessing your loan application will put you in a better position when the time comes to make your loan application.

1. Trim back your spending and increase your savings – Banks will ask for your recent Bank Statements and assess your spending habits for the last 3 months prior to making your application.

2. Show that you can accumulate savings over a period of time – this will help you meet the Banks ‘genuine savings’ requirement.

3. Cutting down on things like Uber Eats, Betting accounts & After Pay

4. Paying all of your bills on time will improve your credit history

The new ‘Comprehensive Credit Reporting’ in place now tells lenders your monthly repayment history on accounts for the last 2 years. If you have had missed or made late payments, they will know about them, and this can impact on your ability to get a loan. So, it is important to always meet your credit obligations on time.

Banks look at these things to make sure that once you have a mortgage, you will be able to manage your repayments and still be able to live a comfortable lifestyle. By monitoring these spending habits, you may also find yourself saving more quickly towards your home deposit and Lenders will look more favourably on your loan application.

I hope this article was helpful and please get in contact with me if you or someone you know, are looking to buy their first home. I would love help this dream become a reality!