Being the first home buyers or a seasoned one, home loan is the most common trend among the property buyers.
A growing number of Australians are looking for home loan as first home buyers. It may be daunting for many to understand the entire process especially for the first home buyers. Interest rate (fixed or variable), pre-approval, settlement, stamp duty, conveyancing are the most popular and used terms in the entire process to finance your dream home.
So here is a guide for those who are the new players in this field of home loan in Australia.
However, it is always wise to consult with an expert before you set your course for a home loan.
Your Residential Status
Australia is a beautiful country for its multi-cultural ethnicity. Over the period of time, we have seen an increasing number of tourists. And their wish to live or invest in this land full of opportunities.
So, if you are not a Permanent Resident or an Australian Citizen, a certain restriction may impose on you. If you are a non-resident foreign person make sure you are well aware of the policy and ownership restrictions for foreign buyers. Have a look into the Residential real estate – foreign non-residents of Foreign Investment Review Board (FIRB) of Australia.
On the other hand, depending on the lender’s credit policy certain visa holders may not be allowed to apply for home loan in Australia. Do your research and if required talk to the experts.
Contact the Australian Taxation Office (ATO) or seek independent legal advice for further understanding.
Check the Costs
Cost is the most crucial factor in any purchase decision. A careful analysis may prevent any unexpected event and save thousands of dollars. So here are some of the costs that you should consider:
As first home buyers, start with identifying the property price and the amount of loan you required. The properties in Australia have its own cycle and the price is highly correlated with it. The property cycle is all about the rotation of the stages such as Boom, Slow-down, Slump, and Recovery. Every stage has its own distinctiveness and the whole cycle generally takes around seven to 10 years to complete.
Look at the economic indicators and the property market of the particular state (e.g. NSW, ACT, VIC, WA, NT etc) where you are thinking to get your first home. This is will help you to get some idea of the property price and understanding of the future performance.
Now let’s look at the two important factors for a home loan. These are your savings or deposit and the borrowing capacity. Most of the first home buyers lack in either any or both of these factors. Meaning the first home buyers may have sufficient income to cover the loan repayments but may not have enough savings and vice versa.
In order to get your first home loan in Australia, most of the lenders require having 20% deposit of the property price (for owner-occupied properties). It is also possible to get a home loan with a minimum deposit or savings of 5% but it comes with LMI. Be cautious before taking LMI.
Related Topic: HOW TO AVOID LMI FOR YOUR HOME LOAN OR MORTGAGE
On contrary, in case of insufficient borrowing power, it is wise to refrain from purchasing property till your income reaches to the certain level where you can pass the loan serviceability of the lender.
To check your borrowing power and loan serviceability, talk to our expert mortgage broker. Send your request here.
Stamp duty is one the major cost factor associated with the property purchase. But the good news is the government has several schemes with grants or concessions on the stamp duty for the first home buyer.
For example, if you want to buy a property valued $600,000 in NSW, there will be no stamp duty. You only need to pay transfer fees and Mortgage registration fee total of $277.60. This exemption is eligible for purchasing a new or existing home valued up to $650,000. And also concessions on duty for a new and existing home valued between $650,000 and $800,000.
The stamp duty concessions vary from state to state and government regulations. Check http://www.firsthome.gov.au/ for more info.
Apart from the stamp duty, there are other costs such as real estate agency cost, conveyancing cost, possible renovation or home improvement cost, moving out cost etc. Count your costs first before committing to first home buyers loan.
Remember, all of the above-mentioned costs are one time in nature means you have to pay only once at the time of first home buy. But the most important on-going costs are the loan repayments and the other administration fees (if any). These costs will continue until you settle your home loan with your lender. Calculate the estimated repayments of the home loan to better understand the financial commitment you are going to sign in for a long term. We suggest taking expert help in identifying those figures.
Your First Home buyers Loan in Australia
After calculating the costs, now it’s time to look for finances or funds. Apart from the deposit or savings, the bigger portion of the funds to buy your first home will come from a home loan or mortgage.
In light of the recent changes and strict lending policies, getting a home loan in Australia may be lengthy and intimidating in many cases. The three main steps in a home loan process are Preliminary, Approval, and Settlement.
The Preliminary stage starts with a market research and understanding the key aspects such as Interest Rate, Loan Term, Added Features and Fees.
You can find various types of interest rate such as Standard Variable Rate, Fixed Rate, Discounted Rate, Honeymoon rate etc. All of them have their own pros and cons. Try to choose based on your objective as it’s linked with your loan repayments. Your loan repayment may vary and possible to pay less total interest depending on the loan term (e.g. 25 years vs. 30 years). You might also consider adding some features to your home loan. Offset accounts, extra repayments, mortgage portability are the most popular among many. Caution should be taken while selecting the added features as it has cost implications too. A proper selection may bring benefits and offset those fees during the loan term.
Based on the finding, now you need to choose the appropriate lender followed by paperwork to initiate the home loan process. This paperwork is not only completing a home loan application form but also preparing and arranging supporting docs. With the recent changes in the credit policy, many lenders now require written statements like your objective of lending, workings on your financials to prove your borrowing capacity and serviceability of the loan followed by disclosure of monthly expenditure. The types of documentation may further extent based on your income type (e.g. employed vs. self-employed).
So it’s essential to prepare and present your loan documents sincerely and cautiously. Any mistake can slow down the process or sometimes may derail it altogether.
If you successfully satisfy the credit policy, the lender will provide a pre-approval or conditional approval. The lender issues the final approval once they fully review your application and satisfy with the 4Cs (character, capacity, capital, and condition). The settlement stage is the final stage where other parties are involved in transferring the title of the property.
Related topic: Factors to Consider in Home Loan Approval Process
It’s worth hiring a mortgage broker to help with your home loan administration especially if you are new in this field. A mortgage broker can help you in defining your objective, find a suitable deal and look after all the hefty amount of paperwork. Often mortgage brokers have access to multiple lenders and can negotiate your deal. You may get the most competitive offer in the market which sometimes a branch or loan officer (of any particular lender) may not offer you.
Talk to an expert mortgage broker to help you find your first home buyers loan in Australia.
We truly believe in helping our readers and clients. Arranging a home loan is the primary stage for first home buyers. So here we have added some more useful tricks and tips in order to buy your first home
Finding Your First Property
“When is the right time to look for the property?” – is the most frequent question among the first home buyers.
Well, there is no specific answer as it solely depends on your unique circumstances. As mentioned above, if you are financially capable to look after all the cost, you are most likely ready to get your first property. Consider your other personal and emotional commitments before you set course for as first home buyers.
Nevertheless, there are two important stages when you should start looking at the property. Firstly, before identifying your financial and calculating the cost. It helps you to get some idea about the property market and roughly about the place, state or suburb and type of accommodation (e.g. home, townhouse, unit etc) you can afford. Secondly, undoubtedly after getting the pre-approval from the lender. The buyers with a “Pre-approval” from lender often consider being serious and good buyers. Remember the pre-approval remain valid for a certain period (e.g. three months) and the fixed loan amount you have applied for. You need to alter your application and re-apply if any of these changes even if your other circumstances remain unchanged.
Finding your dream property for first home buyers requires a good amount of time. Start with looking at your neighbourhood or pay a visit at the websites of various property or real-estate agents. Usually, the inspection of the property for sale is arranged on Saturday. So, it’s wise to plan your weekend beforehand and devote your Saturdays for inspections.
In Australia, properties are sold either through private sales or auction. We suggest you attend at least one auction before you bid for your own one. As a first home buyer, it will help you to get some real-life experience.
Remember, in a private sale you may have the option to negotiate the price. But in the auction, it’s all about the bidding war. First home buyers with a pre-approval in hand, you’ll have all the confidence in your pocket and be well aware of when to stop!
The Legal Formalities
Conveyancing and the settlement are the next and final steps for a first home buyers. It involves the legal work of preparing the sales contract, mortgage, and other related documents to transfer the property title. If you are buying the property with a home loan, then the property title may be transferred on lender’s name and remain so until you settle or complete your mortgage. Depending on the seller, the settlement occurs between 30 to 90 days and often can be negotiated.
It is wise to get help from a licensed conveyancer or a solicitor as the process is complex in nature and requires understanding of the sale process and related legislation. Ask for the likely cost from your conveyancer or solicitor before you appoint them on your behalf.
Sometimes you may need to go for home improvement or renovation if the purchased property is not a new or renovated one. In case of any shortfall, it is also possible to get funding from lenders. We suggest taking help or identifying those before you finalise the loan and commit to the purchase.
We are also happy to help you in your first home loan. Contact us to get a free home loan consultation!