To help you get up to speed with the financial aspects of buying property, we’ve compiled a list of the most commonly-asked questions from first home buyers and the answers, to put you one step ahead.
How much can I borrow?
Unsurprisingly, the most common question that first home buyers ask is how much they can borrow. There is no one size fits all when it comes to how much you can borrow (also called your borrowing capacity), so partnering with a mortgage broker who can crunch the numbers for you can take much of this uncertainty away. Lenders will assess your income and expenses and you’ll need to show that you can afford home loan repayments a few percentage points higher than your loan, in case rates were to increase in the future. But there may also be some ways to increase your borrowing power by reducing your expenses. Some examples of how this can be done include creating and sticking to a budget, and looking for ways to save by shopping around for cheaper insurances, reducing your credit limits, paying off personal loans or other debts, taking packed lunches to work, and using public transport.
How much of a deposit do I need?
Just like borrowing capacity, the required deposit will vary depending on a number of factors including the purchase price and the borrowers’ circumstances. Generally speaking, a 20% deposit plus the costs of purchasing a property may be enough to avoid Lender’s Mortgage Insurance (LMI). However, if you don’t mind paying LMI, 5-10 per cent of the purchase price may be acceptable to some lenders depending on the type of home being purchased. Having a guarantor may also help you avoid needing to have a 20% deposit.
What is Lender’s Mortgage Insurance?
Understanding the lingo of buying and financing a property can help make the process less stressful, and LMI is just one of the many acronyms that you’ll become intimately familiar with during the course of buying your first home. LMI typically applies if you buy a home with less than a 20% deposit. It’s an insurance that protects the lender if you can’t keep up with your payments.
What are the costs involved in buying a home?
Understanding all the costs involved in buying a property upfront is important, and many first home buyers ask this question early on when meeting with a broker. Costs of buying a property may include:
- Stamp dutyo LMI
- Legal / conveyancing fees
- Mortgage or loan application fees
- Pest and building inspection reports or a Strata search (for apartments)
- Utility connections
The costs of purchasing a property vary by state/territory and also by service provider, so it’s good to get a few quotes before agreeing to go with the first conveyancer or insurance provider you find. Your broker can help you work out what costs will apply to you based on where you live, the type of property you’re buying and other factors, like the type of home loan you want and the size of your deposit.
If you have any worries, there just may be a solution that your broker can provide to help you get into your new home sooner.
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- Chapter One : Getting started
- Chapter Two : Your Dream Home
- Chapter Three : Money Matters
- Chapter Four : Ways to Purchase
- Chapter Five : Understanding Interest Rates
- Chapter Six : Understanding Home Loans
- Chapter Seven : Lending Sources
- Chapter Eight : Getting Your loan
- Chapter Nine : Choosing a Home
- Chapter Ten : Steps to Settlement