6 Frequently Asked Questions By First Home Buyers - part 2
Here we are.. Comin’ at ya with the next round of common questions asked by first home buyers…
1. Where should I buy?
This depends on a few things. Are you living in the property or is it an investment? If you are living in the property you need to think about lifestyle versus accommodation. So basically do you want to live closer to the city in a smaller property, or have more room and be further out.
If it's for investment, you need to consider your risk appetite. Are you comfortable buying in another state, or would you prefer to be able to drive past the property? You also need to think about whether you are buying for capital growth or cash flow.. This will heavily impact where and what you buy!
At Prop Culture we typically recommend (especially for first home buyers), to buy for capital growth. This purchase is a very important step in your wealth creation journey, and will often be what allows you to upsize and buy the big family home down the track. Buying for capital growth will generally mean buying something with land, not an apartment. However, we’d recommend a 300sqm property on a quiet residential street over a 400sqm property on a main road. More land doesn't always mean more growth potential!
2. How do I save for a deposit?
This is where the hard work begins. To save for a home deposit, there are three main steps you need to take;
Look at what you’re spending. As the saying goes, what gets measured, gets managed. So look back on the past 3 months and see where you've been spending your money. Some people dont realise how much that daily coffee costs over 3 months, or that weekly uber eats delivery adds up too!
Make a budget and stick to it! A lot of people use the 50/30/20 rule for budgeting (50% for necessities, 30% for wants, 20% for saving). This is normally a pretty ideal budget, but because you’re saving for a house deposit you may want to allocate more than 20% of your income towards savings. There may be areas in the 30% ‘wants’ section you can cut out, like spending less money on clothes or having fewer dinners out during the week. You may need to trim items out of the 50% necessities budget too, such as spending less money on rent or reducing your bills.
Try and reduce credit card and personal loan debit asap. As soon as either or both of those are paid down, you should cancel them immediately! Credit cards and personal loans impact the amount you can borrow.
3. When I get a home loan, should I go with fixed or variable rates?
Variable rate home loans tend to be more flexible, with more features (e.g. redraw facility, ability to make extra payments); fixed rate home loans typically do not. Fixed rate home loans have predictable repayment amounts over the fixed term, variable rate home loans do not. If you get out of (“break”) a fixed rate home loan term, you will usually be charged significant extra costs. For example if you have fixed your rate, and your term is 2 years, and you decide to sell in that time, there are significant costs to pay.
So some people will go with fixed because they like to know exactly what they'll have to pay per month for the next few years, or they are taking a punt that interest rates will go up quickly and go higher than their locked-in fixed rate.
Its something to consult your finance person on, and its really person preference.
4. Is there any government assistance for first home buyers?
Absolutely. But like with all government incentives, we say to make sure its right for you, and you're not just getting wooed by the incentive.
First Home Owners Grant VIC - The FHOG Victoria is only available if you buy a newly built home or if you choose to build a home from scratch. The FHOG is worth $10,000 if you build/buy in Victoria. Your first home can be a house, townhouse, apartment, or unit but it must be valued at $750,000 or less, and it must be a new home – being sold as a home for the first time, and less than five years old. The FHOG Victoria is not available if you buy a holiday home or investment property.
First Home Loan Deposit Scheme - The Home Guarantee Scheme (HGS) is an Australian Government initiative to help you buy or build your first home sooner. We're proud to continue supporting this initiative. If you’re eligible you’ll get a limited guarantee from the Australian Government to buy or build your first home with a low deposit, without paying Lenders Mortgage Insurance (LMI).
Stamp duty exemption or concessions - you dont need to pay stamp duty if the purchase is under $600k. And between $600-$750k there is a concession meaning you pay only a portion of the stamp duty on a sliding scale.
First Home Super Saver Scheme - The First Home Super Saver (FHSS) scheme enables you to use voluntary contributions from your superannuation to put towards your deposit, helping you to buy your first home sooner.
5. Do I need a building and pest inspection?
a. So first of all, a building inspection (or property inspection) can uncover structural, conditional and/or design defects or problems in the interior and exterior of a property, some of which may not be visible at first glance. These can include: Rising damp, Structural cracks and Faulty roofs. A pest inspection can uncover evidence of things like termite damage (although not necessarily whether termites are still present in the property).
b.We recommend our clients get building and pest inspections irrespective of the age of the property.. Sometimes the newer the property, the bigger the issues!
c.We like to think of these as a 5 year maintenance plan. However there has been cases where we’ve not proceeded with the purchase of a property because of what these reports have uncovered. They're a non-negotiable for us!
6. Should I speak to you first (a Buyers Advocate), or a mortgage broker?
a. We recommend speaking to a mortgage broker or your bank first to get an idea of what you can borrow, or what you need to do to get yourself in a position to get a loan.
b. Once you know your budget, then come and have a chat with us, and we can give you some recommendations for the budget you are working with.
We hope this has been helpful!