Common Frequently asked First Home Buyer Questions
Below are lists of frequently asked questions by first home buyer’s, when consider purchasing their first home which we have answered in the following manner;
There's never a good time nor a bad time to buy your first property. It’s an individual choice or situation that prompts a first home buyer to purchase their first home. From the number of first home buyers we help secure a home loan, their reasons are;
- “It’s time for some Home Stability not having to move every time an investors sell the property’
- “Want to be House Proud to get into the property market and have home ownership to be evolved into the neighbourhood for the futures of our children”
- "Need to show ‘Credibility’ with lenders since buying a motor vehicle, lenders credit score you better if you are a home owner”
- “Had enough of our landlord putting up the rent and if we contribute a little more to the weekly rent we can afford to pay a mortgage and own our own home and hopefully one day we can be a landlord…”
- “The neighbours in this apartment block are horrible… we just need our own space to create our own lifestyle… ”
With the above in mind and Data from the Westpac Melbourne Institute Survey of Consumer Sentiment ‘Time to Buy a Dwelling’ index, which reported that consumer confidence rose 8.1 per cent in September 2011.
Moving forward into 2012, the residential market maybe a good time to buy for the first home buyer, as property stability is evident in certain suburban pockets of real estate markets. Some residential suburbs have reduced in price therefore it's not that it's a bad time to buy or a good time to buy, sometimes the signals are indicating the moment to get involved maybe now.
If you believe the property market is too expensive, that maybe correct for you or, ‘You just can’t afford it’. There is always someone who comes along and offers a higher offer or purchase price. You may need to accumulate more deposit or find a property that is affordable within your means or spending plan.
Additionally, remember to do your due diligence on any property purchase as you may end up paying too much in the long run.
I’m on good income but a limited deposit, can I get a loan?
Lenders try to make it easier for first home buyers to quality for a 95% loan. To qualify for a 5% deposit loan (a 95% loan facility) these are made up of the following;
- No deposit loan ~ 100% loan via a guarantor. Guarantor offers their property as part of the deposit as security
- Rental payments ~ a number of lenders will consider the rental paid as your 5% deposit. You still need the 5% deposit or enough funds to settle the property at settlement.
- Inheritance or Gift ~ if you have received a gift or inheritance which has been in a savings account for a minimum of 3 months you may qualify.
- Work bonus or shares ~ these are also acceptable as savings.
- Paid out a Personal or Car loan ~ if you have paid out a loan in lesser the time or term taken with a 5% equivalent as a deposit amount you may quality.
Lenders look at your repayment records and your income as to work out if you are able to service the liability and not to put yourself into financial hardship.
Depending on the amount of rental you current pay, you may be able to service a loan facility and not know it. You may have a small amount of savings, which is no indication of your lack of ability of a financial commitment, the factor of no savings may be because you have been paying extremely high rent.
Mortgage Insurers are constantly looking at ways to help first home buyers, with Genworth Insurance indicating in the Australian Brokernews the follow;
Mortgage insurer Genworth has flagged new product innovation to drive mortgage growth in a lacklustre credit market, including the imminent release of a 'graduate program' targeting first homebuyers.
Genworth CEO Ellie Comerford told brokers the insurer was looking at a number of possibilities for new products that could help more borrowers into the market.
"We have got to be more cerebral - we have to do more segmenting and targeting against the borrower base," she said.
"Our job is to get people into homes and keep them there, so we have to find ways to get people loans that make sense, and not treat them all the same way," she said.
Comerford revealed a new key initiative would be to provide backing for struggling first homebuyers, who were now buying homes second latest in the world according to international mortgage trends data.
"We have designed a program for young professional people who are qualified, employed, but that don't have that history we wanted in the past. We have designed the product, it will be called the 'graduate programe'," she said.
Comerford said the insurer was also revisiting other measures including shared equity loans, bringing back the 'family pledge', and even the importation of an 'accordion' loan design from India.
"That's a loan that, as interest rates go up, payments remain the same and the term of the loan is moved," she said. "That means people are in a position to pay as they can handle any vagaries of the market," she said.
Comerford said the advent of 35 to 40 year mortgages in Australia would assist more buyers into the market.
Source: Australian Brokernews
Do I know if I’m getting the best deal?
The only way you know you are getting the best deal is when you have used a professional credit adviser. (Mortgage broker, Introducer, etc.)
If you go to your local lender of cause they will tell you they gave you the best deal possible… From them.
However, if you use a professional credit adviser who is accredited with more than 20 lenders, (Neomoney is accredited with 52 residential lenders) the adviser can generate reports to meet your financial requirements and lifeplans.
Find a credit adviser that can generate report as the diagram below. These report are based on you, the client credit lending criteria since every client, couple, husband & wife or investor have their own financial requirements. These reports will provide a list of lenders that may suit to applicant’s criteria and then you are able to drill down to find the right lender that ticks al the boxes.
How much can I afford to borrow?
The amount you can afford to borrow towards your new home will depend on a number of factors. For example:
- How much do you earn?
- How much do you & your partner earn?
- What is the income of the people that you may be buying the property with?
- How much do you spend each month on other commitments such as loans or even travel expenses?
- What are your current assets and liabilities?
- How much deposit do you have?
A Number of sites and financial calculations tend to turn a lot of people off when starting the purchase process and some decide to leave these calculations until the last minute – and that can lead to a lot of stress and disappointment. Doing the numbers is not as hard or as daunting as you may initially think.
A professional credit adviser can assist you in providing the scenarios, calculating monthly repayments based on your estimated loan amount from several lenders, different interest rates for current repayments, in case interest rates rise we can provide future indicative scenarios.
First Home buyers may be exempt but don’t forget the stamp duty may apply when you buy your new home. In the Tool section of the Neomoney site you’ll find some helpful checklists that you can print out and refer to during the spending plan / estimation process. At the end you’ll have a quick reference of your estimated financial position that you can use when you call us at Neomoney to set up your loan requirements. Best of all, if you get it all out of the way now, you won’t need to worry about doing it all later! Importantly, knowing your financial position will help you determine how much you can borrow, so you can start setting realistic expectations in terms of what house you can look at potentially buying.
You should also consider talking to an independent professional credit adviser or your accountant about your intention to buy a property.
How much deposit do I need?
When buying a house, some banks or lenders will prefer a 20% deposit however there are lenders that will accept a deposit on a loan of less than 10 percent, for example, a five (5%) percent deposit, and some will provide a no deposit home loan, depending upon the location and price of the property via a guarantor loan. However, sometimes a deposit of less than 20 percent may mean additional loan insurance known as Lender Mortgage Insurance is required. An example where the bank may not require a deposit for a home loan is where you have enough equity in another property via a guarantor.
Deposit when purchasing a property
A deposit of 10 percent of the price of the property is normally required by the vendor to show your intention to purchase a property. Some vendors are prepared to rest on a 5% deposit. Simply ask the real estate agent closer to the time of making an offer as to what deposit amount will be required and make sure you have it available at the time you make an offer.
How do I get started & how long does the loan process take?
Find yourself a professional credit adviser as they have a wealth of knowledge and a wealth of information especially one that specialise in the first home buyer market. A professional credit adviser will hold your hand right through the whole loan process, from the
- initial meeting,
- collating the right loan documents,
- through to the loan submission,
- preparing to obtain the First Home Owners Grant via the lender,
- liaising with your conveyancing solicitor
- and real estate agent to make sure he is available to meet the lenders valuer,
- through to final settlement and even
- Post settlement (after the loan has settled). To make sure the lender has established the right loan products and day to day accounts as per the initial loan submission.
Depending on the lender there are up to 45 stages to the loan submission to settlement.
The loan process can take a matter of days to a number of weeks depending on the complexity of the loan.
Should I get a pre-approval?
Yes. The easiest way to know how much you can borrow is to get Pre-Approved.
The Pre-Approval initially can be done over the phone, to which you will know the maximum amount you can borrow based on serviceable income.
The process takes a matter of a few steps.
Once you have an idea of the type of loan product you require, and if you don’t, that’s cool, a credit adviser is here to help with that process as well.
With our Loan Product checklist you can narrow down the types of products that may suit your requirements.
Checklist Page
Initial documents you need.
- tell us about your ideal loan
- Income & Financial Commitments
- provide your financial details
A Pre-Approval only provides an estimate of your borrowing power. That power will help to narrow down the searches for the right priced property for you.
What kind of property do I want or purchase?
The property you buy should be based on your budget and your required lifestyle with your current and future needs in mind. There are a number of different types of properties including apartments, town houses, semi-detached and free standing houses.
You may have a demanding job or spend a lot of time travelling interstate or away from home participating in sport and social activities, then a low maintenance property, i.e. apartment or townhouse may be suitable for you.
You may have a large family, pets or are a keen gardener, a larger house with a good sized yard may be the right property for you.
There are advantages and disadvantages with each type of property, for example, houses may require more maintenance (with you covering 100 percent of the cost), but may provide more privacy than an apartment or townhouse. Apartments may offer you a great lifestyle at an affordable price, where common area maintenance costs are shared between the owners of the apartments in the complex. However, you must abide by the rules of a body corporate and consider issues such as noise and how to deal with your close neighbours.
Buying a home ‘off the plan’
Buying a home ‘off the plan’ means that you purchase a property (usually an apartment or townhouse) prior to completion of construction. You are required to put down a deposit and then have to wait until the property is finished. When buying off the plan make sure you have your solicitor or conveyancer thoroughly check all aspects of the contract.
Legal forms of ownership
There are many legal forms of ownership for residential properties, including:
Note that these forms of ownership vary by state, so ask your solicitor or conveyancer for further information about them.
Living in an apartment or townhouse
Planning on buying an apartment or townhouse you may need to understand how a body corporate works. If you buy one of these types of properties you automatically become a member of the body corporate.
A body corporate oversees the collective responsibility and decision making in relation to use and maintenance of the common property in your building. Owners are required to make financial contributions to the body corporate. Owners must pay fees and levies for administrative expenses including maintenance, upkeep and repair of buildings that form any part of the common property. Owners may also be required to contribute to a reserve or sinking fund to cover anticipated costs of repairs to the building or replacement of essential items or services such as air conditioners, security systems or lifts.
Body corporates have rules and restrictions that apply to residents. There may be restrictions on keeping pets, car parking restrictions or use of public spaces. You should consider how these regulations may impact on your lifestyle.
Other issues to consider when buying apartments are:
- Noise (i.e. Is there traffic noise? Is there sound insulation between apartments? Are there rules in the body corporate about floor coverings? Are there any polished floorboards?
- Layout of apartment (i.e. Where are the common walls?)
- Security (i.e. Are there security doors or intercoms? Are there signs of vandalism or break-ins?)
- Social dynamics (i.e. How many apartments are in the complex? How many apartments are owner-occupied or rented? How long have owners or tenants lived there? Generally, if residents have lived there for a long time, it indicates they are happy with their surroundings)
- Parking (i.e. What type of parking do you have? Are there rules about visitors parking on common areas?)
Firstly, you need to be 18 years of age and over to get a loan and have regular income to meet the lenders criteria. Lenders offer home loans that will enable you to buy a house, unit, townhouse or house and land (Construction Package), with a variety of different loan options available.
The maximum loan term available is 40 years from only a few lenders however 30 years is the available term with most lenders and comprising 3 types of loan products as indicated below with several product variations of the three, i.e. Discount Loans, Introductory loans, Honeymoon loans, Professional Loans, etc.:
- Variable Interest Rate Home Loans
- Fixed Interest Rate Home Loans
- Line of Credit / Equity Interest Rate Home Loans
The Loan repayment options are, weekly, fortnightly or monthly, depending on Loan product and what suits your requirements. The more often you make loan repayments, i.e. weekly, the lower the interest cost over the term and the sooner your home loan will be repaid (although this will depend on the terms of your particular loan product and whether additional or lump sum repayments are also allowed). If you plan to make loan payments in addition to your scheduled payments, make sure you check that your home loan allows for additional loan repayments, increased monthly repayments, or occasional lump sum repayments; and also check for any fees that may apply. If you plan to pay off your home loan ahead of time, check that you can do so and check for any fees that may apply.
Most Lenders offer the following six types of home loans:
- Honeymoon Rates Home Loans – discount introductory loan rates which, after a certain period (normally 6-12 months), revert back to a variable rate home loan
- Basic Variable Rate Home Loans – a lower rate than the standard variable rate, but some features are not available or you need to pay to use them, such as redraw
- Standard Variable Rate Home Loans – a higher rate than the basic variable rate, but with more features with either lower or no fees
- Fixed Interest Home Loans - which will usually revert back to a standard variable rate home loan after the nominated term. Fixed interest loans generally are less flexible (e.g. you can’t redraw any extra repayments you’ve made) and have charges for early repayment. Your loan repayments are determined by the amount borrowed, the term of your home loan, frequency of the repayment and the interest rate (although you will need to review the terms of your particular loan).
- Line Of Credit or Equity Loans– a loan where you borrow to a maximum ceiling amount and you can pay down and draw back up to that ceiling amount (think of it as a huge credit card facility, interest is only charged on what you use)
- Professional Rate Home Loans - usually provides you with a discount off the annual interest rate, and in return the lender charging an annual fee. The discount off the rate is based on your loan amount size, the bigger the loan, the higher the discount however you need to be eligible to the facility criteria;
Variable Rate Loans V’s Fixed Rate Loans
There are pros and cons with each type of loan. With fixed interest loans you have a fixed interest rate over a set period term so you have some certainty about how much your loan repayments will be. A typical fixed interest loan will allow you to fix the interest rate for a term of one to five or 10 years. If interest rates increase, you will be protected from these rises. However, if they decrease you will not enjoy the lower rates. Also, a fixed interest loan may not offer the same level of flexibility and extra features as a variable loan. There may also be extra costs should you wish to payout the fixed interest loan before the fixed rate period expires.
Many variable loans offer a cheque book, a redraw facility, the ability to transfer your home loan to another property (which can also be done with most fixed interest loans) and to make extra lump sum loan repayments. With variable loans your loan repayments will rise and fall depending on current interest rates.
If you’re uncertain about whether you should take up a fixed interest home loan or go with a variable loan, you can ‘take a bet each way’ and split your loan so that a portion is fixed and the rest is variable. If you choose this option find out if there are any extra costs involved.
Loan offset account and redraw facility
An offset facility loan is linked to a savings account (for example, an account where your salary and other cash might be deposited). You also use this account to withdraw from when bills are payable. There may be some types of offset accounts where you have to move your money into a transaction account before accessing that money. But for as long as the money sits in the account it is ‘offset’ against your loan (effectively acting as an additional payment towards reducing the debt owed on your loan) and this can reduce your interest bill on your loan.
A redraw facility can operate in a similar way to an offset account meaning you can apply payments to your loan, (which means the balance on which interest is charged is lower) but still be able to draw back any or all of any early payments made. However if you have a loan for an investment property it may be easier for taxation purposes to have an offset account. You should discuss the best option with your accountant or financial adviser.
Which conveyancing or solicitor do I use or do I DIY?
This is an important step in the buying process of buying and selling. It is where a property is transferred from one party to another. This is usually done via one of three ways: a conveyancer, a solicitor or by the purchaser via a do-it-yourself (DIY) conveyancing kit.
Solicitors are usually the more expensive option, however safer, and provide you with a wide range of legal advice in relation to property, wills etc. Expect to pay anything from $400 to upwards of $1,500, plus outlays, depending on the circumstances of your particular property transaction. Note that in Western Australia you can only use a solicitor for the purchase of a property if that solicitor is also licensed as a conveyancer.
Contact the appropriate Law Society in your state for further details about how to contact a qualified conveyancing solicitor;
QLD ~ www.qls.com.au
NSW ~ www.lawsociety.com.au
ACT ~ www.actlawsociety.asn.au
Vic ~ www.liv.asn.au
SA ~ www.lawsocietysa.asn.au
TAS ~ www.taslawsociety.asn.au
WA ~ www.lawsocietywa.asn.au
NT ~ http://lawsocietynt.asn.au/
Conveyancers are licensed to provide the same conveyancing services as solicitors, but can only give legal advice relating to property. If you also need advice on other areas, such as tax or your will, you will need to see an appropriate adviser such as a solicitor and/or accountant. Conveyancers are usually cheaper than solicitors, with their charges ranging from $600 to $1,000 (although their costs will vary depending on the circumstances of your particular property transaction).
For those who like to be ‘hands on’ there are DIY conveyancing kits on the market that are suitable for both buying and selling a home, and for auction and private treaty sales. These kits provide a step-by-step guide to conveyancing, and some offer a telephone support service to assist you. The major advantage of going the DIY path is the money you can save, but there are potential pitfalls into which a solicitor or conveyancer is less likely to fall. The professional’s indemnity and fidelity cover is also a factor that a buyer may wish to consider. DIY conveyancing kits range from about $90 to $150
What is the difference between Joint Tenants or Tenants in Common?
An increasing trend is for people to buy joint property by pooling their resources with friends, family or compatible acquaintances. The main benefit of buying a joint property is it can provide you with the means to enter the property market. However, if you choose this option you need to consider the following:
Choose your co-purchaser carefully.
Are they financially stable and trustworthy? Can you live with this person? (if applicable)
Will you register your property as Joint Tenants or Tenants in Common?
It is important to understand that these options have different legal ramifications for each borrower against the loan. You should discuss these with your solicitor or conveyancer.
What happens if your co-purchaser defaults on his or her home loan payments?
When you buy a property together you become co-borrowers on the same mortgage, which means that each borrower is “jointly and severally liable” for the home loan. This means that if one person defaults on the home loan, the other person/s listed on the mortgage will be held responsible.
Can you still get the First home owner grant if buying a joint property?
When buying a property with someone else, you will still be able to get the First home owner grant if all co-purchasers on the mortgage are eligible to receive it. Read more about the eligibility requirements for the First home owner grant.