Getting ready to buy that first home?
The dream of home ownership is one held by many Australians. And we understand that getting into your first home can be a daunting task – and one that requires careful planning. That’s why the team at MyLife MyFinance are here to support you, and that’s why we’ve created this first home owner guide.
Making sense of it all
Not sure where to begin? Sometimes breaking down the information into simple steps can help make it easier. Here are a few points to consider when you’re starting out with buying your new property.
Having an understanding of where you’d like to live – and where you can actually afford to live, are important questions to answer as you embark on your home ownership journey.
The location and style of property (apartment, town house, stand alone home) are key to how much you’ll end up paying for a property. Other factors such as access to shops, public transport, and schools will also impact the value of the property. Researching the area you’re looking to live will give you a feel for how much you’ll pay for a property. Realty websites are a great starting point for giving you an indication on what properties in each suburb are selling for.
Getting the deposit ready
Once you have an idea of how much you’ll need to spend on the property, you’ll be able to work out the deposit you need to save. Typically a deposit needs to be 20% of the value of the property plus the related purchasing costs – such as stamp duty, Government fees and charges, and conveyancing fees. The purchasing costs can quickly add up, but depending on where you live – and the type of property you’re buying, you may be eligible for a first home owner grant or stamp duty concession. Our stamp duty calculator can help you understand what concession you might be eligible for.
Lenders may offer you a loan with a deposit of less than 20% of the value of the property, however lenders mortgage insurance (LMI) will apply. LMI covers the lender in the situation where you can’t make your repayments, with the cost being covered by you. This can be expensive, so it’s worth saving as much of a deposit as possible. Our savings calculator can help you understand how quickly you could save your deposit.
Understand your borrowing power
When thinking about your first home, you’ll need to consider your ability to repay the loan. The loan amount will typically be the value of the purchase price, plus buying costs, less the deposit that you’ve saved. Your borrowing power is determined by factors such as your income, your lifestyle, your spending habits, and your ability to handle future rate rises.
When assessing a loan application, lenders will look at your income – such as how much you’re paid, where you earn your income, and the stability of your employment. Lenders will also look at your estimated living costs – including how much you spend on your lifestyle, what other commitments you already have, and whether you have any dependent children.
As repayments include interest cost, another important factor that lenders look at is your ability to repay your loan should interest rates rise. When assessing the loan, lenders will use a higher interest rate than the one advertised to calculate your ability to repay the loan (at MyLife MyFinance, we use a rate of 7.30% - compared with our advertised CSF member rate of 3.79%). Please note, these rates are subject to change. Our repayment calculator shows how much you’ll repay, based on the loan amount, interest rate, and the frequency of repayments.
The loan approval process
Once you’ve saved the deposit you need to get into the area you’re looking for, and when you’re ready to start looking for a property, we always recommend that our customers seek a pre-approval for their loan. Gaining a pre-approval allows you to go out and search for a property with confidence that you’ll be approved for the loan.
A pre-approval includes submitting an application, along with supporting documents. Typically it will follow the same steps as a full (or unconditional) approval, but without the property being valued by the lender. A loan is said to be unconditionally approved once the lender has independently verified the value of the property.
Pre-approvals typically last for 90 days, after which the lender would require you to submit documentation to confirm that your situation hasn’t changed.
The buying process
Found a home you love? Prior to you purchasing the property, some considerations that are worth noting include having the contract of sale reviewed by your conveyancer and getting the property inspected by a builder to ensure there are no structural issues. Homes are generally purchased either by private sale or by auction and typically you’ll need to provide an upfront 10% deposit, followed by settlement happening at 30, 60, or 90 days later (or by a negotiated timeframe).
Once the contract is signed and the loan approved, your lender will issue the loan contracts and work with your conveyancer to book in settlement. It’s important that you return documentation promptly to ensure settlement is not delayed.
And when the settlement day comes, your lender will draw down your loan and use the remainder of your deposit to fund the purchase.
Looking to embark on your first home ownership dream? Make it easy by speaking to a friendly lending specialist from MyLife MyFinance – we’re here to help.
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