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2019-11-12 Building & Buying
Author: Satterley

What’s involved in the purchase of a new home? We have your finance options covered!

When embarking on your land and home buying journey, one of the first considerations of how to make your dream home a reality is how you will pay for it.

The good news is whether you are a first homebuyer wanting to make your leap onto the property ladder, or you are looking to buy for a second or even third time, there are many different types of finance options available.

We asked Resolve Finance’s managing director Don Crellin and GWB Finance mortgage and finance broker Geoff Burden for their words of advice and tips when it comes to finding the right finance option for your circumstances.

Where should I start?

Engage the expertise of a reputable mortgage broker who will work with you to understand your goals and offer finance options tailored to your individual needs.

“However, understanding what lenders look for when assessing applications can also help borrowers prepare and boost their chances for securing a loan,” Mr Crellin said.

Mr Burden said his number one tip was to talk to an experienced mortgage broker early on.

He said a good mortgage broker will spend a lot of time upfront to get the applicant in a strong position, so when a loan application was submitted it had a high chance of approval.

“A lot of people come to me with preconceived ideas of what their family or friends tell them what they should get,” he said.

“Probably the overriding thing is, what suits your brother or sister or best friend may not be the best lender or loan option for you. So it’s really important that the lender and loan product is tailored to what your requirements are.

“Every mortgage broker would go on an extensive fact finder process, including asking a lot of questions to establish what is going to be the best product option or options to get them the loan that will help them pay it off sooner rather than later.”

Here are some important aspects to consider when exploring finance options:

  • Savings - Your savings history provides a lender with a lot of information.

“They will be looking for a regular pattern of savings and will be trying to determine your ability to repay your loan, which is why as a rule of thumb, they will want to see you making regular deposits into a separate account that has an increasing balance,” Mr Crellin advised.

“It is about demonstrating that over and above your normal expenditure, you have the capacity to put away a little more.”

  • Expenses - Banks will examine all of your expenditure, no matter what it is. Discretionary expenditure includes entertainment, travel, clothing and food.

 Expenses as small as Netflix will be assessed. It is wise to spend the time reviewing your bank statements line by line and question what you need and what you don’t. If you can reduce your level of expenditure, then you should.

  • Debt - When applying for a home loan, lenders will assess any credit cards that you have on the basis that they are fully drawn, and you are paying the minimum monthly payment.

While lenders vary slightly on how they calculate the monthly repayment commitment, on average most will apply a percentage in the range of three per cent. So, on a credit card with a limit of $10,000 the monthly commitment will be $300. It is important you manage and reduce your debt and limit as soon as you can.

Mr Burden said it was important to understand that things like car loans and credit card debt could affect your borrowing limit.

 “Having too many or too high credit card limits can cause a massive reduction in borrowing capacity. So does personal and car loans - all those can reduce your ability to borrow what you want,” he said.

Banks will also pay attention to how people manage credit.

“Pay all your bills on time - don’t be late or miss any credit card payments as there is now a thing called positive credit reporting and financial institutions can see so much more regarding people’s payment conduct and credit history,” Mr Burden warned.

  • Employment - One of the key pieces of any credit assessment is the ability to repay a loan.

“This comes from regular income that’s received and lenders look very closely at employment details, such as the type of employment, the industry, how long you have been there, if you are currently on probation and if you have only been with the current employer for a short time were previously jobs in a similar line of work,” Mr Crellin said.

"Understanding what lenders look for when assessing applications can also help borrowers prepare and boost their chances for securing a loan”

What are my finance choices?

From low deposit home loans, to no or low deposit house and land packages, to the First Home Owner Grant, there are many choices available when it comes to securing finance for your new home.

Mr Crellin advised homebuyers to speak to a mortgage broker to understand what option is best.

“Their broker will investigate products from a panel over 25 lenders and will work with the customers to determine their individual requirements and recommend a loan that best suits their needs,” he said.

“It is also important that the customer looks at all aspects of their home loan and doesn’t only focus on the interest rate.  

“Whilst the interest rate is important, the features and benefits can be just as important in ensuring that it takes into account your individual circumstances.”

Low Deposit Home Loans

Many customers believe that they need a 20 per cent deposit to achieve home ownership however, many lenders will lend up to 95 per cent which will either be inclusive or non-inclusive of lenders mortgage insurance, Mr Crellin explained.

 “When a loan to value ratio is higher than 80 per cent, a lender will charge this insurance,” he said.

“Lenders mortgage insurance shouldn’t necessarily be viewed in a negative light.  Having low deposit home loans available allows homebuyers to enter the property market at a time that is right for them.”

House and Land Packages

When choosing to build a new home, many customers decide to buy a house and land package.

“There are finance benefits associated to this as it means customers only need to apply for one loan that will cover both, as opposed to purchasing land only and then adjusting their finances at a later stage,” Mr Crellin explained.

There are many choices available when it comes to securing finance for your new home.

State by State Finance Options

  • Queensland

First Home Owners’ Grant

https://www.qld.gov.au/housing/buying-owning-home/financial-help-concessions/qld-first-home-grant/apply-first-home-grant

Designed to help home owners get into their first home faster, the Queensland First Home Owners’ Grant is a $15,000 payment towards the purchase or build of a new home.

It is available for the purchase of new townhouses, units, houses, buying off-the-plan or building a home.

It is obtainable to buyers who have not previously owned a property in Australia, which they have lived in.

The home’s value, including the land, has to be less than $750,000.

First home builders also get breaks on the stamp duty. The concession applies for first home purchases under $550,000 and can save the buyer up to $15,925 in stamp duty.

Queensland Housing Finance Loan

https://www.qld.gov.au/housing/buying-owning-home/financial-help-concessions/qld-housing-finance-loan

This loan is offered to people who can’t obtain finance from a bank or building society but are able to afford to build or buy an established home.

People who meet certain eligibility criteria, which includes having a household income under $141,000, no significant debts, having a savings history and being able to afford the repayments, are eligible.

The loan is variable or fixed, requires a two per cent deposit and no mortgage insurance is required.

  • Western Australia

First Home Owners Grant

https://www.wa.gov.au/organisation/department-of-finance/fhog

This one-off payment is for people building or buying a new home.

The $10,000 grant is available to eligible first homebuyers building or buying off-the-plan, or purchasing newly built homes.

It is available for purchases of homes up to the value of $750,000.

Keystart Homes and Finance

https://www.keystart.com.au/

Keystart is an initiative of the WA State Government, which aims to provide an affordable pathway to home ownership.

Mr Crellin said Keystart loans have lower entry costs, low deposit requirements and no lenders mortgage insurance which could save customers thousands of dollars.

“A customer can access these products by speaking to their mortgage broker who will be able to provide additional information about Keystart’s lending criteria,” he said.

Keystart’s Shared Ownership Home Loan requires a deposit of two per cent and allows you to use your First Home Owners Grant towards the deposit.  You are also not required to pay lenders mortgage insurance.

There is also no requirement of savings history.

Mr Burden said no mortgage insurance could save thousands of dollars in borrowing costs but warned there was a higher interest rate on the variable loan.

The Housing Authority co-owns the property, which lessens the total loan amount.

Keystart’s Low Deposit Home Loan requires a deposit as low as two per cent, you can use the loan for an established home or to build, and there is no mortgage insurance.

Like the Shared Ownership Home Loan, you can use your First Home Owners Grant towards the deposit. 

  • Victoria

First Home Owners Grant

https://www.sro.vic.gov.au/first-home-owner

The $10,000 First Home Owner Grant is offered to homebuyers buying or building their first home.

It is available for the purchase of new townhouses, units, houses, apartment valued at $750,000 or less.

The property must also be the first sale as a residential premise and has to be less than five years old.

For new homes built in regional Victoria, eligible applicants will receive a $20,000 grant for contracts signed between July 1, 2017 to June 30, 2020.

HomesVic Shared Equity Initiative

https://www.vic.gov.au/homesvic-shared-equity-initiative

This loan is available to first homebuyers to buy a home and qualify for a home loan who have a deposit of five per cent or more.

People who meet certain eligibility criteria, which includes buying the home as your principal place of residence, having a deposit of at least five percent of genuine savings and earning no more than $77,325 as an individual or $97,945 for multiple households, are eligible.

You must not also have loans or debts adding up to more than $10,000.

People who are eligible can choose a property from a priority area, which are areas in high demand for housing and offer good access to public transport and employment.

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