Buying your first home or getting started on the property investment ladder can be a daunting process and introduce you to a whole new world of strange lingo that you may not have come across before. As experienced mortgage brokers, our aim is to ensure the process of obtaining the right finance is as seamless as possible for our clients.
In order to reduce some of the stress and anxiety of buying your first property, our team has put together a list of the most common questions that first home buyers ask when it comes to securing their first property and getting the right mortgage.
1. How much deposit do I need to contribute?
Generally speaking, a deposit of 20% will be required to avoid Lender’s Mortgage Insurance (LMI), however this can vary depending on the property location and your own circumstances. For example, in most instances, a deposit of 10% could be all that is required for Doctors, Engineers and Accountants to avoid LMI. LMI should not be confused with Personal Mortgage Insurance, which is designed to protect you in the event of death or disability. LMI is designed to protect the lender (i.e. the bank or non-bank lender) in the event that you default on your loan repayments, and it is typically 0.5 – 1.0% of the loan value.
While LMI is an additional cost for the property purchase, if a 20% deposit would wipe out all of your current savings, it may be worthwhile simply paying some amount of LMI to ensure that you have some cash in the event that you lose your job or have some other change in your personal financial circumstances.
Another option could be considering whether your parents or another family member could act as guarantor for the deposit on your property. This could mean that you don’t actually require any amount for the deposit at all. It’s important to consider the risks and implications of guarantor arrangements, and you can find out more about this in our previous post here.
2. How much can I borrow to buy my property?
How much you can borrow for your property is also known as your borrowing power or borrowing capacity. This will vary for each individual and will depend on their own individual personal and financial circumstances. It’s very important to consider not just how much you can borrow, but rather how much you can afford to and are comfortably in repaying on a regular basis. The lender may be comfortable lending you far more than you wish to make repayments on.
Given that interest rates are currently at record lows, it’s important to work with your mortgage broker to consider what your loan repayments were if rates were at least 2 per cent higher than they currently are. Rates will not stay at record lows forever, so your mortgage broker should be walking you through the implications of a rise and ensure you’re comfortable with this.
If you find that your borrowing capacity is not at your desirable level, you may wish to consider how you can improve this. One such method is to look at eliminating unnecessary expenses and reducing other loans such as credit cards. By reducing your credit card limits, you could be surprise how much this can increase your borrowing capacity by. Reducing these expenses and other loans can also work in your favour by allowing you to save up your deposit much faster.
Check out our borrowing capacity calculator here.
3. What professionals do I need to have involved in the process?
It’s important here to recognise that it’s unlikely you will already know all there is to know about purchasing a property from the start. Even as experienced investors and mortgage brokers, we are constantly building on our knowledge. The key professionals that you’re likely to need to work with in purchasing your first property are as follows:
- Experienced Mortgage Broker
- Accountant and/or Financial Planner
- Building Inspector
- Solicitor / Conveyancer
When it comes to property contracts and financing, there are common mistakes that can be made that can also be very expensive to fix and reverse. Ensure that you seek and pay for the right advice from the right people rather than simply searching for the cheapest option. Ultimately, you get what you pay for, and you may just find that the cheapest option ends up being the most expensive in the long run.
4. What costs will I need to pay to purchase my first home?
It’s important that you’re aware of all of the costs that will be incurred in purchasing your first home, and that you’re prepared for them. Purchasing costs for property will vary between the various states with different rates of Stamp Duty, Land Tax and other state-based costs so it’s important that you do your homework. The key costs that will be involved in purchasing your first home include:
- Stamp Duty
- Solicitor / Conveyancing Fees
- Mortgage / Loan Fees
- Building Inspection Report Costs
- Insurance Premiums
- Costs of Utility Connections
- Lender’s Mortgage Insurance (if applicable)
- Moving Costs
Your mortgage broker will be able to guide you through these costs based on the location and type of the property, as well as the purchase price and size of your deposit. When it comes to the costs involved in purchasing property, ensure that you receive the right advice and do your homework before taking the plunge.
5. How quickly can I obtain a pre-approval from a lender?
A pre-approval is the lender’s assessment of how likely it is that they will approve your loan based on an assessment of your current circumstances. This will typically remain valid for a period of 90 days depending on the lender and is designed to provide you with some peace of mind when it comes to your borrowing capacity. You can find out more about the pre-approval process in our recent article here.
Depending on the lender, a pre-approval could take just a few business days to be confirmed by the lender. If you’re an Australian expat, this could be longer depending on where you are currently living and working, whether translation is required, and currency of the income that you’re currently receiving. We have a great deal of experience in working with Australian expats across the globe so we can give you a sound idea of the likely time frame here.
We hope you find these questions helpful, and if you have any other questions when it comes to buying your first home, please feel free to reach out to us. We would be happy to assist and ensure that you make informed decisions when it comes to buying your first home.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
Book a obligation-free, complimentary consultation here today.
LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.