First Home Buyers Guide

First Home Buyers Guide: The key things you need to know

Buying your first home can be not only exciting but also overwhelming and stressful. Between saving for a deposit to comparing mortgages, navigating first home buyer grants and picking the right property, there is a lot to think about and it can be hard to know where to start. Our step-by-step first home buyers guide is designed to make the process seem a little bit easier and to help you make the right decisions on the path to owning your own home, or investment property.

Deposit, budgeting and borrowing capacity

The first step toward owning your first home is saving for a deposit. The amount you need to save will depend on how much you are looking to spend on a property, your borrowing capacity, your income and your lifestyle. You may have been told or seen through your own research that the recommended deposit is 20%. Whilst there are positives to having a 20% deposit, such as avoiding Lender’s Mortgage Insurance, for some this might not be achievable or the best path forward.

Having a 10% deposit and paying Lender’s Mortgage Insurance or a one-off risk fee might be a more achievable solution for you, and can allow you to get your foot in the door sooner. If you are eligible for any of the first home buyer government grants you may be able to purchase a property with a 5% deposit. This is where speaking with a mortgage broker can be beneficial as they will be able to look at your individual situation and goals and advise accordingly.

Tips when saving for a deposit

When saving for a deposit as a first home buyer, creating a budget will help you to work out where you can make changes and perhaps reduce, or cut out non-essential expenditures. Consolidating payments and reducing debts is another way to spend less. It’s also a good idea to look at the price of properties and recent sales in the areas you are looking to buy so you can work out a savings target. Some people find setting up a specific bank account for their deposit savings a useful way to avoid touching the funds.

First home buyers guide to fees and charges

It’s important to remember that aside from your deposit there are other fees, charges and upfront costs associated with purchasing your first home. These may include:

• Stamp duty
• Government or state charges
• Legal or conveyancing costs
• Council, water, electricity and gas charges
• Loan application fees
• Building and pest inspection costs
• Strata fees
• Moving costs

A guide to First home buyer grants

If you are planning on moving into your first home as opposed to buying an investment property, you might be eligible for First Home Buyer Grants (also known as FHOG). It’s worthwhile to know what they are and if you meet the eligibility criteria as it could mean the difference between buying your first home or not. There are a number of government grants available which include: –

• First Home Owners Grant (FHOG)
• First Home Buyer Assistance Scheme (FHBAS)
• First Home Guarantee (FHBG)
• Family Home Guarantee (FHG)
• First Home Super Saver Scheme (FHSS)

What is a first home buyers grant?

For those who don’t know, first home buyer grants are schemes run by varying state and territory governments to enable first home buyers to enter the market sooner through financial support. For example, the First Home Owners grant in NSW offers those who are eligible up to $10,000 to put toward the purchase of their first home, provided that the home is brand new and has never been lived in. Keep in mind the schemes and eligibility criteria vary from state to state, so it is helpful to check with your mortgage broker who can provide more information.
Other first home buyer grants and incentives to consider:

First Home Buyer Assistance Scheme, First home concession, First home buyer duty concession

These schemes are named differently between the states however they all relate to a reduction in the stamp duty a first home buyer pays when they purchase a property.

Eligibility requirements include:

• You cannot have owned any property in Australia in the previous ten years
• You need to be an Australian citizen or permanent resident to apply
• You must be 18 years or older
• You will need to prove you are a first home buyer
• You will need to meet the property price threshold requirements

First Home Guarantee

The First Home Guarantee (FHGB) assists first home buyers to build or purchase their first home with a deposit as low as 5%. As part of the scheme, the government covers the remaining 15% of the total 20% deposit.

Eligibility requirements include:

• You cannot have owned any property in Australia in the previous ten years
• You need to be an Australian citizen or permanent resident to apply
• You must be 18 years or older
• You will need to prove you are a first home buyer
• You must have a minimum 5% deposit in savings
• You will need to meet the property price and income threshold requirements

Family Home Guarantee

If you are a single parent or legal guardian of at least one child/dependent then you might be able to access the Family Home Guarantee Scheme which helps you to purchase a home with a deposit of 2%, as the government covers the remaining 18%.

Eligibility requirements include:

• You must not own a home already in Australia
• You are a single parent or legal guardian with one or more children living with you
• You must be 18 years or older and an Australian citizen or permanent resident
• You cannot earn more than $125K per tax year
• You must possess at least 2% in savings
• The property must meet the price threshold requirements

First Home Super Saver Scheme (FHSS)

The First Home Super Saver Scheme allows first home buyers to use money from their super to fund part of the deposit for their first home.

Eligibility requirements include:

• You must be an Australian citizen 18 years of age or older
• You cannot have previously owned property in Australia
• You must not have previously accessed superannuation for this reason
• The property price and your income must meet the requirements of the scheme

First home buyers guide to finding and applying for the right home loan

Once you have your deposit saved, finding the right home loan is an important step to owning your first home. When comparing home loans some things to consider include: –

Fixed vs variable interest rates

Fixed interest rates remain the same for the life of the loan, which can make it easier when it comes to budgeting. Variable interest rate changes are subject to market changes and can go up and down which can be difficult in terms of financial management and overall living costs. A loan can be split between fixed and variable rates

Offset or redraw facilities

An offset account is an everyday transaction account in which the money in it offsets the amount owing on your loan which can be helpful if you are trying to pay off your loan quicker. As an example, if you owe $700,000 on your loan and have $40,000 in your offset account then you will only pay interest on $660,000. Keep in mind that offset accounts come with their own fees.

Redraw facilities allow you to gain access to extra payments above the minimum required repayments. For example, if you repay an extra $15,000 but then need that money for something else, a redraw facility allows you to access this. Certain criteria apply so it is best to check with the individual loan provider.

Consider the loan features

When comparing loans, aside from interest rates it is a good idea to look at other loan features including repayment time frames and flexibility and any upfront or ongoing fees and charges etc

Benefits of using a mortgage broker as a first home buyer

Whilst it is not essential to use a mortgage broker, working with a mortgage broker can offer numerous benefits throughout the home buying process and improve your chances of having your loan approved. Mortgage brokers will be able to help you work out how much you can afford to borrow which is known as your borrowing power.

With access to a broad range of loan options, they will be able to find you the best deal and negotiate loan terms on your behalf.

If you are looking to apply for any First Home Buyer Grants, they will be able to determine which grant would be most suitable and assist you with the application process.

As part of the process, a mortgage broker will handle the application process, liaising with lenders on your behalf. Check out our in-depth article on What do Mortgage Brokers do for more detailed information and benefits.

What if I am self-employed?

If you are self-employed or a sole trader there are self-employed home loan options that you can apply for. With self-employed home loans, most lenders will want to see information regarding your income, your income-to-expense rations and one to two years’ worth of tax returns at a minimum. Depending on whether you are applying for a full doc or low doc loan option and how many years you have been trading will determine what documentation will be required. If you are a business owner, it is worth reading our article on Self-Employed Home Loans.

I’ve heard that there are specific home loans for certain professions. How do I know if I am eligible?

Different lenders offer specific home loans for certain professions, typically those that have a high earning capacity and are considered low risk borrowers. Some of these include:

Legal professionals

Lawyers, barristers, judges and other legal professionals can apply for specific home loans for legal professionals. To find out if you are eligible and the benefits available check out our Home Loans for Legal Professionals article.

Medical professionals

Carer professions including doctors, surgeons, anaesthetists, chiropractors, dentists, gynaecologists, physiotherapists and veterinarians are eligible for home loans for medical professionals. To find out more including a comprehensive list of all eligible professions head over to our article for Home Loans for Medical Professionals.

Accountants

Some lenders offer specific home loans for accountants and other similar professions including finance directors, actuaries and financial controllers. Our article Home Loan for Accountants goes into further detail about this.

First home buyers guide to finding the right property

After you have an idea what your budget is the next step is to start looking for the right property. Considering the type of lifestyle you want, the types of amenities that are important to you and whether you want to be close to transport or major cities can help you narrow down the areas you would like to live in. Once you have an idea of where you would like to buy it is a good idea to visit open homes within those areas whilst also looking online.

Connecting with local real estate agents can also be beneficial as they will be able to guide you in terms of pricing, whilst also having access to off market properties and recent sales history. Looking at previous sales in the area can give you an indication of what properties are selling for and whether they are within your budget or not.

At Townsend Wealth, our brokers provide suburb and property reports as part of the service we provide. We also have an extensive network of real estate agents and in-house property professionals who can provide further advice and guidance.

Making an offer & negotiating

The final part of our first home buyers guide focuses on making an offer and negotiating once you’ve found the property you’d like to purchase. Before considering making an offer it is important to assess the property and carry out pest and building inspections as well as review strata reports if the property is in a strata complex. If the property is going to auction you might want to have someone bid on your behalf, to ensure you don’t get swept up in the momentum and bid more than your budget.

If the property is selling via a private sale be prepared for your offer to be rejected. Selling method aside, key things to remember are to not lose sight of your goals and more importantly your budget. Beforehand, make sure you know the amount you are willing to negotiate to and remember to stay calm throughout the process. Also, be mindful that the first offer you make is likely not to be your last. Know when to walk away and try not to get disheartened if you are outbid or the property sells for more than you are willing to spend.

First home buyers guide FAQS

When do you apply for first home buyer grants?

As a general guide, you will need to apply within a year from the date of settlement. Check with your individual state or territory for the exact requirements as each state has its own criteria.

What are the most common types of first home buyer loans?

Standard Variable Loan

With a standard variable loan, the interest rate is variable and can change when the Reserve Bank decides to increase or decrease interest rates. With this type of loan, your monthly repayments will fluctuate in line with the interest rate changes.

Fixed Rate Loan

Fixed rate loans offer a fixed interest rate that remains the same regardless of interest rate changes. Typically, this type of loan is offered for the initial 1-5 years of the loan period and then will change to a variable rate, depending on the type of loan you have. Depending on the lender some will allow you to lock in a fixed rate during the loan term even if your loan was initially a variable loan.

Split Rate Loan

A split rate loan is when part of the loan is fixed and the other portion is variable.

What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance also known as LMI is a one-off lump sum payment, payable at the start of the loan. It is designed to cover the lender in the event that you default on your home loan repayments. Some loan types such as home loans for medical professionals and home loans for legal professionals as well as First Home Buyer home loans waive Lenders Mortgage Insurance. If you have a 20% deposit or more, you will also avoid having to pay Lenders Mortgage Insurance.

What is a home loan pre-approval?

Pre-approval is when the bank or lender conducts an initial assessment of your finances and offers to lend you a particular amount of money, subject to final approval. Pre-approval can give you an idea of how much the bank or lender is willing to let you borrow which can be helpful when working out how much you have to spend and making an offer on a property.

Need some help and guidance as a first home buyer?

Being a first home buyer can be both exciting and scary at the same time. Whether you are unsure if you are eligible for one of the available First Home Buyer grants or need help applying for a loan our team is here to help you on your property journey. We can look at your individual situation and assess how much you might be able to borrow, liaising with lenders on your behalf to ensure you get the right home loan. If you would like to find out more or to get started contact our team today.