20Oct2021

Written by Gavin Harrigan First Home Buyers

First Time Home Buyer’s Guide

Purchasing your first home, either individually or with a partner, is a momentous life event. However, it can also be a stressful and confusing time if you are not familiar with what is involved in buying a house.

While there are quite a few steps to complete before setting out your first welcome mat, rest assured that these are manageable.

This article will aid in helping you purchase your first home:

1. First Things First, Your Budget

Before you can begin turning your dream home into a reality, your budget needs are set. Few things are more upsetting than having your heart set on a specific home only to find out that you cannot afford it.

How to plan your budget?

Planning a budget may sound rather fundamental. However, it would be best if you had an idea regarding where your money goes.

Track your spending and how much money comes in for three months. While this may seem like a bit of a wait, you need time to see a clearer picture of your finances.
After three months of keeping track of the money that is coming in and where the expenditures go, you can figure out what expenses you can remove or reduce.
You should be able to have a clearer picture of how much you can save and how long it will take you to save a realistic amount for a down payment.

Three Essentials to Making a Viable Budget

It is human nature to want to start a project strong and see results in a short amount of time. Your budget needs consideration and a bit of time to get it right. To make a budget you can stick with over time; you need all three of these factors.

Realistic – It is easy to crunch numbers and declare that you will live on toast and tea for the following year. However, living on toast and tea for a year is not so easy. In your haste to create a budget, remember to keep it grounded in reality. Otherwise, you risk falling away from your plan and possibly losing your desire to own a home.
Disciplined – Remember why you are saving and keep that picture front and centre when you feel like giving up the plan.
Flexible – Yes, your budget needs parameters. However, saving for a house does not mean you must sit at home staring at your walls for years. Build a little wiggle room into your budget. No matter how much you want a house, you will have moments where you would give up that quest for a tub of ice cream.

2. Learn About Various Loan Options

When you begin to look at home loans, you may notice the terms and interest rates can be quite different, even within the same lending institution.

To better grasp loan costs, look at the two sets of rates on home loan advertisements:

Interest Rate – A low-interest rate does not guarantee you will get a great deal on your loan. Many of these are introductory rates with highly specific terms. Other low-interest loan rates have several fees that drive up the cost in the long run.

Comparison Rate – A comparison rate provides a better picture of the cost of the loan. It shows the annual interest rate, any upfront costs, and ongoing fees you must pay.

As you go further into researching home loans, you will see lenders offer many options. Each has its strong and weak points. Request the help of a loan professional when deciding which of these loans is best for you.

3. Get Pre-Approval for Your Loan

Not all loans get fast approval. You could miss out on your dream home while you wait for your lending institution to finalise yours. You can avoid this by getting a pre-approved loan.

When you get pre-approval for your home loan, it helps you in a few different ways:

It tells the seller and their agent that you are a serious buyer and a good financial risk. (You should keep in mind that pre-approval is not the same as an unconditional loan. It is a step in the process.)
You will know what you can spend on a house. This will save you time because your search will focus on what you can afford.
The closing process on your loan will be faster if you are pre-approved.

What Lenders Look For

Many factors may influence a lending institution’s decision to offer a loan or decline the application.

Here are the top five loan criteria:

Your financial history – Companies will use your past to predict how you will handle future loans. This is why having a good credit history will help your cause.
The debts you carry now – A lender will see a clearer picture of your finances by looking at your current debts. If you demonstrate that you are up to date with your rent, car loan, and credit cards, you will look like a good risk to a lender.
Employment history – Every lender will need to know how you will repay the loan. If you have a work history with limited gaps (or explainable gaps, like the birth of a child), you will appear to be stable financially.
The property value of the home you plan on buying – The property you are purchasing is collateral in the transaction.
Your deposit – The amount of your deposit which you put forward to purchase a property will impact other areas of your loan.

4. Lender Requirements and Your Options

Generally speaking, most lenders want buyers to put 20 per cent of the home’s cost as a deposit. This is a considerable amount of money for first time home buyers. Fortunately, you do have a few options if a 20 per cent down payment is not possible.

Lender’s Mortgage Insurance – If you cannot put down a 20 per cent deposit, some lenders will approve your loan if you agree to pay a mortgage insurance premium in addition to your loan amount.

Guarantor Home Loan – Another option if you cannot afford the 20 per cent down payment is to take out a Guarantor Home Loan. Also known as a Parental Guarantee Loan, it works by having a close relative (parent, grandparent, sibling) approve the equity in their home as additional security on your loan.

5. Learn About Assistance for First Time Buyers

Several kinds of assistance grants exist to help the first time home buyers get into the housing market. Eligibility varies for these programs, but these are worth taking the time to investigate.

First Home Owners Grant

Many Australian States offer a First Time Home Owners Grant (FHOG) to those just entering the housing market. Eligibility for these may vary somewhat from state to state.

*Example- Some of Western Australia’s FHOG Requirements*

Each applicant must be a natural person and at least 18 years old
Each applicant must be an Australian citizen or permanent resident as of the application date
Neither the applicant nor their partner may have received an FHOG or FHOR (First Home Owner Rate) under this scheme
Applicants must use the home as a principal place of residence continuously for at least six months after the transaction
The total value of the home must not exceed the value cap

Understanding Stamp Duty

Stamp Duty is simply the state government’s tax on purchasing a property. Many states offer first-time buyers a complete discount depending on the purchase price.

If the home in question has a value of $430,000 or less, the buyer will owe no stamp duty
If the home in question is valued between $430,001-$530,000 the stamp duty is $19.19 for every $100 over $430,000. $530,001 and up may be eligible for the residential Stamp Duty rate.

The First Home Super Saver Scheme (FHSSS)

Voluntary contributions to your super may be used towards purchasing your first home. In some cases, the earnings on these contributions are also available.

Applicable voluntary contributions include:

Tax-deductible super contributions
Personal super contributions
Salary sacrifice contributions

6. Upfront Costs

Buying your first home is a hectic and stressful time. Make sure you remember to account for the many upfront costs as you start your journey to homeownership.

Loan Application Fee
Lender’s Mortgage Insurance
Legal and Conveyancing Fees
Government Fees
Costs of Building, Pest, or Strata Inspections
Moving Costs
Purchase Price of Your New Home

*Please Note* The information presented here is for general use and is not legally binding financial advice. Various individual factors can make this information inapplicable to you. If you live in WA and want to learn more about the options surrounding the purchase of your first home, contact a mortgage broker Perth trusts today.