First Home Buyer Home Loan

First Time Buyer Home loans are designed to help make the early years of homeownership as stress free as possible by easing home buyers into the commitment of making the regular home loan repayments. The choice of first time home loans includes products which feature lower monthly repayments in the early years and others which allow you to access any additional repayments you may have made to your loan. A selection of the best first time home buyer loans are featured in the comparison table below.

How much can I afford to spend on my first home?

A good first step, which will save you valuable time and also help you avoid falling in love with a property you simply cannot afford to buy is to establish what you can afford to borrow to help fund your house purchase and what you can afford to repay to the lender with whom you have your home loan.

 

How much money can I borrow to help purchase my first home?

The aim here is to calculate how much you are able to borrow based on your current financial circumstances and commitments. The calculator below is designed to provide an indication of what is commonly referred to as your borrowing power, and is essentially the indicative amount which lenders may be willing to lend you as a first time buyer.

To calculate your borrowing power simply enter your preferred length of home loan, your current salary (plus additional salary if you are purchasing with a second person), your expenses and the number of dependants. Given the provided earnings and expenditure data the calculator will provide an indicative amount that you maybe able to borrow.

It is important that the information you enter into the calculator are as accurate as possible as the intention here is to establish an amount which you are able to borrow, but also comfortably afford to repay given your current financial circumstances.

 

Home Loan deposit

All first time Home Buyers looking to secure a home loan will need to have a deposit to contribute to their house purchase. Not only is it a prerequisite for making a home loan application it is also one of the primary factors used to determine the type of home loan you are eligible for, and the amount you can borrow to purchase your first home.

 

Why is the size of your home loan deposit important?

  • Establishes you as a good risk - In the majority of cases the home loan deposit is the product of many months of hard work and diligent saving. The discipline required to save on a regular basis is one that provides potential lenders with a great deal of confidence in your ability to repay any loan they may offer you, and your saving history is recent evidence that gives the lender an indication of your ability to maintain your home loan repayments.
  • Delivers greater Choices - In general terms larger deposits will mean you will have a wider selection of home loan choices whilst also increasing your chances of landing a discounted rate from lenders.  .
  • It helps lenders determine the level of risk you represent - This risk assessment is conducted by all lenders using a standard formula, known as the Loan to Value Ratio or LVR, and is designed to assess how risky they consider offering you the home loan may be. The higher the LVR the more risk to the lender, so the objective is to have as low a LVR as you are able.
  • The loan to value ratio considers the amount you wish to borrow relative to the value of the property you are interested in purchasing. So for example if the property value is $400,00 and your deposit is $80,000 the LVR is 80%.
  • Where your LVR is greater than 80%, and so at the higher end of the risk scale, the lender will generally request that you add Lenders Mortgage Insurance (LMI) to your purchase plans.  LMI is an insurance policy that insures the lender against any losses that may occur if you default on your home loan.
  • A larger deposit will save you money - The more money you contribute up front to your mortgage as a deposit the less money you will need to borrow which will result in you paying less interest over the term of the loan.

 

Maximizing the impact of your loan deposit

The size of the deposit you have available when you apply for your first home loan is one of the most important factors in the eyes of all lenders, though close behind this is how you acquired this deposit, as understanding this gives the lenders an insight into how capable you are at managing your finances. Here we review the different approaches taken to building a home loan deposit.

Savings Accounts - lenders are looking to see evidence of regular payments made to a savings account, they consider regular to be at least 3 months of payments.

Ownership of Shares, Inheritance and Term Deposit Investments - Lenders include these in the assessment as long as they have been held for at least 3 months.

Gifts of Money - As house prices continue to rise it is becoming increasingly difficult for first homebuyers to realize the dream of buying their 1st home. One strategy which is helping first homebuyers acquire a deposit of sufficient size to apply for a home loan is the to be gifted some money, most often from a family member.

Where a gift is received the lender will generally seek confirmation, via a statutory declaration, that the money is in fact a gift and not a loan that will have to be repaid at some time in the future.

The majority of lenders will require the gifted money to be held in a savings account for at least three months for it to be considered as genuine savings in your mortgage application, their are some exceptions to this so if a gift is to be included in your deposit you should check when making your loan application..

Track record as a property renter - It’s likely that prior to considering home ownership you may have spent a period renting a property. Records of your on time payment of your rent across a sustained period (at least 12 months) will be considered by many lenders as further evidence of you ability to manage your finances and stick to a schedule of required repayments

Supplementing your home loan deposit with a guarantor - By adding a guarantor to your home loan you are taking significant risk out of the loan in the eyes of the lender. The guarantor, usually a family member, offers their home as additional security for your home loan. The guarantor does not have to make any repayments to the home loan, though if you fail to make repayments on the home loan the lender will have the contractual right to ask that the guarantor honors the repayments.

 

First Home Owner Grant

The First Home Owner Grant (FHOG) scheme was introduced on 1st July 2000 to offset the effect of the GST on home ownership. It is a national scheme funded by the states and territories and administered under their own legislation, which means the benefits of the scheme differ by state.

The basic $7,000 first homeowner grant applies across all states, though states and territories have chosen to also provide additional grants and stamp duty subsidies, these include additional benefits for new construction and new homes in regional areas.

In all states and mainland territories, you have two options when applying for the home owner grant:

  1. Lodge your application through an ‘approved agent’, which is the bank or financial institution who are providing your mortgage
  2. Download the application form, complete and lodge it yourself with state department your house purchase has settled.

The grant is not means-tested, but it is restricted by property price in some states, and can only be accessed once. The following eligibility requirements apply to the grant:

  • You must be an Australian citizen or permanent resident
  • You must not have owned property in this country
  • You must have lived in Australia for at least six months
  • You must be over 18 years of age
  • You must be buying or building your first property as a person, not as a company or trust
  • Neither you or your spouse can have claimed this grant previously
  • An eligible home must be located in Australia and be a new or established house, home unit, flat or other type of self-contained fixed dwelling that lawfully can be used as a place of residence
  • You must live in the property for at least six months, starting within the first 12 months immediately after purchase
  • Only one grant is payable per eligible transaction (contract) regardless of the number of applicants involved in the transaction. If you have a spouse or partner who has previously received a grant in any state or territory of Australia, you will not be eligible.

 

What home loan features that are important to first time buyers?

  • Ability to make extra repayments - Although this may seem an impossible event as you consider all the costs of a first home loan it is wise to include features within your home loan that are designed to help you save money down the track. The ability to make extra repayments delivers two great benefits, it saves you interest as any extra repayment is reducing the principal balance of your loan and secondly they will reduce the term of your loan.
  • Home Loan Portability - Should you choose to move on from your first home this feature allows you to take the loan with you, so avoiding the time and costs associated with making a new home loan application.
  • Redraw facility - If access to your money is important this feature is worth considering as it enables you to access any extra repayments you have made to your mortgage. This flexibility does come at a cost as whenever you redraw any money from your mortgage you will be sacrificing the interest savings the extra repayment where making you.
  • Mortgage Offset Account - This is essentially a savings account which is linked to your mortgage, with the value of any savings held in the account deducted from your mortgage balance when interested is calculated on your home loan, with the aim of delivering interest savings.

 

What costs are involved in buying our first home?

  • Pre-purchase inspection - This is a an inspection of the house you are interested in purchasing made by a professional inspector which is designed to provide you details of any potential issues with the house such as building defects, pest or damp issues. When considering an apartment purchase you should conduct a strata search which will provide information on any levies, insurance details, disputes and history of any repairs to the building
  • Borrowing costs - the application for a home loan generally attracts a number of fixed fees, these include loan application fee ($500 -$700), Lender's property valuation costs ($300 - $400) Lenders Mortgage Insurance (LMI) - this one-off payment applies unless you can put down a deposit of 20% or more.
  • Government charges - Property transfer stamp duty is a state government tax payable by the buyer and is calculated on the price paid for the property. As it is a duty for transferring the title of a property, it will be imposed regardless of whether purchase is financed with a mortgage or not.
  • Insurance - A range of insurances should be considered to protect both your belongings and also your ability to repay your mortgage. These include, Home and contents insurance, Mortgage protection insurance and Income protection insurance
  • Legal fees - These vary between providers, but typically cost around 2% of the price of the property.

Frequently Asked Questions

How do I know if I am eligible for the First Home Owner Grant? 

As a basic rule, you are eligible if you are an Australian citizen or permanent resident, buying or building your first home in Australia, with the intention of occupying it as your principle place of residence within 12 months of the settlement, and living in it continuously for at least 6 months. If you’re buying the property in conjunction with others, they must also meet criteria for the grant to be applicable.

What is a Professional Home Loan Package?

Professional Home Loan packages are generally only available on home loan amounts over a certain value. Usually, the greater the home loan amount the more likely the lender will be to offer additional discounting on the interest rate.

Advantages of a Professional Home Loan Package
- Interest rate discount.
- May include discounts on other banking products.

Disavantages of a Professional Home Loan Package
- Borrower may not need the additional services offered.
- Borrower may be financially better off with a basic variable loan.

What is a Redraw Facility?

A Redraw facility enables borrowers to access any extra home loan payments they have been made. This money can then be used for a variety of purposes including a holiday, furniture or car. Some lenders have a minimum redraw amount and may also charge a fee per redraw.

What is the Loan to Value Ratio?

The loan to Value ratio or LVR is the amount lent to the valuation of the security. An example would be a Loan of $120,000 on a home valued at $130,000. The Loan to Valuation Ratio is $120,000 multiplied by 100 and divided by $130,000 - 92.3%.

What is conveyancing and why do I need it?

Conveyancing is the legal process you go through when buying a property. Aside from legally transferring ownership, conveyancers may help you identify and avoid potential problems with a property.

The role of the conveyancer can include:

  • Giving advice on the property contract (section 32)
  • Facilitating searches on strata reports
  • Arranging for the exchange of contracts for sale
  • Negotiating with the vendor's solicitor on the buyer’s behalf
  • Arranging the settlement process and dealing with any difficulties that may arise during the settlement period.

 

When choosing a conveyancer, either a solicitor or a specialist conveyancing company, make sure you know exactly what service they are offering, and what their qualifications are. A low price can often mean that the service you are buying covers just the legal minimum of completing the necessary paperwork. Whereas a more expensive quote would generally include advice throughout the process.

What is an offset account?

An offset account is a savings account linked to a home loan account. No interest is paid to the offset account but instead the balance of your offset account is deducted from your home loan account before the interest on your home loan is calculated. Which result sin less interest being charged to your home loan. 


For example, a borrower with a $300,000 mortgage and $10,000 in an offset account will only be charged interest on $290,000 and not $300,000. Some products do not offer 100% offset, while others may require a minimum balance in the account before the offset applies. 

Advantages of an offset account
- Savings interest is taxable, but because your offset account balance is used instead to reduce your loan interest, no tax is payable, so you are effectively reducing your tax bill.
- The interest rate on your offset account is the same as that applied to your loan account. This is a great rate and is much higher than what you could earn on most savings accounts. The interest rate moves with your loan account rate ensuring you get maximum benefit from every dollar in your offset account.

Disadvatages of an offest account
- You may have higher monthly fees attached to the account.
- You may need a minimum balance in the account to benefit.