Frequently Asked Questions By First Home Buyers - Part 1
We love working with first-home buyers. Helping them navigate what can be a very confusing and stressful time is one of the most rewarding parts of our job! We were first home buyers once too and know just how critical the right guidance is to long-term success in property ownership.
Here are a few of the most frequently asked questions we get from first-home buyers.
How much can I borrow?
a. It is always best to chat to a mortgage broker or your bank for any questions around finance first and foremost. They will help you work out your buying budget.
b. It is based on your unique set of financial circumstances. Income, assets, liabilities and credit history can all affect borrowing power. Each lender will have a different set of criteria. If you’re after a very general indication, you can use an online loan calculator.
c. If you need a great broker or lender, reach out and we’ll put you in touch with someone!
2. What is pre-approval?
a. ‘Pre-approval’ means that a lender has agreed, in principle, to lend you an amount of money towards the purchase of a home but hasn't proceeded to final approval. It gives you an indication of the maximum funds that will likely be available to you. This allows you to narrow your search, negotiate with more certainty, and bid with confidence if you're going to auction.
b. Getting pre-approval is a valuable step in working towards a property purchase. It's not a requirement in the home buying process, but it can make life easier.
c. It’s important to note that pre-approval doesn’t guarantee that the bank will lend you the money, they are only saying they agree in principle.
3. How much deposit do I need?
a. The deposit you’ll require will depend on the type of home loan, strategy, and the lender you select. Typically, as a first home buyer, you’ll need a minimum of 5% – 10% of the purchase price as a deposit.
b. It’s a common misconception that you need to have a 20% deposit to buy a home. This is not always the case. In some instances, people recommend getting into the property market earlier with a smaller deposit, even if that means paying ‘lenders mortgage insurance.
4. What is Lenders Mortgage Insurance?
a. Lenders mortgage insurance (LMI for short) is an insurance policy which covers the bank or lender against the losses they may incur in the event that the borrower can no longer pay loan repayments (an event known as a ‘default’ on the home loan).
LMI is not to be confused with mortgage protection insurance, which covers borrowers for their mortgage in case of death, sickness, disability, or unemployment.
LMI premiums can be paid as an upfront one-off payment at settlement or can be added to the loan amount and gradually paid off in the regular mortgage repayments. This means the premium will accrue interest though, costing you more over the long term. Lenders generally prefer it to be paid upfront, but it doesn't hurt to ask.
The upfront cost of LMI premiums typically varies by the size of the loan and the LVR (loan to value ratio ie 80% or 90% or 95%), as illustrated below. They can also depend on what type of borrower you are.
Great news for people who work in some professions like accountants and doctors. You may actually be able to not pay LMI just because of what you do for work!
5. What is stamp duty and how much is it?
a. Stamp duty is a tax levied by all Australian states and territories on property purchases. The stamp duty a buyer pays is based on the property purchase price, location, and loan purpose. Some states charge different rates on investment properties to those charged on places of residence.
You can use the Victorian State Revenue Office calculator to determine how much is payable.
6. Are there any further costs involved in buying a home
-Here's a list of other possible costs you may incur along the way. Not all of these will be applicable to every purchase.
Pre-purchase
Buyers advocate
Building and pest inspections
Contract reviews
Post-purchase
Stamp duty
Mortgage registration fee
Transfer fee
Loan application fee
LMI
Conveyancing fee
Ongoing
Council rates
Water
Body corp fees
Maintenance
In the beginning stages of buying a home, the most frequently asked questions generally relate to the financial side of things. It’s important to note that we are not experts in finance however we do know people that are! So if you ever need a contact, get in touch and we’ll point you in the right direction.
Stay tuned for part 2!