The Best Financial Advice You Need To Buy Your First Home
Legal fees, Mortgage Insurance, First Home Owners Grant… it can sometimes get really confusing and quite overwhelming. So, we thought you might appreciate it delivered to you in plain and simple terms. No jargon, just the short sharp facts. If you can get your head around these Top 5 Tips then we promise you’ll be on track to purchasing your first home in no time. Thankfully, Brisbane based lending experts The Finance Firm, have come to the party to help bring you the Top 5 things you must know when buying your first home.
1.Mortgage Insurance – How Much Deposit Will I Need In Order To Dodge Having Pay Mortgage Insurance?
Generally, banks will require a minimum of 20% deposit, so you are borrowing 80% of the property’s value. If you have less than a 20% deposit, then you would need to borrow more than 80% and that’s when Lenders Mortgage Insurance (LMI) comes into play. LMI is insurance for the bank, should you default on your loan, it does not cover or safeguard you, the purchaser.
If you do have to pay LMI it is generally a few thousand dollars depending on your scenario. It does mean though that if you only have save a 5% deposit, you can still purchase a property but you’d just have to factor in paying the LMI as well. Sometimes this can be added onto the loan. It sounds like a hefty additional expense, but if it allows you to break into the market now, as opposed to waiting a year when house prices may have increased ultimately, you may have actually saved money. It can be a great “foot in the door” option when utilised correctly.
We’ve loosely crunched the numbers for you to help explain how Lenders Mortgage Insurance is calculated :
Buyer #1 has saved $115,000 and is purchasing a property valued at $500,000. Because $115,000 is 23% of the purchase price, Buyer #1 wouldn’t have to pay any LMI and would need to borrow approximately $385,000.
Buyer #2 has saved $37,500 and is purchasing a property also valued at $500,000. Because $37,500 is 7.5% of the purchase price, Buyer #2 would have to pay LMI and would need to borrow approximately $460,000.
2. Hidden costs – What Other Costs Could Possibly Be Associated With Buying Property That I May Not Be Aware Of?
Additional costs associated with purchasing real estate are often overlooked and can add up. These include registration fee, land fee, building and pest inspection, legal fees and loan establishment costs. This varies lender to lender but generally there will be an initial fee and your annual fee charged at settlement. Sometimes introductory loan products may waive these fees but it is wise to estimate about an additional $5,000 in outlays.
3. Real Estate Buyers vs Sellers Agent Commissions – What Am I Expected To Foot The Bill For?
Sometimes Buyers’ Agents may charge an upfront fee, and then a percentage of commission of the sale price. Most first home buyers do not engage Buyers’ Agents but if your budget allows for it it can be a smart decision. By strategically analysing suburbs and properties, Buyers’ Agents ensure solid asset acquisition. So, if you’re looking for strong capital growth, in the grand scheme of things the money invested in a Buyers’ Agent now can be money very well spent in the long run. In Queensland, a Real Estate Agent working for the Seller typically charges the Vendor 2-3.5% commission on the sale price of the property upon settlement.
4. First Home Owners Grant – What grants are currently available to me in Queensland?
The First Home Owners’ Grant (FHOG) has been boosted until June 2017.
The government initiative may provide you with $20,000 towards buying or building your home as long as you meet the following conditions:
- Your property is newly constructed and never been lived in, off the plan or in the process of being built
- Your property is valued at less than $750,000
- You are an Australian citizen or permanent resident
- You are 18 years or older
- You have never owned a property before
The other Queensland Government concession for first home buyers is the reduction of stamp duty costs. If you’re buying your first home for less than $550,000 then stamp duty is reduced to zero. For anyone else stamp duty charged would be $12,171 and for an investor you’re looking at just shy of $20,000, so that’s a massive saving.
If your first home is valued more than $550,000 you are still entitled to a reduction in stamp duty.
To find out how much stamp duty you could potentially be up for, use this great Stamp Duty Calculator.
5. Parents As Guarantors – How Does It Work and How Can My Parents Help?
If your parents are willing to help you break into the market, there are a few different ways to structure a guarantor loan. By utilising equity in their home they can provide security over the entire loan or just a portion. Depending on the situation, we would propose to limit the guarantee to say 20% (where possible), covering the deposit so the buyer doesn’t have to engage LMI and the parents’ house is not at risk should their children default on the loan. There are many factors with family guarantee home loans though so it’s best to discuss your options with a professional. And keep in mind your parents must be willing to undergo the same application process as you, and the broker has to conduct a separate interview with them, too.
Here are some other articles about purchasing property that other readers have found helpful :
- How To Buy A House : 9 Things You Need To Know Before Signing
- How To Buy At Auction. 14 Things You Need To Know.
- The 7 Vital Facts You Need to Know As a Buyer In a Multiple Offer Situation
Big thanks to Claire & her team for lending their knowledge & expertise to create this article.
Rules & regulations can change at anytime so ensure you consult a Financial Specialist for their advise before making any big decisions. If you’d like further information on the ins & outs of buying your first home, check out The Finance Firm’s informative blog. Before long you’ll be all settled into your beautiful new home. We hope you’ve found these Top 5 Things you must know when buying your first home helpful.