First-Time Home Buyers
The government has introduced a fresh deposit program aimed at assisting first-time home buyers in acquiring a property at an earlier stage.
Typically, if you provide less than a 20% down payment when purchasing a property, lenders require you to pay lender’s mortgage insurance (LMI), which can amount to thousands of dollars.
However, with the FHBG, you can now make a deposit of just 5% without the need for LMI. (This is because the government guarantees 15% of the loan, bringing you up to the required 20% threshold.)
The First Home Loan Deposit Scheme (FHLDS) has been renamed the First Home Guarantee (FHBG), and there are now 35,000 new spots available for eligible first-time home buyers from July 1, 2023, to June 30, 2024. The existing home scheme is now referred to as the Home Guarantee Scheme (HGS).
What Are The Criteria To qualify?
To qualify, you must meet the following criteria:
- You must be an Australian citizen who is at least 18 years old.
- Couples are eligible only if they are married or in a de facto relationship.
- Singles with a taxable income of up to $125,000 or couples with a taxable income of up to $200,000 are eligible.
- You must have saved between 5% and 20% of the property’s value as a deposit.
- Repayments must be on a principal and interest basis for the entire agreement period.
- You must reside in the property.
- You must not have previously owned a property.
- There are additional maximum price thresholds to consider.
WHAT CAN YOU PURCHASE?
The scheme applies to residential properties below a specific price threshold, which varies depending on the region. However, you can purchase almost any type of property, including:
- An existing house, townhouse, or apartment
- A house-and-land package
- Land with a separate contract to build a home
- An off-the-plan apartment or townhouse
- Regional properties
If you intend to buy in a regional area and have resided there for at least a year, you can apply for a related program called the Regional First Home Buyer Guarantee, which has the same conditions.
HOW DO I APPLY FOR THE FHBG & HOW MUCH CAN I BORROW?
Interested buyers can apply for the scheme through participating lenders. At Clear Pacific Capital, we can assess your eligibility and guide you through the application process.
Determining first-time home buyers’ financing requires special attention. If you reside in Australia and are seeking financing as a first-time home buyer, please get in touch using the form below.
This question usually arises first: How much can I borrow?
The answer consists of two parts:
- What is the maximum loan amount?
- What is the maximum loan-to-value ratio (LVR) the bank is willing to lend?
The maximum loan amount is calculated based on:
- Your income
- Living expenses
- Any other liabilities, such as credit cards, personal loans, or car loans
Consequently, the amount you can borrow is your income minus expenses minus liabilities minus the new loan repayments. Although current interest rates are around 4%, the banks assess the calculation assuming interest rates are at least 7.2%. Given that interest rates are expected to rise in the future, it is crucial to ensure that you can afford the loan.
Now, regarding the maximum LVR you can attain:
Most banks for first-time home buyers set the maximum LVR at 95%, which includes Lenders Mortgage Insurance (LMI). LMI is insurance that the bank requires you to pay to protect their interests. This means that when the bank specifies a 5% savings requirement, you actually need 5% plus the cost of LMI. Additionally, you should consider settlement agent fees and other associated costs. Therefore, when all these factors are combined, you generally need an 8% deposit for most lenders. Some lenders may allow up to a 98% LVR, which means you might need a deposit closer to 6%.
TIPS AND TRICKS FOR NAVIGATING THE HOME LOAN MARKET
Beware of introductory or honeymoon rates, especially if you have to pay LMI. Once the honeymoon rate expires, the new interest rate tends to be significantly higher. Since paying LMI again upon refinancing is usually undesirable, borrowers often find themselves stuck with a higher-interest loan.
Ensure that you factor in all costs, including annual fees, monthly fees, and application fees. Some lenders offer special deals for first-time home buyers, such as waiving annual or monthly fees, which can save you over $11,000 over a 30-year loan.
If you are considering a major bank, negotiate for a discount. At Clear Pacific Capital, we always advocate for pricing discounts from large banks. We negotiate on your behalf to secure a better deal.
Also, take customer service into account. While cost is certainly important, we have blacklisted certain lenders for a period of time due to poor customer service.
MOST COMMON QUESTIONS REGARDING FIRST HOME BUYERS FINANCE:
Yes and no. It depends on the duration of your employment or contract. Some lenders accept part-time income with only one month of work, while others require at least six months of employment with the same employer. For contract income, most lenders require a minimum of 6-12 months with the same employer.
Well, there are varying degrees of "bad" credit. It is not uncommon for credit files to contain one or two minor issues, such as defaults on telco or utility bills. As long as these issues are under $1,000 and have been resolved, some lenders are willing to overlook them.
Yes, this is quite common. Your parents can act as guarantors as long as they have paid off most of their own home or investment property. We have a booklet that provides more detailed information on this topic. Feel free to request a copy.
Yes, obtaining pre-approval ensures that a lender has given you the green light. It can also give you leverage when negotiating a purchase.
First home buyer finance can be quite specific to individual lenders. Some lenders offer special incentives, such as discounted interest rates or fee waivers, which can lead to significant savings over the life of the loan. For example, certain lenders are waiving annual fees, which could save you over $11,000 over a 30-year loan period.
LOOKING FOR A MORTGAGE SOLUTION?
At Clear Pacific we will help you with your financial worries with relevant solutions. Why worry? contact us now!
