Home ownership in Australia is a central pillar of the Australian Dream.
According to FIS, a leading fintech, 25% of Australians have suffered a career setback in the last six months, with those in the Gen Z and Millennial cohort even more likely to have missed out, with 4 in 10 reporting that they lost pay, lost a promotion or lost their jobs entirely during the first half of 2021.
While everyone’s circumstances are different, there has been a shift towards budgeting and saving amongst the younger generation wanting to create a financial safety net to prepare for the future.
Buying your first home is a huge step, especially if you have a young family to think about. Understanding the process can assist in setting a realistic plan to help achieve your goal.
Deposit – How much do I need?
The bank’s preferred lending margin is 20% of what it takes as security, anything beyond that becomes mortgage insured. However, if you have a low deposit there are a number of alternative options.
Pathway to Savings for a deposit:
There are a number of different pathways to take when saving for a deposit. The one best suited will depend on your individual circumstances.
- Lenders Mortgage Insurance (LMI) is a one-off fee that is added to your loan and built into the loan repayments over the agreed term. It’s usually needed when you have less than a 20% deposit. The amount of LMI depends on the amount borrowed and size of the deposit you’re able to offer.
- First Home Super Saver Scheme (FHSSS) was introduced in the federal government budget 2017-18. It allows you to save money for your first home inside your superannuation fund. This could help you save quicker with the concessional tax treatment within super. To find out more, search ‘ATO First Home Super Saver Scheme’ online. Legislation has changed to improve the FHSSS – for the better.
- First Home Owners Grant and Stamp Duty assistance is available to eligible first home buyers that meet the criteria. Most states and territories have their own scheme and offers vary accordingly. To check which grants apply in your area, visit your relevant state or territory for more information firsthome.gov.au.
- First Home Loan Deposit Scheme (FHLDS) is an initiative introduced by the federal government to help first home buyers purchase their home sooner. The scheme enables eligible borrowers with as little as 5% deposit to apply for a loan, with the government guaranteeing the remaining 15%. It’s important to note, places are limited for both new and existing properties, and available with participating lenders only (2 majors and 25 smaller lenders). For more information visit nhfic.gov.au to view the key criteria for a successful application.
- Family Guarantee is one way parents can help towards home ownership. An immediate family member can use the equity in their home as security for your home. Before you go looking for a loan, you may like to have a conversation with a family member who could be able to help you out. Essentially these types of arrangements allow you to borrow up to 100% of the property purchase, plus costs (such as stamp duty and legals).
Once you’ve got an idea of your deposit options, knowing your borrowing potential is a great place to start to work out a budget, taking into consideration your everyday living expenses and other financial commitments. A pre-approval provides you piece of mind of what the bank is prepared to lend you but it will enable you to act quickly when you find ‘the one’.
Once given, pre-approval is valid for 90 days from the approval date. If you don’t find a property within this period, you may be able to extend for another 90 days by confirming your financial position has not changed.
Now you’ve been pre-approved, what next?
There are some key steps you may want to cover off when preparing your property hunt:
- Don’t be afraid to negotiate the price with the seller, you could find yourself a bargain and not have to borrow as much.
- Sign up for property alerts via an agent or popular property listing websites
- Find a conveyancer/solicitor to review the contract and handle the legal transfer
- Conduct Pest and Building inspection as the last thing you want to be surprised by are hidden issues that could cost to rectify later
- Obtain strata report to check for any projected ‘special’ levies for the building.
- If you are buying through a private treaty, you are usually required to pay a holding deposit, which in turn will initiate a cooling off period. A cooling off period gives you time to get your ‘ducks’ in order from unconditional finance approval to solicitor vetting contract for any adjustments before exchanging.
Finalising your finances
Once your offer has been accepted, your loan application would need to be finalised and a bank valuation arranged. We’ll also discuss the final loan structure prior to formal approval and issue of Loan Offer Documents for you to execute.
Preparing for settlement
On the home stretch. Settlement is a legal process of transferring ownership of the property between the seller and buyer and is looked after by your legal representation. At this stage, you’ll be invited to organise a final inspection of the property and the final details of your settlement.
Settlement day is the day you become the owner of your property and the day to pick up the keys once settlement has gone through.
Our experienced team of Home Loan specialists will work with you every step of the way throughout your home buying journey.
While all reasonable care is taken in the preparation of this article, to the extent allowed by legislation Findex Group Ltd accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex Group Ltd assumes no obligation to update this content after it has been issued. The information contained is of a general nature only and you should consider whether the information is suitable for you and your personal circumstances. You should seek professional advice and speak to a qualified adviser before acting on any material.
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