[MoreMore Insights] First Home Buyer Guide
- MoreMore Finance
- Feb 17, 2021
- 6 min read
Updated: May 7, 2021
Preparation Stage
It’s always exciting when people decide to buy their first home. While it’s also stressful because of a large number of documents and planning during this process.
1. Knowledge of home loans is important because there are a lot of jargon people will come across when preparing their purchase.
Application fee: A fee charged by the lender for the application of the home loan.
Conditional approval: An approval from a lender indicating the maximum value you’ll be able to borrow.
Pre-approval: A stage during loan application when a lender agrees to lend a specific amount of money to the borrower conditionally, but the loan is not formally approved until all conditions are met.
Offset account: The offset account is a transaction account linked to your home loan, the balance of which is offset against your home loan balance day by day. Then you only need to pay interest on the difference between offset account balance and home loan balance.
Fixed interest rate: A fixed interest rate is fixed for a set period of time. Home loans with fixed interest rates also have fixed repayments during the settled time periods.
Comparison rate: A single percentage rate used to measure the cost of a loan including the interest rate and most fees, which can help people compare between loans from different lenders.
Variable interest rate: An interest rate that can change over the whole loan term, thus, the repayments could be changed.
Stamp duty: A tax levied by Australian territories and states when land is transferred. The amount of stamp duty you may pay varies based on where the property located and whether you are a first home buyer or not and the purchase price. Try our stamp duty calculator to help you work out how much you have to pay.
Lenders’ Mortgage Insurance (LMI): is a one-off, non-refundable insurance that can help you buy a property with a smaller deposit.
Loan to Value Ratio (LVR): The Loan to Value Ratio (LVR) is the percentage of the loan amount against the value of the property you’re buying. Generally, LMI is required when LVR exceeds 80%.
2. How much deposit is needed?
It is ideal to have a 20% or higher percentage of property value saved before purchasing. However, if you have less than 20% deposit against the value of property capturing your fancy, there are still some ways to help you buy it like Lenders’ Mortgage (LMI) or Family Security Guarantee.
3. What is the value I can borrow?
There are many factors that can affect your borrowing power like your income, expenditure, the value of the property, credit history
Income is the main factor because it directly reflects your repaying ability. People with a stable income, strong saving history have a high opportunity to borrow more.
Expenditure is another crucial factor affecting borrowing power. People with regular payments like education, bills, health care spending, insurance are considered as a high borrowing power group.
Saving history is required when applying for a home loan. In general, borrowers need to provide the account statement in the past 6 months. Good saving history will help you get many loans and get an ideal home. Try our calculator to compute your home loan value.
4. How much is the monthly repayment?
Generally, the repayment is no more than 1/3 of your monthly income. Interest rates affect how much you need to pay back every month mainly. Small changes in interest rates can lead to big changes in repayments. Try our calculator to compute your home loan repayment.
Ready to buy
1. Research the property market
Conducting some property market research on the suburb you interested in is necessary, which is an effective way to reduce the risk. There are many factors deciding whether a property is ideal or not, which varies from person to person. Some factors considered by most people include transportation, education, safety, parks, etc. Other than the mentioned above, it is also important to research the upcoming construction plan around the property. Searching on the council website is a good way to know the future development scheduled for the suburb. Furthermore, talk with mortgage brokers is also a good choice for knowing the property market.
2. Research the ideal property
After preliminary deciding the property you want to buy, do research again on the property before making an offer or bidding at auction. Firstly, find the real needs in your mind. It is crucial to confirm the property meets your requirements well. Comparing between many properties is a good way to avoid regret because comparison will make you clearly recognize the advantage and disadvantages of properties. Thus, you can choose the one that truly catches your needs. Make sure which sale method the property is, auction or private sale. Then, you can go further start to buy the property.
3. What insurance do I need for buying a home?
Insurance is essential stuff to protect home buyers and their homes. There are various insurances, you don’t need to take all of them. It’s reasonable some insurances suit you best.
Building insurance and content insurance are two different types of insurance that often sold along with the mortgage. Building insurance covers the damage to property structure result from events including fire and bad weather. Building insurance is designed for freestanding and semi-detached owner-occupied properties. The freeholder of mortgage will be asked to buy building insurance by the lender.
Content insurance covers the loss or damage to the items inside the property. Content insurance is suitable for unit and apartment owners or tenants.
Usually, building insurance and content insurance will bound together for sale. However, they are still two policies. Purchasing a combination of two insurance will offer you a discount depending on different insurers.
Buying your home
Congratulations on you finally decided on the ideal property as your future home!
1. Make an offer on a property
It’s time now to make an offer for your target home! There are two different ways of selling, auction, and private sale. As a bidder in an auction, you’re required to pay a deposit and sign a contract if you win the auction. Thus, it is reasonable to make funds available for a deposit before the auction to ensure your success. For the property with a private sale, you need to negotiate for the price after you submit an offer to the agent or seller. After both parties reached an agreement, you will be asked to sign the contract and pay a deposit. Then, the cooling-off period will start. Note there is no cooling-off period for properties sold at auction. Withdraw of buying is accepted during this period. Therefore, the cooling-off period is a good time to make a final check of the property and contract. Once the cooling-off period is ended, you will be required to pay the remaining deposit for the property purchase.
2. Complete your home loan
After your offer is accepted, you can finalize your home loan application. The lender will get you full loan approval after they receive all documents and confirm they are willing to lend you the money. The lender will check your financial circumstance and credit status and also evaluate your property. Once all documents and checks are done, you will receive a formal loan offer.
3. Prepare for settlement
Settlement refers to a 4 to 12 weeks period when the ownership of a property is changed from seller to buyer, which is really an exciting time, especially for a first home buyer. You need to pay the balance with your home loan at the end of the settlement period. Conducting a final inspection during this period is necessary to make sure everything is as described in the contract. It is also a good idea to contact a settlement agent if needed.
4. Pick your key!
After settlement, everything is ready for moving in. You can pick up your keys and enjoy decorating your new home. It is definitely a stirring time to start a new journey in your life. However, you may need to adjust your expenses and saving for your home loan repayment. Please remember to check your mortgage health frequently to make sure you are paying the lowest interest rate. Properly refinance could help you to save more on interest payment.
MoreMore Finance is always here, ready for serving you with what you need to get what you want. Don’t hesitate to contact us whenever you have any questions about the mortgage.
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