Want to buy a house? Five tips you should know!
Despite house prices continuing to rise, owning your own home is still one of the most popular dreams in Australia. So to make that dream a reality, here are five very important things you should know about what’s involved when you want to buy your first home!
1. You must have a minimum 5% deposit
Unless you have won lotto, or have a lot of cash, you will probably need to get a loan to help you pay for your new home. Unfortunately, nearly all lenders insist you have genuinely saved at least 5% of the purchase price. So, for a $400,000 house, you will need to save $20,000.
2. You need to pay the government stamp duty
As well as the deposit, you will also need to cover the cost of stamp duty on your property. Each state has its own chart to determine how much you will need to pay. As at today’s date, here is how much you would need in each state to buy an established home for $400,000.
3. You may need to pay Lenders mortgage insurance
Mortgage Insurance is a type of insurance you must pay, if you need to borrow more than 80% of the purchase price. (This is a general rule, but please be aware there are certain times when a lender may charge it when you are borrowing less than 80%, so make sure you ask your lender or mortgage broker.) Although you pay the insurance premium, it actually doesn’t protect you. Its purpose is to protect the lender in the event you don’t pay the mortgage and the lender has to sell the property to get their money back. The cost of the insurance depends on how much deposit you pay. If you pay the minimum amount of 5% deposit, the premium is the highest. Below is an example of how much lenders mortgage insurance (LMI) you would have to pay if you have a 5% deposit and a 15% deposit. The cost doesn’t really vary from state to state but there are different mortgage insurers, so it will depend which lender you use, as to which mortgage insurer they require you to use. Let’s still use the property purchase price to be $400,000 for this example.
5% DEPOSIT LOAN AMOUNT $380,000 LMI COST $11,453
15% DEPOSIT LOAN AMOUNT $340,000 LMI COST $3,740
4. You may be eligible for the first home owners grant
In some cases, you may be eligible to receive a Government grant called the First Home Owners. This is generally for Permanent Australian Residents who are buying their first home to live in. Each state has different rules and amounts you can receive, so you will need to find out for your situation. Currently in Australia, the First Home Owners grant ranges (and varies for established homes to newly constructed) from $3,000 - $15,000. Check with your State Revenue Office to confirm what you may be eligible for, as this can be used towards your costs.YOU MAY
5. Need to apply for a loan – Can you afford it?
If you have enough money for your deposit and stamp duty, your next step is to get a pre-approval from a lender so you can feel confident when you go on your property hunt (unless you have enough cash to pay for everything!) Whether you use a Mortgage Broker or go direct to a lender, it won’t change what you will need to provide. One key calculation they will do, is to work out how much you can afford. They will take into account what you earn, and take away any existing loans/credit cards you may have, as well as your living expenses. As long as you have enough to cover the proposed mortgage repayments (usually calculated on a higher interest rate than what you are getting in case interest rates increase) then you are one step closer to owning your own home. One benefit of using a Mortgage Broker is that they have access to many different lender calculators, so they can determine which lenders would best consider your application. By getting a pre-approval before you start looking at properties is definitely worthwhile and highly recommended. There is nothing more disappointing than falling in love with a property only to find you cannot get a loan.
So, if you dream of owning your own home, we hope these five points have provided you with some very important information about what you need to know. Remember to talk to a lender or Mortgage Broker first, as they will be able to give you even more information based on your particular situation. Good Luck!