A first time home buyer in Australia generally refers to an individual who purchases a residential for the very first time. First home buyers often qualify for special grants, concessions, and other financial assistance schemes sponsored by state and federal governments. Many financial institutions also offer incentives and special loans to first home buyers.
Tips to get the best home loan for first home buyer
Here is a list of our first home buyer tips:
1. Know the features of your home loan
Home loans can have many different features that will save you money and give you flexibility. Below are home loan features that you can ask a first home buyers mortgage broker about:
- Offset account: An offset account is a bank account attached to your mortgage that works like a standard bank account. What makes it different is that any money in there is “offset” against the home loan principal. When you hold money in an offset account for a period of time, you reduce the amount of interest charged on your mortgage. You can also make a deposit or withdrawal from an offset account just like you would with your everyday bank account.
- Extra repayments: If an offset account is not an option for you, you can opt to make extra repayments (when possible) to pay down your loan faster. Choose a home loan that allows you to make fee-free repayments.
- Redraw facility: Extra repayments help you build up money “paid in advance” of your owing repayments. With a redraw facility, you can access the extra repayments you made and draw funds from it. You also reduce the interest owing on your home loan.
- Interest only: Some home loans allow you to pay the interest amount only for a period of up to seven years. This brings down the ongoing monthly repayment amount during this period, but once it ends you will have to pay the principal balance and all interest owing.
- Split rate option: Instead of choosing to fix your interest rate on your entire loan, or have only a variable rate, you can have both! This feature lets you choose a portion of your home loan to fix the interest rate while the rest of the loan will remain at a variable rate. This is a good feature to have if you want the security of a known interest rate but also want to access home loan features like an offset account or redraw facility.
- Altered repayment schedule: Home loans with this feature lets you make your repayments on a fortnightly basis instead of monthly. Making fortnightly repayments allows you to pay off mortgage faster.
- Home loan portability: This feature is good to have if you decide to move down the line as it allows you to transfer the security of the loan, being your first home, to the next home whilst keeping the same mortgage.
- Home loan top up: If you plan to make major expenditures in the future like buying a car or renovating your home, a home loan top up feature will come handy. You can ask your lender to borrow more money once you’ve built up a good amount of equity in your home.
- Line of credit facility: This feature is determined by the amount of your property equity. It works like an overdraft account and a home loan top up, and is usually capped at 80% of the property value.
2. Talk to an experienced professional that you can trust
First home buyers often find themselves inundated with well-meaning advice (much of it irrelevant or unhelpful). But by talking with a mortgage broker, a first home buyer is tapping into a wealth of industry experience and gaining access to home loan deals that aren’t available on the retail market. Dealing with a broker will also save you time, minimise stress and protect your credit score (which will be negatively impacted by multiple rejections). Additionally, when you deal with a first home mortgage broker you’re protected by ‘Best Interests Duty’, legislation that ensures a broker is always working in your best interests.
3. Don’t feel discouraged if you haven’t saved a 20% deposit
A 20% deposit is preferred by many lenders, but that doesn’t mean you’re locked out of the housing market if you haven’t yet saved up that much money. Get in contact with a first home mortgage broker to discuss what other options may be available to you. This could include using with a guarantor, applying for the First Home Loan Deposit Scheme or opting to buy a property sooner with Lender’s Mortgage Insurance (LMI).
4. Take action to improve your credit rating
A lot of first home buyers aren’t sure what their current credit rating looks like – so the first thing to do is find out. You can apply for a free copy of your credit report through a range of credit reporting agencies. The higher your credit score, the better your application will look to lenders. Once you’ve made sure there are no errors on your credit report (which can occasionally happen) there are steps you can take to improve your credit rating. These include paying down personal debt, paying off your credit card in full each month and making sure all of your bills are paid on time.
5. Do your own research
It pays to know the language used in the property scene so you don’t get lost with the jargon being casually thrown around when discussing finance. In a recent survey, 84% of Australian home buyers admit to not knowing enough about home loans — even current homeowners may have questions about the home loan jargon and different lender terminology that gets used. When overwhelmed, ask a first home buyers mortgage broker to show you the ropes.
6. Ask your parents to help you secure your first home loan
If you’ve been diligently saving for years but still feel like you’re a long way off having that 20% deposit for your first home loan, you can look to family to help you qualify. Your parents can get you your first home loan by:
- Acting as your guarantor
- Giving you a financial gift
- Offering you a cash loan
- Letting you live with them rent-free to increase your savings
- Buy your house with you and become co-owners
7. Display job stability
Lenders will be scrutinising your income and will require sound evidence that your income will be stable. While this isn’t a big issue for those employed in essential services (e.g., Coles permanent employees, pharmacists, IT professionals in a government department, etc), self-employed borrowers and those working in less coronavirus-proof industries may find it more difficult to prove their income is stable. Ask your mortgage broker what you need to do to demonstrate to lenders that you have a stable source of income.
8. Make sure you allow for all associated costs
In addition to your initial deposit, there is a range of other fees that you’ll need to budget for when buying your first home. These may include a loan application fee (a one-off fee that is payable when your loan commences), Lender’s Mortgage Insurance (if your deposit is less than 20%), Government fees (such as Stamp Duty), conveyancer charges (for handling the transfer of sale), pre-purchase inspection costs (such as building or pest inspections) and moving expenses. If you want more information on the costs associated with buying your first home, then get in contact with the team at Professional Lending Solutions. We’d be happy to provide you with more detailed information on how much you should be budgeting for associated purchase costs.