02 May First Home Buyers Guide
A GUIDE TO BUYING YOUR FIRST HOME. Make Your Biggest Investment, Your Smartest.
By Penfold Property Group
The starting point is knowing how much your budget allows for monthly loan repayments. From here you can determine the size of the loan, and ultimately the type of property you can afford to buy.
The size of your deposit is important because:
- Most lenders will require you to contribute at least 5% of the purchase price of the property as a deposit, and the rest may be financed using a home loan.
- A larger deposit may mean a lower interest rate. The larger your deposit, the less risk you represent to lenders, and this puts you in a better position to negotiate a lower interest rate.
Getting the FHOG – Hurry, finishes 30 June 2018!
As a first home buyer you may be entitled to receive government grants and concessions, including the First Home Owner’s Grant (FHOG) towards the purchase of your first home.
- Your bank or finance broker will assist you to organise the FHOG
- The FHOG comes off the build contract price
If you’re planning to apply for a home loan, it’s a good idea to check your personal credit history. It’s a record of how well you have managed debt in the past and will be one of the first things lenders will look at.
They’ll be looking for:
- Personal details such as your name, current address and employment details
- Credit applications you’ve made in the past, including credit cards to see if you’ve ever defaulted on paymentsObtaining your Pre-approval – why it’s importantMost lenders will provide a loan pre-approval, subject to providing some of your financial information and terms and conditions being met. The lender will provide you with a pre- approval for a loan limit, which is conditionally approved for a fixed period (often three months).By obtaining a pre-approval you can comfortably look for homes within your price range, and there is less chance of hiccups during the sale process.
Avoiding Lender’s Mortgage Insurance
If you can contribute 20% or more of the purchase price
of the property as your deposit, you may be able to avoid paying ‘Lender’s Mortgage Insurance’ (LMI). This protects the lender, not you, if you cannot repay your loan, so it’s a cost worth avoiding if possible.
Variable Rate Loans – The interest rate and your repayments may vary in line with movements in market interest rates.
Fixed Loans – The rate you pay and the loan repayments, are fixed for a set period, usually between one and five years.
Split Loans – Some lenders may let you fix one part of your loan, while the remaining portion has a variable rate.
Choosing the right home loan for you is important, and your bank or broker can help you to simplify the loan comparison process and find your perfect fit.
Once your bank or broker has assisted you in selecting your perfect home loan they will require executed copies of your land and build contract in order to process your loan application.
1. Pay your Deposit
Place your initial deposit of $960.00 into the Seller’s solicitors Trust Account. Don’t stress, $460 is refundable to you should you change your mind.
2. Sign the land Contract
Receive and sign your land contract with your Penfold Property Group sales consultant.
3. Have your Lawyer Review the Contract
Take a signed copy of the land contract to your solicitor for review, after both parties sign. While the contract is prepared by the seller’s solicitor, your legal representative should check the details and clearly explain the special conditions to you.
4. Sign the Build Contract
You will now need to pay your deposit for the building contract and sign your build contract for your new home with the Builder. Make sure you double check with you finance broker at this stage, that the home you have chosen meets your budget.
5. Getting Finance
You have found your dream property and have signed a land and build contract. Now you need to organise your finance. There are hundreds of different types of loans available, but basically they are all based on two key things:
- Principal – the amount of money you borrow
- Interest – how much you pay to borrow the money. It’s calculated on the outstanding principalYour bank or finance broker will order a valuation using both your signed land and build contract. The bank will then process your finance application.
6. Yay! Your finance is approved
After 30 days an unconditional finance approval should be granted. Once you have received your finance approval letter you need to instruct you solicitor to notify the developer and pay your balance deposit to the developer’s solicitors trust account. Now you can relax and wait for the registration and settlement of your land – then you can start building!
The First Home Owners Grant (FHOG) is great news for first home buyers. It is a one-off tax-free Federal Government payment of $20,000 available to most people buying a first home in Australia. However, certain conditions must be met in order for you to be considered eligible for the grant.
Check with your bank or finance broker if you meet the requirements to be eligible for the grant.
Some of these requirements include:
- You must be an Australian citizen or permanent resident buying or building your first home in Australia.
- The property you buy must be a recognised house, unit or flat specifically designed for people to live in.
- You or your partner must not have purchased a property in Australia before.
- You must occupy the home within 12 months of settlement – or within 12 months of building completion if it’s a newly built home.
- You must apply for the grant within 12 months of settlement or building completion.
- Contracts must be exchanged between the buyer and seller before the cut-off dates, and the money is paid at the time of settlement.Other conditions and timeframes may apply, for more information you can visit www.firsthome.gov.au for more details.
P.s – the First Home Owner’s Grant ends on the 30 June 2018! This requires signed land and home contracts, so to make the most of this you need to organise these details before it’s too late.