Buying your very first home can be a very exciting process, but also an expensive one. It's very important to fully understand what you are getting into before making what is likely to be your most expensive purchase so far in your life. Here are some helpful hints that may make the process a little more stress free.
Building your dream home?
From the 1st of July 2017, the Andrew's government will double the First Home Owners Grant (FHOG) from $10,000 to $20,000, payable when a contract is signed for a newly established home. First home buyers may also eligible to receive 50 – 100% off their stamp duty on the purchase of their land. Lenders will take these amounts into consideration when calculating the required deposit for a home loan.
For example, a $200,000 property could be bought with a $20,000 cash deposit and the $20,000 FHOG – a total deposit of $40,000 or 20%. Such a situation might save you from having to pay Lenders Mortgage Insurance, as the deposited amount is 20% or more of the property. This is a huge saving to first home buyers as more funds may be available to put towards to the property build.
This is expected to help over 6,000 Victorians purchase their first home and to build and live in their local communities. Note: the grant is only available to first home buyers building new homes valued up to $750,000 in regional areas (ie. not Melbourne).
Buying Established Home?
As of the 1st of July 2017, the Andrews's Government will axe Stamp Duty for First Home Buyers on both new and established homes under $600,000. First home buyers purchasing a property between $600,000 and $750,000 will receive a tapered discount. For example, stamp Duty on a $300,000 home will drop from $5,685 to NIL for first home buyers – this gives first home buyers the advantage of being able to put more money into their new property.
What is Stamp Duty?
Stamp duty is a charge which is applied by the state governments in relation to the transfer of land or property. As such, each state has its own rules - here we have discussed those which apply in Victoria.
Low Deposit Home Loans
Financial institutions generally required deposits to be around 20% of the property value. This is to provide confirmation to your lender that you have the ability to save and are able to meet your monthly mortgage repayments. In an ideal world you would be a banks model candidate. Depending of the price of the property, first home buyers may not be able to afford the 20%, and that's okay because there may be more options available to you.
Lenders will often allow individuals to borrow above 80% of the property value to own their dream home faster. They do this by adding a one off payment to the loan - lenders mortgage insurance (LMI). The aim of this payment is to protect the lender (not the borrower). The lower the deposit on your property, the higher the risk you become to the bank. This payment is a once off premium, with the payable amount entirely depending on the amount being borrowed. Some lenders may allow the borrower to add the cost of their premium to their monthly loan repayments, - meaning no upfront cost.
Other factors to Consider
Its getting harder and harder for Australian's to save for their first home. These few changes have made it somewhat easier although we still need to consider the underestimated additional costs.
Items such as home and contents insurance, legal fees, moving costs, inspection reports, council rates and transfer fees need to be well-thought-out. It's important that these additional costs are taken into consideration, as well as knowing exactly how you will make the monthly repayments on you property.
It is important to shop around; each lender will have different packages to attend to your needs and financial capabilities. Lastly, ask questions, this is so important! It's not everyday that individuals go and purchase homes and it isn't something which you will naturally understand the process of. As such, there is no such thing as a silly question!
If you are interested to learn more about this topic and how it may affect you, you can call or book an appointment on (03) 5032 9422.